UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997 Commission File Number 000-18389
WORLD WIDE STONE CORPORATION
(Exact Name of Registrant as specified in its Charter)
NEVADA 33-0297934
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5236 S. 40th Street, Phoenix, AZ 85040
(Address of Principal Executive Offices) (Zip Code)
602-438-1001
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or, for such period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
As of September 30, 1997, there were 35,222,618 shares of common stock
outstanding.
<PAGE>
EXPLANATORY NOTE REGARDING RESTATEMENT OF FINANCIAL STATEMENTS:
In connection with the audit of its financial statements for the year ended
December 31, 1997, World Wide Stone Corporation (the "Company") determined that
the acquisition of certain quarry rights in December of 1995 had not been
properly recorded in its financial statements for the year ended December 31,
1995. In that transaction, the company issued two million shares of Common Stock
valued at $1,200,000 to a director and officer of one of the Company's Mexican
subsidiaries. The Company originally recorded the value of its shares issued in
connection with this transaction as an asset in its financial statements for the
year ended December 31, 1995. Under Statement of Financial Accounting Standards
("SFAS") No. 13, ACCOUNTING FOR LEASES, only payments related to a lease
acquisition with independent third parties are eligible for capitalization.
Accordingly, the amounts should have been expensed in the fourth quarter of 1995
when the transaction occurred. As a result, the Company has restated its
financial statements for the year ended December 31, 1995 to reflect the proper
application of SFAS No. 13. In addition, the Company has adjusted the financial
statements for the year ended December 31, 1995 to reclassify an understatement
to common and "paid in capital" of $15,000. Further, the Company also discovered
that certain accruals for taxes and penalties totaling $70,485 were not
reflected on its 1996 financial statements and has restated them accordingly.
Adjustments have been made to retained earnings, common stock, paid in capital,
other assets and current liabilities as of January 1, 1996 and 1997 to correct
these items.
The Company hereby amends and restates certain items of its 10-Q for the
quarter ended September 30, 1997, to reflect the restatement of its financial
statements for the years ended December 31, 1995 and 1996, as described above.
The information contained in this Form 10-Q/A reflects, where appropriate,
changes required to conform to the restatement of the financial statements.
2
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Index to Form 10-Q/A
For the Quarter Ended September 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996......................... 4
Consolidated Statement of Operations (Income)
Three months ended September 30, 1997 and 1996................... 5
Consolidated Statement of Operations (Income)
Nine months ended September 30, 1997 and 1996.................... 6
Consolidated Statement of Cash Flows
Nine months ended September 30, 1997 and 1996.................... 7
Notes to Financial Statements.................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports............................................. 9
3
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS (UNAUDITED) (RESTATED)
SEPT.30, 1997 DEC. 31, 1996
------------- -------------
CURRENT ASSETS:
Cash $ 107,085 $ 43,756
Accounts receivable 173,385 27,561
Inventories 639,590 590,335
Prepaid expenses and other 2,895 68,575
----------- -----------
Total current assets 922,955 730,227
PROPERTY, PLANT AND EQUIPMENT, net 3,101,347 2,923,493
COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization 196,071 209,751
OTHER ASSETS:
Other receivables 218,735 108,981
Prepaid taxes 8,200 8,136
----------- -----------
Total assets $ 4,447,308 $ 3,980,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 75,820 $ 113,496
Accrued liabilities 88,201 80,871
Current portion of long-term debt 81,166 133,381
Other 869,662 805,166
----------- -----------
Total current liabilities 1,114,849 1,132,914
LONG-TERM DEBT, net of current portion 48,427 35,953
----------- -----------
Total liabilities 1,163,276 1,168,867
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 35,426 35,426
Additional paid-in capital 7,903,814 7,903,814
Accumulated deficit (5,127,519) (5,321,147)
Current period earnings 472,311 193,628
----------- -----------
Total stockholders' equity 3,284,032 2,811,721
----------- -----------
Total liabilities and stockholders' equity $ 4,447,308 $ 3,980,588
