UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/ A
AMENDMENT NO. 2 TO FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File No. 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 Identification No.)
Incorporation or Organization)
5236 S. 40th St. Phoenix, Arizona 85040
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 438-1001
Securities registered pursuant to Section 12(g) of the Act:
$.001 Par Value Common;
$.001 Par Value Preferred.
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 shorter 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 [ ]
The aggregate market value of Common Stock (voting stock) of Registrant
held by non-affiliates at December 31, 1996, based upon the low equity sale
price of 6(cent) per share, was approximately $2,113,552 within 60 days of
December 31, 1996.
The number of shares outstanding of the Registrant's Common Stock as of
December 31, 1996, was 35,425,868.
Documents incorporated by reference: NONE.
<PAGE>
PART I
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 the 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 stock and "paid in capital" of $15,000. The Company also discovered
that certain accruals for taxes and penalties totaling $70,485 were not
reflected on its 1996 financial statements and have restated them accordingly.
The Company hereby amends and restates certain Items of its 10-K for
the year ended December 31, 1996, to reflect the restatement of its financial
statements for the years ended December 31, 1995 and 1996, respectively, as
described above. The information contained in this Form 10-K/A reflects, where
appropriate, changes required to conform to the restatement of these financial
statements.
ITEM 1. BUSINESS.
The Registrant was incorporated under the laws of the State of Delaware
on June 12, 1988, under the name Tacitus Ventures, Inc. as a blind pool - blank
check company for the purpose of acquiring or merging with one or a limited
number of private companies, sole proprietorships or partnerships. On November
15, 1989, the Registrant filed its Certificate of Amendment of Certificate of
Incorporation with the Delaware Secretary of State. Said Amendment allowed for a
name change of Registrant to World Wide Stone Corporation, a Delaware
corporation, and allowed for an increase in the authorized shares as approved by
the shareholders. On November 15, 1989, the Registrant filed a Certificate and
Agreement of Merger with the Delaware Secretary of State; wherein, the
Registrant agreed to a merger with World Wide Stone Corporation, a private
Nevada corporation, with the Registrant to be the surviving entity and the
private World Wide Stone Corporation, a Nevada corporation, being dissolved. The
closing of the Certificate and Agreement of Merger occurred on November 30,
1989; whereby, the Registrant exchanged 15,000,000 common shares and 5,000,000
convertible preferred shares of the Registrant's unissued authorized treasury
stock for 15,000,000 common share and 5,000,000 convertible preferred shares of
World Wide Stone Corporation, a Nevada corporation, outstanding stock, on a
share-for-share basis. On November 30, 1989, the Registrant filed its Articles
of Incorporation as a domestic corporation with the Nevada Secretary of State,
and filed its Certificate of Dissolution with the Delaware Secretary of State.
Registrant is now domiciled in the State of Nevada, with its corporate offices
located in the City of Tempe, State of Arizona, where it is registered as a
Foreign Corporation.
On March 18, 1991, the Company acquired an operating dimensional stone
factory located in the City of Durango, State of Durango, Country of Mexico.
This acquisitions assets and operations are in two wholly-owned subsidiaries of
the Registrant: (1) a Mexican corporation, called Sociedad Piedra Sierra, S.A.
de C.V., and (2) a Nevada corporation, called Cantera Stone, Inc. A third
wholly-owned Mexican corporation called Marmoles Muguiro, S.A. de C.V., operates
the plant. All employees are employed by this corporation, which owns no assets.
The plant and quarry were fully operational in 1995. Production volumes have
increased each quarter during 1995 and the Company earned a profit from
operations. 1996 was a year of marked, substantial growth. Revenue increased a
remarkable 79%, while after tax earnings increased exponentially to $193,628.
Sales growth, net profits and a new plant, which doubled the production
capacity, are the building blocks for greater achievement in 1997. Experience
with the quarry, plant, and
2
<PAGE>
employees has allowed significant improvement in every aspect of the company. Of
particular interest is the management system based on Control Systems Theory
that was introduced in early 1995 and has continued to date. (See Management
Discussion and Analysis, page 4.)
Mr. Mario Ruiz ("Ruiz"), one of the original incorporators of World
Wide Stone Corporation, the private Nevada company which merged with World Wide
Stone Corporation (formerly Tacitus Ventures, Inc.) failed to contribute any of
the agreed assets required in consideration for shares in the company. These
assets were the sole basis for this stock to be issued to Ruiz. Said stock
represents a total of 4,310,000 common shares and 1,666,667 convertible
preferred shares. After repeated attempts by Registrant to compel Ruiz to
contribute said assets in payment to Registrant as agreed, and upon repeated
refusal of Ruiz to comply, said stock was canceled on the records of the
transfer agent of the Registrant on September 29, 1990, and returned to
authorized but not issued common stock of the Registrant. However, Ruiz has
failed to return to the company the certificates for said stock. See legal
proceedings, Item 3.
The Company's activities do not pollute nor threaten to pollute air or
water in any significant manner. Accordingly, federal, state and local laws and
regulations governing the discharge of materials into the environment have
little direct impact upon either the Company or its subsidiaries.
