UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999 Commission File Number 000-18389
WORLD WIDE STONE CORPORATION
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 March 31, 1999, there were 32,703,768 shares of common stock outstanding.
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998.............................. 3
Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998........................ 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998........................ 5
Notes to Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations................. 7
PART II.OTHER INFORMATION
Item 1. Legal Proceedings............................................. 11
Item 2. Changes in Securities......................................... 11
Item 3. Defaults Upon Senior Securities............................... 11
Item 4. Submission of Matters to a Vote of Security Holders........... 11
Item 5. Other Information............................................. 11
Item 6. Exhibits and Reports on Form 8-k.............................. 11
Signatures................................................................. 12
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<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1998
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash $ 305,136 $ 279,167
Accounts receivable 377,833 265,585
Inventory 982,474 885,478
Prepaid expenses and other 238,250 168,715
----------- -----------
Total current assets 1,903,693 1,598,945
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $1,330,543
and $1,247,199, respectively 3,515,387 3,559,788
COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization of $104,876 and
$100,316, respectively 168,713 173,273
OTHER ASSETS:
Other receivables 240,125 172,338
Prepaid taxes 20,121 13,865
Deferred taxes 187,000 300,000
----------- -----------
Total assets $ 6,035,039 $ 5,818,209
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 136,800 $ 124,294
Accrued liabilities 193,259 189,714
Current portion of long-term debt 77,269 101,561
Other 900,000 900,000
----------- -----------
Total current liabilities 1,307,328 1,315,569
LONG-TERM DEBT, net of current portion 88,490 102,898
----------- -----------
Total liabilities 1,395,818 1,418,467
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 100,000,000
shares authorized, 34,703,768 shares issued,
32,703,768 outstanding 34,704 34,704
Additional paid-in capital 8,024,536 8,024,536
Accumulated deficit (3,311,833) (3,537,237)
Cumulative remeasurement adjustment 11,814 (2,261)
Treasury stock, at cost, 2,000,000 shares (120,000) (120,000)
----------- -----------
Total stockholders' equity 4,639,221 4,399,742
----------- -----------
Total liabilities and stockholders' equity $ 6,035,039 $ 5,818,209
=========== ===========
The accompanying notes are an integral part of these
consolidated balance sheets.
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<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
1999 1998
----------- -----------
REVENUE $ 1,394,931 $ 871,110
COST OF GOODS SOLD 672,301 409,196
----------- -----------
Gross profit 722,630 461,914
COST AND EXPENSES:
Selling, general and administrative 370,588 247,321
Depreciation and amortization 11,024 10,568
----------- -----------
Income from operations 341,018 204,025
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 2,764 874
Interest expense (8,355) (8,277)
Gain on currency remeasurement 2,977 5,634
----------- -----------
Total other income (expense) (2,614) (1,769)
----------- -----------
Income before provision for income taxes 338,404 202,256
PROVISION FOR INCOME TAXES 113,000 --
----------- -----------
Net income 225,404 202,256
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency remeasurement adjustment (14,075) --
----------- -----------
Comprehensive income $ 211,329 $ 202,256
=========== ===========
EARNINGS PER SHARE Basic and diluted:
Net income per share $ .01 $ .01
=========== ===========
Weighted average number of common shares
outstanding 32,703,768 34,703,768
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 225,404 $ 202,256
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 87,904 82,883
(Gain) on foreign currency remeasurement (2,977) (5,634)
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable (112,248) 600
Increase in inventory (96,996) (129,176)
Increase in prepaid expenses and other (75,791) (3,304)
Increase in other receivables (50,735) (23,938)
Decrease in deferred taxes 113,000 --
Increase in accounts payable 12,506 17,680
Increase in accrued liabilities 3,545 17,567
--------- ---------
Net cash provided by operating activities 103,612 158,934
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment, net (38,943) (202,810)
--------- ---------
Net cash used in investing activities (38,943) (202,810)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on notes payable (38,700) (34,165)
--------- ---------
Net cash used in financing activities (38,700) (34,165)
--------- ---------
NET INCREASE (DECREASE) IN CASH 25,969 (78,041)
CASH, beginning of period 279,167 221,660
--------- ---------
CASH, end of period $ 305,136 $ 143,619
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 8,355 $ 8,227
========= =========
Cash paid for income taxes $ -- $ --
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(1) INTERIM FINANCIAL REPORTING:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented have been made. The results of operations
for the three month period ended March 31, 1999, are not necessarily indicative
of the operating results that may be expected for the entire year ending
December 31, 1999. These financial statements should be read in conjunction with
the Company's Form 10-KSB for the year ended December 31, 1998.