=========== ===========
4
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Sept. 30, Sept. 30,
1997 1996
---- ----
REVENUE $ 746,172 $ 600,993
COST OF GOODS SOLD 415,108 323,016
--------- ---------
Gross profit 331,064 277,977
COST AND EXPENSES:
Selling, general and administrative 177,247 158,997
Depreciation and amortization 5,346 2,825
--------- ---------
Income from operations 148,471 116,155
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 0 8
Interest expense (2,421) 0
--------- ---------
(2,421) 8
--------- ---------
INCOME BEFORE INCOME TAXES 146,050 116,163
BENEFIT (PROVISION) FOR INCOME TAXES 0 0
--------- ---------
Net income $ 146,050 $ 116,163
========= =========
5
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Sept. 30, Sept. 30,
1997 1996
---- ----
REVENUE $ 2,266,113 $ 1,500,360
COST OF GOODS SOLD 1,171,936 834,163
----------- -----------
Gross profit 1,094,177 666,197
COST AND EXPENSES:
Selling, general and administrative 550,480 428,033
Depreciation and amortization 16,039 8,474
----------- -----------
Income from operations 527,658 229,690
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 0 127
Interest expense (55,347) 0
----------- -----------
(55,347) 127
----------- -----------
INCOME BEFORE INCOME TAXES 472,311 229,817
BENEFIT (PROVISION) FOR INCOME TAXES 0 0
----------- -----------
Net income $ 472,311 $ 229,817
=========== ===========
6
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Sept. 30, Sept. 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 472,311 $ 229,817
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 167,838 154,000
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable (145,824) (184,050)
(Increase) in inventories (49,255) (119,071)
(Increase) decrease in prepaid expenses and other 65,680 (9,059)
(Increase) in other receivable (109,818) (98,852)
Increase (decrease) in accounts payable (34,765) 183,668
Increase in accrued liabilities 4,419 7,855
--------- ---------
Net cash provided by operating activities 370,586 164,308
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment, net (332,012) (248,826)
--------- ---------
Net cash used in investing activities (332,012) (248,826)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 76,970 171,163
Payment on short-term notes payable (52,215) 4,939
Issuance of common stock -- 51,805
--------- ---------
Net cash provided by financing activities 24,755 227,907
--------- ---------
NET INCREASE IN CASH 63,329 143,389
CASH, beginning of year 43,756 23,569
--------- ---------
CASH, end of year $ 107,085 $ 166,958
========= =========
7
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) GENERAL
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary to fairly present such information. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations.
2) INVENTORY
Inventory for the company is stated at cost. All of the costs
associated with the production of tile in the Mexican plant have been factored
into the value of the cost of the goods sold and the ending inventory. Cost of
goods sold also included freight from Mexico to the United States. Inventory as
of September 30, 1997 was located at the plant in Durango, Mexico and at the
showroom-warehouses in Tempe, Arizona, Anaheim, California and El Paso, Texas.
Inventories at September 30, 1997 consist of finished goods, work in progress
and raw materials amounting to $580,088, $16,668 and $42,834, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Sales for the second quarter ending September 30, 1997 have increased
24% over the same period in 1996. Pre-tax earnings for the same period increased
by 25%. Net income for the nine months ending September 30, 1997 increased 105%
over the same period in 1996.
Third quarter and fourth quarter 1997 production operations have been strained
due to installation and construction activities in the middle of the production
area of the new Sociedad Piedra Sierra plant, that slowed production and thus
impacted potential sales. On October 31, an Italian technician finished the
installation of the new block cutter. With this construction complete, the
Company will focus on operations (quarrying, production, marketing and sales)
which should produce the projected increases in sales and profitability.
Additionally, in the fourth quarter, the Company will move its Tempe, Arizona
headquarters to new, much larger facilities. Tenant improvements on these
facilities are being constructed by existing Company personnel at the Company's
expense. It is believed that this move will help facilitate the growth of the
Company, but may impact operations in the fourth quarter to some extent.