ITEM 2. PROPERTIES. The Company occupies 3,000 square feet of showroom and
warehouse space for its corporate offices at 2150 W. University Drive, Tempe,
Arizona 85281. Tenant improvement began in October 1994 and the company occupied
the space in December. In February of 1997 a new showroom and warehouse of 1,000
square feet was opened in Anaheim, California.
On March 18, 1991, the Company acquired four acres of land in Durango,
Durango, Mexico; the land consists of about four acres of prime real estate in
the city of Durango including a 20,000 square foot factory and warehouse,
housing the Company's dimensional stone factory. The Company also had leasehold
rights on four cantera stone quarries in the area of the factory, which have
been dropped. The Company's lease on the primary quarry operation where
marble-limestone and travertine are extracted was discovered by management
through extensive prospecting efforts and a land lease was negotiated with the
land owner with only a small earnest deposit, under very favorable terms and
conditions for the company. In December of 1995, the Company acquired the rights
to a quarry of green quartzite by issuing 2,000,000 shares of common stock
valued at $1,200,000 to a director and officer of one of the Company's
subsidiaries. The Company has restated its financial statements for the year
ended December 31, 1995 to expense the $1,200,000 value of the shares issued in
connection with the acquisition of the quarry rights. See Note 7 to the
Consolidated Financial Statements. In addition, during 1998 the company
determined that the costs that would be required to develop this quarry site and
to process the stone extracted from this quarry site would be much higher than
originally anticipated . Accordingly, the Company has determined that it will
not be economically feasible for the Company to attempt to develop this quarry
site. As a result, the Company and the officer of its subsidiary agreed to
rescind the transaction. In connection with this rescission, the Company will
return the quarry rights to the individual and the individual will return the
two million shares of Common Stock to the Company for cancellation. See Item 13,
"Certain Relationships and Related Transactions."
The foregoing properties are free of liens and encumbrances at this
time; except as reported above, the factory property has non-property related
debts, and a line of credit in the amount of $882,120 which is secured by the
land, building and equipment of the factory.
3
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data (AUDITED) has been
derived from the registrant's financial statements, which have been examined by
Mark Shelley, Independent Certified Public Accountant, for all periods included
herein and should be read in conjunction with the financial statement and note
thereto appearing elsewhere herein.
(See Page 6)
<TABLE>
<CAPTION>
For the Years Ended
December 31 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues: $ 1,928,733 $ 1,077,479 $ 642,877 $ 155,022 $ 49,861
Costs and Expenses: $ 1,729,399 $ 2,357,780 $ 891,515 $ 445,377 $ 75,801
Net Profit or Loss $ 193,628 $(1,233,235) $ (264,400) $ (314,986) $ (225,940)
Total shares outstanding: 35,425,868 34,385,868 30,325,868 34,382,886 33,382,886
BALANCE SHEET DATA:
Total Assets: $ 3,980,588 $ 3,550,440 $ 3,598,003 $ 3,439,715 $ 3,326,935
Total Liabilities: $ 1,168,867 $ 984,152 $ 1,030,980 $ 609,417 $ 324,151
Total Stockholder's Equity: $ 2,811,721 $ 2,566,288 $ 2,567,023 $ 2,830,298 $ 3,002,784
</TABLE>
A profit of $399,171 was earned from operations if you add back depreciation of
(1996 $205,543).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In 1993, a commitment for debt financing was obtained from Banca Serfin
S.A. The first funding was received in July 1993. These funds were used to begin
rebuilding the machinery to produce limestone, travertine and marble, as well as
prospecting for new quarry deposits. The Company was very fortunate to
successfully acquire a lease in 1993 on the current source of marble block as a
direct result of those efforts. Additionally, new equipment was ordered from
Italy to increase production to profitable levels. Said machinery was received
in August of 1994 and installed and on line in September 1994. With this new
equipment the production volume approximately tripled without an appreciable
increase in costs, with the notable exception of interest carry on the debt. As
a result, the cost to produce a square foot of tile or slab is significantly
reduced which will allow the Company to earn profits. Although 1994 finished
with losses of about $264,000 this is substantially improved over prior years.
1995 was a year of growth and stabilization. The showroom and warehouse
operation in Tempe, Arizona has made a respectable market penetration in
Arizona, which has allowed the Company to increase its margin of profit. 1996
was a year of marked, substantial growth. Revenue increased a remarkable 79%,
while after tax earnings increased EXPONENTIALLY to $193,628. Sales growth, net
profits and new plant, which doubled the production capacity, are the building
blocks for greater achievement in 1997. The Company's new plant, producing the
"Truly Tumbled" Durango Stone products, shipped its first truck in November
1996. This plant has an installed capacity equal to the original plant. This has
doubled the Company's production potential. The costly task of marketing this
new production is in full implementation and, as of the date of this document,
is selling very well. During the second quarter of 1997 the Registrant expects
to be operating this new plant at capacity. This production will be extremely
profitable due to economies of scale and further utilization of existing
machinery. 1997 is expected to post record sales, and net profits followed by
additional equipment purchases. The Company's new warehouse in Anaheim,
California is expected to further increase the Company's market share and
profitability as well.
