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, 1998 Commission File Number 000-18389
WORLD WIDE STONE CORPORATION
NEVADA 33-0297934
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
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 [ ] No [X]
As of March 31, 1998, there were 34,703,768 shares of common stock outstanding.
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 ................................... 3
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997 ............................. 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 ............................. 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,
1998 1997
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash $ 143,619 $ 221,660
Accounts receivable 136,821 137,421
Inventories 755,277 626,101
Prepaid expenses and other 24,757 22,229
----------- -----------
Total current assets 1,060,474 1,007,411
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $1,012,227
and $933,904, respectively 3,417,078 3,292,591
COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization of $86,637 and
$82,077, respectively 186,952 191,512
OTHER ASSETS:
Other receivables 305,563 275,991
Prepaid taxes 19,689 18,913
Deferred taxes 300,000 300,000
----------- -----------
Total assets $ 5,289,756 $ 5,086,418
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 110,254 $ 92,574
Accrued liabilities 234,138 216,571
Current portion of long-term debt 118,488 93,016
Other 900,000 900,000
----------- -----------
Total current liabilities 1,362,880 1,302,161
LONG-TERM DEBT, net of current portion 153,236 212,873
----------- -----------
Total liabilities 1,516,116 1,515,034
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 100,000,000
shares authorized, 34,703,768 shares issued
and outstanding 34,704 34,704
Additional paid-in capital 7,904,536 7,904,536
Accumulated deficit (4,165,600) (4,367,856)
----------- -----------
Total stockholders' equity 3,773,640 3,571,384
----------- -----------
Total liabilities and stockholders' equity $ 5,289,756 $ 5,086,418
=========== ===========
See notes to consolidated financial statements.
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<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
-----------------------------
1998 1997
----------- -----------
REVENUE $ 871,110 $ 650,834
COST OF GOODS SOLD 409,196 319,798
----------- -----------
Gross profit 461,914 331,036
COST AND EXPENSES:
Selling, general and administrative 247,321 189,405
Depreciation and amortization 10,568 5,346
----------- -----------
Income from operations 204,025 136,285
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 874 --
Interest expense (8,277) (26,463)
Gain on currency remeasurement 5,634 --
----------- -----------
Total other income (expense) (1,769) (26,463)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 202,256 109,822
PROVISION FOR INCOME TAXES -- --
----------- -----------
Net income $ 202,256 $ 109,822
=========== ===========
EARNINGS PER SHARE
Basic and diluted:
Net income per share $ .01 $ --
=========== ===========
Weighted average number of common
shares outstanding 34,703,768 35,425,868
=========== ===========
See notes to 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,
------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 202,256 $ 109,822
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 82,883 55,946
Gain on currency remeasurement (5,634) --
Changes in certain assets and liabilities:
Decrease (increase) in accounts receivable 600 (69,339)
(Increase) decrease in inventories (129,176) 39,093
(Increase) decrease in prepaid expenses and other (3,304) 1,116
Increase in other receivable (23,938) (22,206)
Increase (decrease) in accounts payable 17,680 (26,317)
Increase (decrease) in accrued liabilities 17,567 (1,571)
--------- ---------
Net cash provided by operating activities 158,934 86,544
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment, net (202,810) (14,868)
--------- ---------
Net cash used in investing activities (202,810) (14,868)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on notes payable (34,165) 23,541
--------- ---------
Net cash provided by (used in)
financing activities (34,165) 23,541
--------- ---------
NET (DECREASE) INCREASE IN CASH (78,041) 95,217
CASH, beginning of period 221,660 43,756
--------- ---------
CASH, end of period $ 143,619 $ 138,973
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 8,227 $ 26,463
========= =========
Cash paid for income taxes $ -- $ --
========= =========
See notes to consolidated financial statements.
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<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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, 1998, are not necessarily indicative
of the operating results that may be expected for the entire year ending
December 31, 1998. These financial statements should be read in conjunction with
the Company's Form 10-KSB for the year ended December 31, 1997.
(2) INVENTORY:
Inventory is stated at the lower of cost or market. Inventories and cost of
goods sold include all operating costs incurred at the two plant facilities in
Mexico. In addition, cost of goods sold also includes freight from Mexico to the
United States. As of March 31, 1998, inventory was located at the plant in
Durango, Mexico, at a showroom-warehouse in Phoenix, Arizona, and at a warehouse
in El Paso, Texas. Inventories at March 31, 1998, consist of finished goods,
work in progress and raw materials amounting to $714,179, $9,659 and $31,439,
respectively.
(3) EARNINGS PER SHARE:
During 1997, the Company adopted SFAS No. 128, EARNINGS PER SHARE. Pursuant to
SFAS No. 128, basic earnings per common share is computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
period. Diluted earnings per common share is determined assuming that options
and/or warrants were exercised at the beginning of each period or at the time of
issuance. SFAS No. 128 is effective for financial statements for both interim
and annual periods presented after December 15, 1997 and as a result, all prior
period earnings per share (EPS) data has been restated. 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. Any
resulting remeasurement gain or loss is reported in the Company's consolidated
statements of operations.