(2) INVENTORY:
Inventory is stated at the lower of cost or market. Inventory and cost of goods
sold include all operating costs incurred at the two plant facilities in Mexico.
Included in these operating costs was depreciation of property, plant and
equipment of $76,880 and $72,315 for the three months ended March 31, 1999 and
1998, respectively. In addition, cost of goods sold includes freight from Mexico
to the United States. As of March 31, 1999, inventory was located at the plant
in Durango, Mexico, at a showroom-warehouse in Phoenix, Arizona, and at a
warehouse in El Paso, Texas. Inventory at March 31, 1999, consists of finished
goods and raw materials of $894,932 and $87,542, respectively.
(3) EARNINGS PER SHARE:
The Company utilizes SFAS No. 128, EARNINGS PER SHARE, to compute basic and
diluted earnings per share. Because the Company has no outstanding convertible
securities or other common stock equivalents, there is no difference between
amounts reported for weighted average common shares and earnings per share for
basic and diluted amounts.
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<PAGE>
(4) FOREIGN CURRENCY TRANSLATION:
The Company's wholly-owned Mexican subsidiaries maintain their books and records
in Mexican pesos. Their functional currency, however, is the U.S. dollar.
Therefore, these subsidiaries utilize the remeasurement method of foreign
currency translation when consolidated.
The remeasurement method of foreign currency converts all monetary assets and
liabilities from Mexican pesos to U.S. dollars at the current rate of exchange
at the balance sheet date. All nonmonetary 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
Mexican pesos to U.S. dollars at a weighted average conversion rate.
Depreciation, amortization, and similar historical-cost-based expenses use a
historical-based rate. Remeasurement gains and losses resulting from
transactions that are short-term in nature are reported in the Company's
consolidated statements of operations. Remeasurement gains or losses resulting
from intercompany transactions that are long-term in nature are reported as a
separate component of stockholders' equity as a cumulative remeasurement
adjustment.
(5) RELATED PARTY TRANSACTIONS
In January 1999, an officer of the Company acquired the building that the
Company leases for its corporate offices in Phoenix, Arizona. Because the
Company entered into the lease with a third party prior to the officer's
acquisition of the building, the Company believes that the terms of the lease
are no less favorable to the Company than it could obtain from non-affiliated
parties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Report on Form 10-QSB that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's "expectations,"
"anticipation," "intentions," "beliefs," or "strategies" regarding the future.
Forward-looking statements include statements regarding revenue, margins,
expenses, and earnings analysis for fiscal 1999 and thereafter; future products
or product development efforts; spending for acquisitions of additional
equipment or expansion of production facilities; and liquidity and anticipated
cash needs and availability. All forward-looking statements included in this
Report are based on information available to the Company as of the filing date
of this Report, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements as
a result of a variety of factors, including those identified in the Company's
Form 10-KSB for the year ended December 31, 1998, as filed with the Securities
and Exchange Commission.
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<PAGE>
INTRODUCTION
The Company quarries, manufactures, and markets a wide variety of dimensional
stone products. The Company extracts marble limestone and travertine blocks from
quarries located in Mexico. The Company then transports the blocks to plants
operated by its wholly-owned Mexican subsidiaries in Durango, Durango, Mexico,
where the blocks are cut, honed, polished or tumbled, then dimensioned and
packaged. The Company markets its dimensional stone products primarily in the
United States and Canada through distributors, dealers, and designers. In
addition, the Company sells nominal quantities of its products in Europe.