Approximately 10,000 square feet of new buildings were constructed to
house the new plant. Water treatment facilities were doubled, new administration
offices were constructed as well as a new employee dining room and bathrooms.
Additionally, the quarry production was doubled. All work was completed out of
cash flow. No new bank loans were taken. New and used machinery was reworked and
installed by existing employees, and the entire project was completed with a
remarkably small investment. This was also due in part by further utilizing the
capacity of some of the machinery in the original plant. 1997 will be a year of
continued growth in production capacity, sales and
4
<PAGE>
profitability. All of the approximately 100 employees of the Registrant are to
be congratulated and thanked for this remarkable growth without significant
capital increases.
In order to foster continuous quality improvement both at the factory
and the U.S. offices, a program based on Control Systems Theory was begun.
Control Theory is a biological theory of human behavior taught primarily by Dr.
William Glasser, author of the book THE CONTROL THEORY MANAGER. Dr. Glasser's
work is strongly influenced by W. Edwards Deeming. It is believed that Control
Theory forms the basis for an appropriate multi-cultural approach to a
multinational company. This theory maintains that all people are internally
motivated and will not produce quality unless their needs for belonging,
accomplishment, freedom, and fun are met. What people choose in order to meet
these needs will vary from person to person and culture to culture. Control
Theory management as adopted by the Company involves active interest by
management in the needs of the workers; a non-threatening, participatory
environment; more effective training; more empowerment for decision-making; and
more emphasis on personal responsibility. Cooperation rather than coercion is
stressed. Final inspections were de-emphasized in favor of training workers to
inspect their own work. A quality environment in the factory was emphasized,
since it is considered essential for quality production.
The application of Control Theory has proven to be beneficial in
increasing the satisfaction and cooperation of employees and the quality of the
finished product. A commitment has been made to continuing education and
application of these principles in the company.
COMPARISON OF YEARS 1994, 1995, 1996:
Revenues for the Company for the years ended December 31, 1994, 1995,
and 1996 were $642,877, $1,077,479, and $1,928,733 respectively. During 1993
bank financing was realized and the operation and Company direction that exists
today was born. Machinery was refurbished and additional machinery was ordered
from Italy. Quarry acquisition and development took place (see 1994 10-K) and
production at low levels began.
In 1994 the existing machinery had been refurbished and new machinery
began to arrive. In September 1994 the most significant equipment purchases were
installed and on-line. Quarry development continued throughout the year.
1995 was a year of marked progress in three major areas of operation.
First, quarry development, a large cost of operations item, continued. In the
fourth quarter the Company successfully changed its quarry method from drilling
and light explosives to diamond wire extraction. This involves a significant
decrease in quarry waste and an increase in production volume and quality. With
the installation of new equipment, additional production volume has been
realized, and with increasing experience, the production volume is growing
monthly. Third is market penetration and satisfaction. The Company is gaining
customer base monthly and is earning a reputation as a reliable source of
quality products.
1996 was a year of significant progress. When 1996 began, management
was determined to build expanded production facilities. External financing of
this expansion was unavailable at this stage of development; so management opted
to use cash flow and old fashioned sweat equity to accomplish this task. This
new production capacity will significantly impact the Company's results of
operations in 1997 and the years that follow.
Total assets for the Corporation for the years ended December 31, 1994,
1995, and 1996 were $3,598,003, $3,550,440, and $3,980,588 respectively. Changes
in total assets in 1994 and 1995 were primarily due to the purchase of
equipment. As per Note 7 to the Consolidated Financial Statements, the Company
has restated its financial statements for the years ended December 31, 1995 and
1996 to expense $1,200,000 value of shares issued in connection with the
acquisition of quarry rights originally capitalized. 1996 change in total assets
was due to new equipment and buildings associated with the new plant, all booked
at cost, and capitalized.
5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
The Corporation's assets are not liquid and consist of those items
listed herein. In 1995, the Company successfully refinanced a portion of its
Mexican bank debt, lowering the interest paid. In 1996, the Company successfully
refinanced its Mexican bank debt again, to very acceptable levels (see note 3 in
the Financials).
Mexico experienced a 50% currency devaluation in December of 1994 which
has impacted the company. Banca Serfin S.A. has advised that the Company is
receiving and will continue to receive the lowest interest rates available given
the current economic conditions in Mexico. Expansion plans will be funded by
earnings and equity capital. These plans include expansion of the existing
factory as well as building a new high production factory and new and continuing
quarry development.
FINANCIAL RESOURCES:
Future funds for operations and expansion are expected to be obtained
through debt and equity financing as well as earnings from operations.
Operations can support the Company's capital needs and equity financing is
considered practical, by management, for the expansion plans.
INDUSTRY SEGMENTS:
Virtually all of future operating revenues are expected to be derived
from mining, importing, cutting, finishing, selling, brokering, exporting and
importing products made of stone (e.g., marble, limestone and travertine)
COMPETITION:
All phases of the Corporation's activities listed in its Industry
Segment are highly competitive and, therefore, investment in the Corporation
involves risks arising out of this competition. The Corporation competes with
numerous direct competitors for the best sales contracts and distributor
relationships. The most significant competition is from the numerous producers
in Italy. The Company does have some competitive advantage due to the
geographical location being much closer to the U.S.A. market, thus reducing
shipping time and costs.