(5) RELATED PARTY TRANSACTIONS:
On December 3, 1995, the Company acquired the rights to mine a deposit of green
quartzite in the state of Chihuahua, Mexico. The Company exchanged 2,000,000
shares of its restricted common stock for these rights. Because the stock was
issued to an officer of one of the Company's subsidiaries, the purchase of the
lease rights was expensed in 1995. 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, in December of 1998, the Company and the officer of its subsidiary
agreed to rescind the transaction. In connection with this rescission, the
Company returned the quarry rights to the individual and the individual returned
the 2,000,000 shares of Common Stock to the Company and they were placed in
treasury stock.
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 1998 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, 1997, 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 recently began making sales of its products in Europe.
During 1998, the Company began construction of 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
50% complete and the Company has funded approximately $500,000 of this project
out of cash flows from operations. The Company intends to use cash flows from
operations to fund approximately $500,000 of additional costs. The Company has a
commitment for equipment financing for the remainder of the project. The Company
plans to open the factory in 1999. The Company believes that the new factory
will provide sufficient capacity to significantly increase the Company's
existing production and sales. The Company's existing two factories were
enhanced during 1998 and are running 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, 1998 was
$871,110, which represents a 33% increase over revenue of $650,834 for the three
months ended March 31, 1997. The Company attributes the increase in revenue to
increased production volume and increased market acceptance and demand for its
products.
COST OF GOODS SOLD; GROSS PROFIT. Cost of goods sold was $409,196 during the
three months ended March 31, 1998 and $319,798 during the three months ended
March 31, 1997. This increase is attributed to the corresponding increase in
sales during the same period. Gross profit increased to $461,914, or 53% of
revenue, for the three months ended March 31, 1998 from $331,036, or 51% of
revenue, for the three months ended March 31, 1997. The increase in gross
profits as a percentage of revenue reflects the Company's ability to increase
productivity and production volume while controlling production costs even as
sales increased.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense increased to $247,321 during the three months ended March
31, 1998, from $189,405 during the three months ended March 31, 1998. Selling,
general, and administrative expense represented approximately 28% and 29% of
revenue during the three months ended March 31, 1998 and 1997, respectively.
This indicates the Company's ability to effectively control costs while
increasing sales. Actual increases to variable costs in comparable periods were
attributable to increases for payroll, advertising and travel.
NET INCOME. Net income for the three months ended March 31, 1998, increased by
84% to $202,256 over net income of $109,822 at March 31, 1997, as a result of
increased revenue, improved operating margins, and continued efforts to contain
costs as a percentage of revenue.
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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 1997 to increase sales during the fourth quarter. 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 decreased $7,656 for the three months
ended March 31, 1998 to a deficit of $302,406 at March 31, 1998 from a deficit
of $294,750 at December 31, 1997. The decrease was primarily attributable to
outlays of cash to purchase machinery and equipment.
The Company invested $202,810 during the first three months of 1998 to enhance
its factories and to purchase equipment and machinery, primarily in Mexico. This
was an increase of $187,942 over capital investments during the quarter ended
March 31, 1997. The Company intends to acquire additional property, plant, and
equipment in future periods in order to continue its current sales volumes and
to accommodate anticipated increases in demand for its products.
The Company's current cash resources, expected cash flow from operations, and
the commitment for 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. 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 April 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, with which the Company's systems interface 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 $25,000 for internal and external computer
network services. The Company currently anticipates that it will incur
additional costs of approximately $30,000 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. As of the filing date of this Report, the Company has not
formulated a contingency plan with respect to the Year 2000 issues described
above.
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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: April 9, 1999 World Wide Stone Corporation
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
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIDE STONE CORPORATION FOR
THE THREE MONTHS ENDED MARCH 31, 1998 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. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 143,619
<SECURITIES> 0
<RECEIVABLES> 136,821
<ALLOWANCES> 0
<INVENTORY> 755,277
<CURRENT-ASSETS> 1,060,474
<PP&E> 4,429,305
<DEPRECIATION> 1,012,227
<TOTAL-ASSETS> 5,289,756
<CURRENT-LIABILITIES> 1,362,880
<BONDS> 153,236
0
0
<COMMON> 34,704
<OTHER-SE> 3,738,936
<TOTAL-LIABILITY-AND-EQUITY> 5,289,756
<SALES> 871,110
<TOTAL-REVENUES> 871,110
<CGS> 409,196
<TOTAL-COSTS> 409,196
<OTHER-EXPENSES> 257,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,277
<INCOME-PRETAX> 202,256
<INCOME-TAX> 0
<INCOME-CONTINUING> 202,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,256
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