The Company is currently constructing its third factory. The 27,000 square foot
factory will be used to produce large slabs of marble limestone as well as
additional billets for the existing factories. The Company estimates that the
total cost to build and equip the new facility will be approximately $2.0
million. As of the filing date of this report, the project is approximately 60%
complete. The Company has obtained financing for approximately half the project
and will finance the remainder with cash flows from operations. The Company
plans to open the factory in the fall of 1999 and believes the new factory will
significantly increase the Company's existing production and sales capacity. The
Company's existing two factories are operating at near peak capacity.
RESULTS OF OPERATIONS OF THE COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 1998
REVENUE. The Company's revenue for the three months ended March 31, 1999 was
$1,394,931, which represents a 60% increase over revenue of $871,110 for the
three months ended March 31, 1998. The Company attributes the increase in
revenue to increased market acceptance and demand for its products resulting in
new customers and large specialty orders.
COST OF GOODS SOLD; GROSS PROFIT. Cost of goods sold was $672,301 during the
three months ended March 31, 1999 and $409,196 during the three months ended
March 31, 1998. Gross profit increased to $722,630, or 52% of revenue, for the
three months ended March 31, 1999 from $461,914, or 53% of revenue, for the
three months ended March 31, 1998. This consistency reflects the Company's
ability to increase sales volume while containing production costs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased to $370,588 during the three months ended March
31, 1999 from $247,321 during the three months ended March 31, 1998. Selling,
general, and administrative expense represented approximately 27% and 28% of
revenue during the three months ended March 31, 1999 and 1998, respectively.
This indicates the Company's ability to effectively control costs while
increasing sales. Actual increases to variable costs in comparable periods were
primarily attributable to increases for payroll, professional fees, advertising
and travel.
PROVISION FOR INCOME TAXES. The Company has determined that it is more likely
than not that it will utilize all of its net operating loss carryforwards in
fiscal 1999. The Company recorded $20,000 of income tax benefit by reducing its
remaining valuation allowance during the quarter ended March 31, 1999. The
Company accounted for utilization of its net operating loss carryforwards during
the three month period ended March 31, 1999 by reducing its deferred tax asset
by approximately $133,000 and recording a related provision for income taxes of
$113,000 reflected on its consolidated statement of operations. No provision for
income taxes was recorded for the three months ended March 31, 1998.
NET INCOME. Net income for the three months ended March 31, 1999, increased by
11% to $225,404 over net income of $202,256 for the three months ended March 31,
1998, as a result of increased revenue, improved operating margins, and
continued efforts to contain costs.
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<PAGE>
SEASONALITY
The Company historically has experienced lower sales in the fourth calendar
quarter as a result of production declines during the holiday season as well as
seasonal declines in homebuilding and remodeling. The Company took a number of
steps during fiscal 1998 to increase sales during the fourth quarter, including
concentrating selling efforts in parts of the world that experience warm weather
during this time. The Company also may be subject to periodic declines
experienced by the building industry in general.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased $312,989 for the three months
ended March 31, 1999 to $596,365 from $283,376 at December 31, 1998. The
increase was attributable to significant decreases in certain short term
obligations and increases in cash, accounts receivable and inventory as a result
of greater production and sales for the quarter.
The Company invested $38,943 during the first three months of 1999 to construct
its third factory, to enhance its existing two factories and to purchase
equipment and machinery, primarily in Mexico. The Company intends to acquire
additional property, plant, and equipment during 1999 and in future years in
order to continue to support its current sales volume and to accommodate
anticipated increases in demand for its products.
The Company's current cash resources, expected cash flow from operations, and
equipment financing are expected to be sufficient to fund the Company's capital
needs during the next 12 months at its current level of operations, apart from
capital needs for the construction of new facilities or acquisitions of
additional equipment or additional business operations beyond the new factory
currently under construction. The Company may be required to obtain additional
capital to fund its planned growth during the next 12 months and beyond,
particularly for expansion of the Company's facilities and operations in Mexico.
Potential sources of any such capital may include the proceeds from bank
financing, strategic alliances, and offerings of the Company's equity or debt
securities. There can be no assurance that such capital will be available from
these or other potential sources, and the lack of such capital could have a
material adverse affect on the Company's business.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries to represent years in the date code field.