EFFECT OF COMPLIANCE WITH GOVERNMENTAL POLICIES:
The earnings of the Corporation may be effected by governmental
regulation and legislation which, among other things, may effect importation
requirements, tariffs, interstate commerce, and the general building,
development and remodeling climate. The policies of the various governmental
authorities influence to a significant extent the overall growth and no growth
climates for importation, exportation, building and development.
INFLATION OR DEFLATION:
The management does not believe that inflation or deflation will have a
demonstrable effect on the operation of the Corporation; however, it is possible
that inflation will have a negative effect on the Corporation, especially if
expenses such as employee compensation, shipping and communications increase.
Increases in these areas may not be readily recoverable in the prices and
services offered by the Corporation. To the extent that inflation results in
higher interest rates and has other adverse effects on the value of securities,
it may adversely effect the Corporation's financial position and results of
operations. It is also possible that deflation will have a negative effect, as
well, particularly with respect to the prices and demand for the Corporation's
products and the values of its assets. Mexico experienced 50% inflation in
December 1994 due to the peso devaluation which actually benefitted the company
for a few months by reducing the effective cost of doing business. The Company
sells in dollars and pays its production costs primarily in Pesos. However, the
debt is primarily in U.S. dollars and all of the marketing, sales and equipment
costs are in dollars. Looking at the entire situation it is expected that long
term this Mexican inflation issue will have no effect to a slightly positive
influence.
6
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial information required by this Item and included in the Report
is set forth beginning on page F-1. This financial information reflects the
restatement of the Company's financial statements for the years ended December
31, 1995 and 1996 on this Form 10-K/A. See Item 1A, Item 13 and Note 7 to the
Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a,1) Financial Statements: The financial statements of World Wide
Stone Corporation, included in the Annual Report to shareholders for the year
1996, and filed in accordance with the provisions of this Item, are found in the
response to Item 8 and are included as a part of this Annual Report. They have
been restated to reflect the changes and corrections discussed in Item 1A, Item
2 and Note 7 to the Consolidated Financial Statements. They are:
Page Number
1. Report of Certified Public Accountant. F-1
2. Balance Sheet, December 31, 1996 and 1995 F-2
3. Statement of Stockholders Equity, December 31, F-3
1993, 1994, 1995, and 1996
4. Statement of Operations, December 31, F-4
1994, 1995, and 1996
5. Statement of Cash Flows, December 31, F-5
1994, 1995 and 1996
6. Notes to Financial Statements F-6 to F-10
(a,2) Financial Statement Schedules: The financial statement
schedules required to be filed, if any, are included in the financial
statements found in the response to Item 8.
(a,3) Exhibits.
EXHIBIT
NUMBER EXHIBIT
------ -------
27.1 Amended and Restated Financial Data Schedule
(b) Reports on Form 8-K: The current reports on Form 8-K which were
filed during the last quarter of the period covered by this Report by the
Registrant with the Securities and Exchange Commission are: NONE.
7
<PAGE>
SIGNATURES:
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: November 2, 1998 WORLD WIDE STONE CORPORATION
By:/s/ Frank Cunningham
--------------------
Frank Cunningham
Director, President, Chairman of the Board
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
By: /s/ Frank Cunningham Director, Chairman November 2, 1998
----------------------- of the Board, and
Frank Cunningham President
(Principal Executive
Officer)
By: /s/ Lee M. Cunningham Director and November 2, 1998
----------------------- Vice President
Lee M. Cunningham
By: /s/ Spencer W. Cunningham Director and November 2, 1998
-------------------------- Executive Vice
Spencer W. Cunningham President, Chief
Financial Officer and
Treasurer (Principal
Financial Officer)
By: /s/ L. Ernest Whitesel Director November 2, 1998
-----------------------
L. Ernest Whitesel
By:/s/ Michael D Nafziger Director and November 2, 1998
---------------------- Director of National
Michael D Nafziger Sales
By:/s/ Timothy H. Ligget Chief Accounting November 2, 1998
--------------------- Officer and Director
Timothy H. Ligget (Principal Accounting
Officer)
8
<PAGE>
MARK SHELLEY, CPA
110 S. Mesa Dr. #1
Mesa, Arizona 85210
(602) 833-4054
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
World Wide Stone Corporation
I have audited the accompanying consolidated balance sheet of World
Wide Stone Corporation as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three years ended December 31, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I have conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statements
presentation. I believe that my audit provides a reasonable basis for my
opinion.
As discussed in Note 7 to the consolidated financial statements, the
company has changed its method of accounting for the internal costs associated
with acquiring a lease right and has corrected an error for an understatement of
common stock and paid in capital and has restated its 1995 financial statements
accordingly. The company also discovered that certain accruals for taxes and
penalties were not reflected on its 1996 financial statements and have restated
them accordingly.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of World
Wide Stone Corporation as of December 31, 1996 and 1995 and the consolidated
results of their operations and their cash flows for the three years ended
December 31, 1996 in conformity with generally accepted accounting principals.