Market response on all the Company's products has continued to improve. The need
for additional production volume is always present and additional expansion is
imminent. A funding commitment is expected in the fourth quarter. The natural
dimensional stone business is measured in the billions of dollars annually and
the Company will continue to expand its market share.
8
<PAGE>
RESULTS OF OPERATIONS
The activities of the Company during the third quarter were focused on
improving both quality and quantity of production at the Mexican facilities,
improving training and work environment for all employees, penetration of the
local Arizona market, quarry development and improvement, and coordination of
all the contractors necessary to bring the new plant to installed capacity.
Production volume continued to rise in the third quarter due to
emphasis on improvement in training of management and employees, better
utilization of space and equipment, continuous improvement in the manufacturing
process, as well as quarry development and exploration. The showroom and
warehouse operation in Tempe, Arizona, has contributed toward greater
penetration of the Arizona market, which allowed an increase in the margin of
profit.
Management continued its commitment in the third quarter to developing
effective ways of fostering continuous improvement of quality. The training
program based on Control Systems Theory was continued. This approach was
developed by Dr. William Glasser and is consistent with the work of W. Edwards
Deming. As adopted by World Wide Stone, Control Theory Management involves
active interest by management in the needs of the workers, a participatory
environment, empowerment for decision-making, and emphasis on personal
responsibility. This approach is thought to be appropriate in multi-cultural
settings and was instituted both in the U.S. and Mexico by Lee M. Cunningham.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow is sufficient to maintain operations. Expansion
of operations may be financed by debt or equity investment and in part by
retained earnings. The assets of the Company are not liquid and consist of these
items listed herein. During the second quarter of 1996, the Company successfully
refinanced its Mexican bank debt, lowering the interest rate paid to an
effective rate of about 12%. The exact amount is difficult to pinpoint because
of ancillary bank charges and fees. With the exception of interest carrying
charges, all of Phase I was paid for with earnings.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS:
(a) Exhibit 27.1: Amended and Restated Financial Data Schedule
(b) Reports on Form 8-K: Not Applicable
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
Date: November 2, 1998 World Wide Stone Corporation
(Registrant)
BY: /s/ Franklin Cunningham
------------------------------
Franklin Cunningham, President
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIDE STONE CORPORATION (THE
"COMPANY") FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, AS RESTATED. THIS
SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH RESTATED FINANCIAL
STATEMENTS. IN ADDITION, CERTAIN ENTRIES ON THIS SCHEDULE HAVE BEEN AMENDED FROM
THE PREVIOUS FINANCIAL DATA SCHEDULE FILED FOR THIS PERIOD. THIS EXHIBIT SHALL
NOT BE DEEMED FILED FOR THE PURPOSE OF SECTION 11 OF THE SECURITIES ACT OF 1933
AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934, OR OTHERWISE SUBJECT TO
THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY OTHER
FILING WHICH INCORPORATES THIS REPORT BY REFERENCE, UNLESS SUCH OTHER FILING
EXPRESSLY INCORPORATES THIS EXHIBIT BY REFERENCE.
[/LEGEND]
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 107,085
<SECURITIES> 0
<RECEIVABLES> 173,385
<ALLOWANCES> 0
<INVENTORY> 639,590
<CURRENT-ASSETS> 922,955
<PP&E> 4,207,342
<DEPRECIATION> 909,924
<TOTAL-ASSETS> 4,447,308
<CURRENT-LIABILITIES> 1,114,849
<BONDS> 48,427
0
0
<COMMON> 426
<OTHER-SE> 3,248,606
<TOTAL-LIABILITY-AND-EQUITY> 4,447,308
<SALES> 2,266,113
<TOTAL-REVENUES> 2,266,113
<CGS> 1,171,936
<TOTAL-COSTS> 1,171,936
<OTHER-EXPENSES> 566,519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,347
<INCOME-PRETAX> 472,311
<INCOME-TAX> 0
<INCOME-CONTINUING> 472,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 472,311
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