Computer systems and products that do not accept four-digit year entries will
need to be upgraded or replaced to accept four-digit entries to distinguish
years beginning with 2000 from prior years. The Company has upgraded its
internal computer network at its headquarters in Phoenix, Arizona, in order to
integrate its management information systems, as well as to ensure that its
computer systems and other process control equipment located at its Arizona
facility will be able to deal appropriately and without malfunctions caused by
"Year 2000" issues.
The Company currently has one internal information technology systems employee
and one external computer engineer planning upgrades to the computer network and
computer-operated equipment located at the Company's factories and quarries in
Mexico. The Company currently plans to test its computer systems and
computer-operated equipment in Mexico during July 1999. The Company intends to
complete upgrades to its computer systems and equipment located in Mexico during
1999 to ensure that they will properly process dates beginning on and after
January 1, 2000, as well as to improve the content, quality, and flow of
information throughout the Company.
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<PAGE>
The Company has corresponded with third party vendors, suppliers, banks,
government agencies, and others with respect to the Year 2000 issue. All third
parties that have responded to the Company as of the filing date of this Report
have indicated that they have addressed the Year 2000 issue and are working
towards solving problems related to the Year 2000 issue. There can be no
assurance, however, that computer systems operated by third parties, including
customers, vendors, credit card transaction processors, and financial
institutions, will continue to properly interface with the Company's systems and
will otherwise be compliant on a timely basis with Year 2000 requirements.
The Company's costs to modify software and hire Year 2000 solution providers are
included as part of the management information system enhancements described
above. The Company currently estimates that its costs to address the Year 2000
issue to date have been approximately $35,000 for internal and external computer
network services. The Company currently anticipates that it will incur
additional costs of approximately $20,000 during 1999 to complete upgrades and
enhancements to its computer systems.
The Company's business depends entirely upon its ability to extract and process
stone in Mexico and ship its dimensional stone products to the United States for
sales and distribution. The Company may be at risk with respect to suppliers of
necessary resources, particularly suppliers of power, water, and
telecommunications within Mexico, if those suppliers are not Year 2000
compliant. Extended power brownouts or blackouts or loss of the water supply at
the Company's factories in Mexico would seriously disrupt the Company's source
of dimensional stone products. Telephone communication system failures within
Mexico or between the United States and Mexico, Canada, and Europe as a result
of Year 2000 issues would severely hinder the Company's sales and shipping
functions. In addition, disruption to local and international banking, credit
card processing, and other financial services as a result of Year 2000 issues
would have a material adverse effect on the Company's cash management systems
and financial resources. Potential revenue losses and/or liabilities to third
parties as a result of Year 2000 problems could adversely impact the Company's
ability to continue as a going concern. Because of these factors, the Company is
unable to fully assess the impact of the Year 2000 issue as of the filing date
of this Report. The Company is formulating a contingency plan with respect to
the Year 2000 issues described above and will finalize its contingency plan by
September 1999 with a formalized plan and document.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27.1: Financial Data Schedule
(b) REPORTS ON FORM 8-K
Not Applicable
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<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: May 14, 1999 World Wide Stone Corporation
(Registrant)
By: /s/ Franklin Cunningham
------------------------------
Franklin Cunningham, President
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIDE STONE CORPORATION FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS. 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-01-1999
<EXCHANGE-RATE> 1
<CASH> 305,136
<SECURITIES> 0
<RECEIVABLES> 377,833
<ALLOWANCES> 0
<INVENTORY> 982,474
<CURRENT-ASSETS> 1,903,693
<PP&E> 4,845,930
<DEPRECIATION> 1,330,543
<TOTAL-ASSETS> 6,035,039
<CURRENT-LIABILITIES> 1,307,328
<BONDS> 88,490
0
0
<COMMON> 34,704
<OTHER-SE> 4,604,517
<TOTAL-LIABILITY-AND-EQUITY> 6,035,039
<SALES> 1,394,931
<TOTAL-REVENUES> 1,394,931
<CGS> 672,301
<TOTAL-COSTS> 672,301
<OTHER-EXPENSES> 381,612
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,355
<INCOME-PRETAX> 338,404
<INCOME-TAX> 113,000
<INCOME-CONTINUING> 225,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,404
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