Mark Shelley CPA
by: /s/ Mark Shelley
-----------------
March 25, 1997 (except with respect
to Note 7, which is dated
August 19, 1998)
F-1
<PAGE>
WORLD WIDE STONE CORPORATION
Consolidated Balance Sheet
as of December 31, 1996 and 1995
ASSETS
1996 1995
----------- -----------
Cash $ 43,756 $ 23,570
Accounts Receivable 27,561 109,116
Inventory 590,335 296,495
Prepaid Expenses 8,136 0
----------- -----------
Total Current Assets 669,788 429,181
Property, Plant and Equipment (net
of depreciation)(Note 13) 2,923,493 2,838,839
Trade Name and Company Files (net
of amortization) 209,751 227,990
Prepaid Taxes Mexico 108,981 52,435
Deposits 68,575 1,995
----------- -----------
Total Assets 3,980,588 3,550,440
=========== ===========
LIABILITIES
Accounts Payable 113,496 38,485
Taxes, Pensions and Fees Payable(Note 13) 80,871 22,627
Short Term Notes Payable 43,449 52,516
Current Portion of Long Term Debt 89,932 30,182
----------- -----------
Total Current Liabilities 327,748 143,810
----------- -----------
Bank Debt Mexico 805,166 811,830
Equipment Loans US 35,953 28,512
----------- -----------
Total Liabilities 1,168,867 984,152
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock
100,000,000 shares authorized, 35,425,868
and 34,385,868 shares outstanding,
respectively, par value $.001 35,426 34,386
Paid in Capital 7,903,814 7,853,049
Retained Earnings (Loss) (5,127,519) (5,321,147)
----------- -----------
Total Stockholders' Equity 2,811,721 2,566,288
----------- -----------
Total Liabilities and Stockholders'
Equity par value $.001 $ 3,980,588 $ 3,550,440
=========== ===========
The accompanying notes are an integral part of these statements
F-2
<PAGE>
WORLD WIDE STONE CORPORATION
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Paid in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 34,382,886 34,383 6,619,427 (3,823,512) 2,830,298
Return and Cancellation of Stock (5,182,018) (5,182) 5,182
Sale of Stock 1,125,000 1,125 1,125
Retained Earnings (Loss) (264,400) (264,400)
---------- ------ --------- ---------- ---------
Balance December 31, 1994 30,325,868 30,326 6,624,609 (4,087,912) 2,567,023
Additional Shares to Mexican Managers 1,800,000 1,800 (1,800)
Acquisition of Green Quarry 2,000,000 2,000 1,198,000 1,200,000
Sales of Stock 360,000 360 34,640 35,000
Retirement of Shares (100,000) (100) (2,400) (2,500)
Retained Earnings (Loss) (1,233,235) (1,233,235)
---------- ------ --------- ---------- ---------
Balance December 31, 1995 34,385,868 34,386 7,853,049 (5,321,147) 2,566,288
Stock Sales 1,000,000 1,000 40,805 41,805
Stock Sales 40,000 40 9,960 10,000
Retained Earnings (Loss) 193,628 193,628
---------- ------ --------- ---------- ---------
Balance December 31, 1996 35,425,868 35,426 7,903,814 (5,127,519) 2,811,721
========== ====== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE>
WORLD WIDE STONE CORPORATION
Consolidated Statement of Operations
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Sales and Revenue 1,928,733 1,077,479 642,877
Costs of Goods Sold (1,042,384) (764,358) (755,362)
---------- ---------- ----------
Gross Profit 886,349 313,121 (112,485)
---------- ---------- ----------
Costs and Expenses
General and Administrative(Note 13) (675,716) (1,583,190) (112,128)
Depreciation (11,299) (10,128) (5,631)
Amortization 0 (104) (18,394)
---------- ---------- ----------
(687,015) (1,593,422) (136,153)
---------- ---------- ----------
Net Income from Operations 199,334 (1,280,301) (248,638)
Gain (Loss) on Currency Translation (381) 48,305 100,304
Interest Income 0 1,583 1,810
Interest Expense (5,275) (2,772) (117,826)
---------- ---------- ----------
(5,656) 47,116 (15,712)
---------- ---------- ----------
Income (Loss) before Income Taxes 193,678 (1,233,185) (264,350)
Provision for Income Taxes (50) (50) (50)
---------- ---------- ----------
Net Income (Loss) 193,628 (1,233,235) (264,400)
========== ========== ==========
Earnings per Share 0.01 (0,04) (0.01)
---------- ---------- ----------
Weighted Average Number of
Common shares Outstanding 34,727,786 31,359,840 30,599,164
---------- ---------- ----------
The accompanying notes are an integral part of these statements
F-4
<PAGE>
WORLD WIDE STONE CORPORATION
Consolidated Statement of Cash Flows
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
---- ---- ----
Cash Provided by Operations
Net Income (Loss) 193,628 (1,233,235) (264,400)
Amortization 18,239 18,343 18,394
Depreciation 205,543 196,019 186,528
Change in Accounts Receivable 81,555 (51,955) (97,786)
Change in Inventory (293,840) (101,650) (154,594)
Change in Payables 75,011 (154,624) 28,716
Prepaid Expenses (8,136) (28,944) 6,784
Deposits (66,580) (432) (1,563)
Prepaid Taxes (56,546) 0 0
Taxes, Fees, Pensions 58,244 0 0
Employee Loans 0 63,752 0
-------- ---------- --------
Net Cash from Operations 207,118 (1,292,726) (277,921)
-------- ---------- --------
Cash Provided(Used) in Investing
Purchase of Fixed Assets (290,197) (53,183) (120,032)
Acquisition of Green Quarry 0 1,200,000 0
Stock Retirement 0 (2,500) 0
-------- ---------- --------
Net Cash Provided (Used) in Investing (290,197) 1,144,317 (120,032)
-------- ---------- --------
Cash provided by Financing
Bank Debt-Reserve Mexican Bank Debt 48,666 114,873 395,544
Equipment Debt 11,861 16,138 13,174
Loan to Stockholder 0 (25,782) (20,820)
Short Term Notes Payable (9,067) 2,567 4,949
Sale of Stock 51,805 35,000 1,125
-------- ---------- --------
Cash provided by Financing 103,265 142,796 393,972
-------- ---------- --------
Net Increase (Decrease) in Cash 20,186 (5,613) (3,981)
Beginning Cash Balance 23,570 29,183 33,164
-------- ---------- --------
Ending Cash Balance 43,756 23,570 29,183
======== ========== ========
Significant Non Cash Transactions, See Note 11
The accompanying notes are an integral part of these statements
F-5
<PAGE>
WORLD WIDE STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS:
The Company is in the dimensional stone production and sales business.
In March 1991 the Company purchased dimensional stone production facilities in
Durango, Mexico. This plant started operations in July 1993 and became fully
operational in September 1994. The Company had one operating quarry in 1995.
During the year 1996 the Company built a second plant next to the original one
in Durango Mexico. This new plant will handle a new line of antique and tumbled
products. New offices and employee bathrooms and kitchen are also in process of
being built.
PRINCIPALS OF CONSOLIDATION:
The financial statements include all of the assets and liabilities of
the U.S. company as well as those of the Mexican companies. The Mexican plant
consists of three Mexican entities, namely: Marmoles Muguiro, S.A., Sociedad
Piedra Sierra, S.A. and a trust which holds approximately four acres of real
estate.
All material inter-company transactions, accounts and balances have
been eliminated.
ACCOUNTS RECEIVABLE:
Management considers all accounts receivable to be fully collectible;
however a small allowance has been established to handle any account
contingencies.
INVENTORY:
Inventory for the Company is stated at cost. All of the costs for 1996
and 1995 associated with the production of tile in the Mexican plant have been
factored into the value of the cost of goods sold and the ending inventory.
Costs of goods sold also includes freight from Mexico to the United States.
Inventory as of December 31, 1996 and 1995 was located at the plant in Durango,
Mexico and at the showroom-warehouse in Tempe, Arizona. Interest expense of the
Mexican bank loans for 1996 and 1995 have been capitalized and are found in the
ending inventory and the cost of goods sold. Depreciation on the Mexican based
equipment is also factored into the inventory.
PROPERTY, EQUIPMENT AND DEPRECIATION:
Depreciable property and equipment are stated at cost. Depreciation is
being provided by use of straight-line method over the estimated useful lives of
the assets.
INCOME RECOGNITION:
Income is recognized on sales when a contract (purchase order) is
signed by the buyer and the shipment is made of the product either from the
warehouse in Phoenix or directly from the factory in Durango, Mexico.
Interest income is recognized when accrued.
INCOME TAXES:
Provision is made for deferred income taxes where differences exist
between the period in which transactions affect
F-6
<PAGE>
taxable income and the period in which they enter into the determination of
income in the financial statements. As of December 31, 1996 the consolidated
Company had a Net Operating Loss (NOL) carry forward for federal income tax
purposes of approximately 2,500,000. The future value of the NOL is not
reflected in the face of the financial statements.
EARNINGS PER SHARE:
Earnings per share are computed by dividing net income by weighted
average number of shares outstanding. There were no other items which were
deemed to be common stock equivalents.
FOREIGN CURRENCY TRANSLATION
The Company's wholly owned subsidiaries, maintain their books and
records in Mexican pesos. Their functional currency however is U.S. dollars.
Therefore these subsidiaries utilize the re-measurement method of foreign
currency translation when consolidated.
The re-measurement method of foreign currency translation converts all
monetary assets and liabilities from pesos to U.S. dollars at the current rate
of exchange at the balance sheet date. All non-monetary assets and liabilities
are converted at the historical rates that were present when the particular
transaction took place. Revenue and expenses from the statements of operations
are converted from pesos to U.S. dollars at a weighted average conversion rate.
Depreciation, amortization, and similar historical cost based expenses use a
historical based rate. Any translation gain or loss is reported on the Company's
consolidated statement of operations.
WARRANTY PAYABLE/EXPENSE
The Company offers no warranty written or verbal. All products are
shipped FOB Mexican plant with either the client or the trucking company
assuming full responsibility for the product. Company employees at times do try
to help resolve disputes between the client, the trucking company and/or the
installation contractor. They have also assisted clients who need some training
in the care and upkeep of marble flooring. The amount expended currently for
these public relation/goodwill actions are minimal.
2. RELATED PARTY TRANSACTIONS
The Company has a private demand note to a brother of the chairman for
$9,949.
3. MEXICAN BANK DEBT
In May 1993, the Company obtained loans of $250,000 from Banca Serfin,
(a Mexican Bank) to develop the stone plant. The Company has received additional
loans from the banks in subsequent years as they expanded and modernized the
plant. The loans are secured by the Mexican based equipment. Beginning in 1995
and ending in 1996 the Company converted their loans from Bank Serfin based to
Bancomex based. Bancomex is a second tier bank supported by the Mexican
government. The savings is reflected in a much improved gross profit.
4. PROPERTY, PLANT AND EQUIPMENT
Below is a summary of the fixed assets of the Company. All assets are
amortized over their useful lives on a straight line basis. The depreciation
attributed to Mexico is included in the Costs of Goods Sold section of the
Statement of Operations. The depreciation attributed to Phoenix is shown
separately on the Statement of Operations. As per Note 7 to the Consolidated
Financial Statements, the Company has restated its financial statements for the
years ended December 31, 1995 and 1996 to expense $1,200,000 value of shares
issued in connection with the acquisition of quarry rights originally
capitalized. These changes are restated below.
F-7
<PAGE>
1996 1995
---- ----
Mexican Property, Plant Specialty Systems
(40-10 years) and Mexican Machinery,
Equipment, Vehicles (12 - 5 years) 3,503,349 3,241,238
US Machinery, Equipment and Vehicles 98,392 70,306
---------- ----------
3,601,741 3,311,544
Accumulated Depreciation (678,248) (472,705)
---------- ----------
Net Property, Plant and Equipment 2,923,493 2,838,839
---------- ----------
5. GENERAL AND ADMINISTRATIVE
1996 1995 1994
---- ---- ----
Salaries and Wages 239,539 152,669 10,277
Advertising and Promotion 60,320 15,069 10,767
Commissions and Consulting 34,178 76,370 2,637
Acquisition of Green Quarry(Note 13) 0 1,200,000 0
Legal and Accounting 29,776 31,536 7,750
Rent 33,135 20,711 2,812
Payroll Taxes and Fees 93,220 11,317 1,156
Travel 36,123 13,388 28,821
Shop and Office Supplies 57,470
Other Expenses 91,155 62,130 47,908
------- --------- -------
Total General and Administrative 675,716 1,583,190 112,128
======= ========= =======
6. LEASES AND ROYALTY
The Company has one year left on its lease for its showroom/warehouse
in Tempe, Arizona. The Company began a one year lease of a showroom in Anaheim,
California in January, 1997.
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Rent 29,364 0 0 0 0
Equipment 1,796 299 0 0 0
------ ----- ----- ---- ----
Total 31,160 299 0 0 0
====== ===== ===== ==== ====
The Company pays a royalty on its leased quarry of 90 pesos per cubic
meter. This is approximately $16.90 at December 31, 1996. These payments go into
Cost of Goods Sold.
7. MINING RIGHTS/OTHER ITEMS
On December 3, 1995 the Company acquired the rights to mine a quarry of
special green quartzite in the state of Chihuahua, Mexico. This purchase was
originally recorded at a cost of $1,200,000 paid with 2,000,000 shares of common
stock to obtain the rights from a director of the Company's Mexican subsidiary,
Marmoles Muguiro S.A. de C.V. The Company originally recorded the value of the
shares issued in connection with this transaction as an asset included in
Property, Plant and Equipment in the financial statements previously filed as
part of the 10-K for the year ended December 31, 1995. Under SFAS No. 13,
ACCOUNTING FOR LEASES, only payments related to a lease acquisition with
independent third parties are eligible for capitalization. Therefore, the
amounts should have been expensed in the fourth quarter of 1995 when the
transaction occurred. Accordingly,
F-8
<PAGE>
the 1995 financial statements have been adjusted 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 to Common Stock
and Paid in Capital $15,000 that had been recorded as sales in 1995. Further,
The Company has determined that certain accruals for taxes and penalties were
not recorded in the calendar year 1996. These items total $70,485 and should
have been reflected as increases in accrued liabilities and general and
administrative expenses. The 1996 financial statements have been adjusted to
give effect to the items discussed above.(See Note 13)
The Company hereby amends and restates its Form 10-K for the year ended
December 31, 1996, 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-K/A reflects, where appropriate, changes required to
conform to the restatement of these financial statements.
8. PROVISION FOR INCOME TAXES
Provision is made for deferred income taxes where differences exist
between the period in which transactions affect taxable income and the period in
which they enter into the determination of income in the financial statements.
As of December 31, 1996 the consolidated Company had a total Net Operating Loss
(NOL) carry forward for federal income tax purposes of approximately $2,500,000.
The future value of the NOL is not reflected in the face of the financial
statements.
1996 1995 1994
------- ------- -------
Net Deferred Tax Benefit and
Valuation Adjustment 0 0 0
Current Taxes Payable 50 50 50
------- ------- -------
Provision for Income Taxes 50 50 50
======= ======= =======
9. INTEREST EXPENSE
1996 1995
------- -------
Mexican Banks (included in costs of goods sold) 166,752 246,554
Phoenix Equipment Loans 5,275 2,772
------- -------
Total Interest Expense 172,027 249,326
======= =======
10. IRS AUDIT
The Company and its President have been audited by the I.R.S. for the
years 1989, 1990, and 1991. On October 11, 1995 the Company received a Notice of
Deficiency in the amount of $564,130 plus interest and penalties in the amount
of $423,098. The President also received, the same day, a Notice of Deficiency
for the same period, in the amount of $937,923 plus interest and penalties in
the amount of $703,443. Both cases were referred to tax court and were heard in
February and March of 1997. The Decision for the Registrant, entered March 13,
1997, Docket No. 103-96 reads as follows: Pursuant to the agreement of the
parties in the above-entitled case, it is ORDERED AND DECIDED: That there are no
deficiencies in income tax due from, nor overpayments due to, the petitioner for
the taxable years 1989, 1990, and 1991; and That there are no additions to tax
due from the petitioner for the taxable years 1989, 1990, and 1991, under the
provisions of I.R.C. 6663.
The decision for the Registrant's President and wife, Docket 104-96
reads as follows: Pursuant to the agreement of the parties in the above-entitled
case, it is ORDERED AND DECIDED: That there are deficiencies in income tax due
from the Petitioners for the taxable years 1989 and 1990 in the amounts of
$4,975.00 and $9,770.00, respectively' that there is no deficiency in income tax
due from, nor overpayment due to, the petitioners for the taxable year 1991; and
That there are no additions to tax due from the petitioners for the taxable
years 1989, 1990, and 1991, under the provisions of I.R.C. 6663.
F-9
<PAGE>
11. NON CASH TRANSACTIONS
1996 None
1995
Acquisition of rights to Green Quarry for 2,000,000 shares of stock
FINAL PAYMENT OF 1,800,000 SHARES FOR INVESTMENT OF $140,000 IN 1993.
1994
Purchase of consulting with 1,125,000 shares of common stock.
Return and cancellation of 1,452,381 shares of common stock previously
written off
12. SUBSEQUENT EVENTS
In January 1997 the Company opened a showroom in Anaheim, California.
13. RESTATED FINANCIAL DATA
Subsequent to the issuance of the financial statements for the year
ended December 31, 1995, 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 2,000,000 shares of common stock to a director and officer of
one of the Company's Mexican subsidiaries. The Company originally recorded the
value of the shares issued in connection with this transaction as an asset in
its financial statements for the year ended December 31, 1995. Under SFAS No.
13, ACCOUNTING FOR LEASES, only payments to independent third parties for the
acquisition of a lease may be capitalized. Accordingly, the amounts should have
been expensed in the fourth quarter of 1995 when the transaction occurred. As a
result, the 1995 and 1996 financial statements have been adjusted 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 to
Common Stock and Paid in Capital $15,000 that had been recorded as sales in
1995. Furthermore, the Company has determined that certain accruals for taxes
and penalties should have been recorded in 1996. As a result of the foregoing,
the accompanying financial statements for the year ended December 31, 1996 and
1995 have been restated as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
As Previously As Previously
BALANCE SHEET Reported As Restated Reported As Restated
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Property, Plant and Equipment-Net $ 4,123,493 $ 2,923,493 $ 4,038,839 $ 2,838,839
Total Assets 5,180,588 3,980,588 4,750,440 3,550,440
Accumulated Deficit (3,842,034) (5,127,519) (4,106,147) (5,321,147)
Stockholders' Equity 4,082,206 2,811,721 3,766,288 2,566,288
Total Liabilities and Stockholders'
Equity 5,180,588 3,980,588 4,750,440 3,550,440
INCOME STATEMENT
General and Administrative Expenses $ 605,231 $ 675,716 $ 383,190 $ 1,583,190
Income(Loss) from Operations 269,819 199,334 (65,301) (1,280,301)
Income(Loss) before Income Taxes 264,163 193,678 (18,185) (1,233,185)
Net Income(Loss) 264,113 193,628 (18,235) (1,233,235)
</TABLE>
F-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
CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIDE STONE CORPORATION (THE
"COMPANY") FOR THE YEAR ENDED DECEMBER 31, 1996, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 43,756
<SECURITIES> 0
<RECEIVABLES> 27,561
<ALLOWANCES> 0
<INVENTORY> 590,335
<CURRENT-ASSETS> 669,788
<PP&E> 3,601,741
<DEPRECIATION> 678,248
<TOTAL-ASSETS> 3,980,588
<CURRENT-LIABILITIES> 327,748
<BONDS> 841,119
0
0
<COMMON> 35,426
<OTHER-SE> 2,776,295
<TOTAL-LIABILITY-AND-EQUITY> 3,601,741
<SALES> 1,928,733
<TOTAL-REVENUES> 1,928,733
<CGS> 1,042,384
<TOTAL-COSTS> 1,042,384
<OTHER-EXPENSES> 687,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,275
<INCOME-PRETAX> 193,678
<INCOME-TAX> 50
<INCOME-CONTINUING> 193,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193,628
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
