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 June 30, 2000 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 June 30, 2000 there were 32,803,768 shares of common stock outstanding.
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WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 ....................................... 3
Consolidated Statements of Operations
Three months ended June 30, 2000 and 1999 ................................. 4
Consolidated Statements of Operations
Six months ended June 30, 2000 and 1999 ................................... 5
Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999 ................................... 6
Notes to Consolidated Financial Statements ................................ 7
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations ....................... 8
PART II. OTHER INFORMATION................................................... 11
Signature ................................................................... 12
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WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 268,461 $ 151,147
Accounts receivable 1,052,501 805,052
Inventory 1,395,168 1,519,767
Prepaid expenses and other 217,899 72,585
----------- -----------
Total current assets 2,934,029 2,548,551
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $1,889,146 and $1,622,870, respectively 4,981,189 5,159,297
COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization of $127,675 and $118,555, respectively 145,914 155,034
OTHER ASSETS:
Other receivables 308,062 299,308
Deferred loan fees, net 40,905 47,505
Prepaid taxes 13,531 10,748
----------- -----------
Total assets $ 8,423,630 $ 8,220,443
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 161,477 $ 228,286
Accrued liabilities 224,969 319,353
Income taxes payable 259,365 94,093
Current portion of long-term debt 302,882 297,830
Other (Banca Serfin S.A. debt) 900,000 900,000
----------- -----------
Total current liabilities 1,848,693 1,839,562
DEFERRED TAX LIABILITY 78,528 18,000
LONG-TERM DEBT, net of current portion 843,808 1,037,408
----------- -----------
Total liabilities 2,771,029 2,894,970
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 100,000,000 shares authorized,
34,803,768 shares issued, 32,803,768 outstanding 34,804 34,804
Additional paid-in capital 8,039,436 8,039,436
Accumulated deficit (2,258,928) (2,643,707)
Cumulative remeasurement adjustment (42,711) 14,940
Treasury stock, at cost, 2,000,000 shares (120,000) (120,000)
----------- -----------
Total stockholders' equity 5,652,601 5,325,473
----------- -----------
Total liabilities and stockholders' equity $ 8,423,630 $ 8,220,443
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUE $ 2,585,015 $ 1,311,754
COST OF GOODS SOLD 1,233,603 746,122
SLAB REFINISHING 370,162 --
------------ ------------
Gross profit 981,250 565,632
COST AND EXPENSES:
Selling, general and administrative 473,862 347,239
Depreciation and amortization 18,177 11,024
------------ ------------
Income from operations 489,211 207,369
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (32,144) (24,078)
Gain on currency remeasurement 15,497 31,783
Other income 5,496 4,439
------------ ------------
Total other (expense) income (11,151) 12,144
------------ ------------
Income before provision for income taxes 478,060 219,513
PROVISION FOR INCOME TAXES 205,580 88,000
------------ ------------
Net income 272,480 131,513
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency remeasurement adjustment (64,358) 6,713
------------ ------------
Comprehensive income $ 208,122 $ 138,226
============ ============
EARNINGS PER SHARE
Basic and diluted:
Net income per share $ .01 $ --
============ ============
Weighted average number of common shares outstanding 32,803,768 32,703,768
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUE $ 4,631,133 $ 2,706,685
COST OF GOODS SOLD 2,335,014 1,418,423
SLAB REFINISHING 539,620 --
------------ ------------
Gross profit 1,756,499 1,288,262
COST AND EXPENSES:
Selling, general and administrative 974,521 717,827
Depreciation and amortization 33,112 22,048
------------ ------------
Income from operations 748,866 548,387
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (66,493) (32,433)
(Loss) gain on currency remeasurement (14,110) 34,760
Other income 6,816 7,203
------------ ------------
Total other (expense) income (73,787) 9,530
------------ ------------
Income before provision for income taxes 675,079 557,917
PROVISION FOR INCOME TAXES 290,300 201,000
------------ ------------
Net income 384,779 356,917
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency remeasurement adjustment (57,651) 20,788
------------ ------------
Comprehensive income $ 327,128 $ 377,705
============ ============
EARNINGS PER SHARE
Basic and diluted:
Net income per share $ .01 $ .01
============ ============
Weighted average number of common shares outstanding 32,803,768 32,703,768
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 384,779 $ 356,917
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 275,396 194,306
Amortization of deferred loan fees 6,600 --
Loss (gain) on foreign currency remeasurement 14,110 (34,760)
Changes in certain assets and liabilities:
Increase in accounts receivable (247,449) (90,258)
Decrease (increase) in inventory 124,599 (284,324)
Increase in prepaid expenses and other (148,097) (248,888)
Increase in other receivables (80,515) (84,044)
Increase in deferred taxes 60,528 201,000
(Decrease) increase in accounts payable (66,809) 2,646
Decrease in accrued liabilities (94,384) (17,105)
Increase in income taxes payable 165,272 --
--------- ---------
Net cash provided by (used in) operating activities 394,030 (4,510)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment, net (88,168) (721,053)
--------- ---------
Net cash used in investing activities (88,168) (721,053)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 61,452 911,987
Net borrowings on the line of credit (250,000) --
--------- ---------
Net cash (used in) provided by financing activities (188,548) 911,987
--------- ---------
NET INCREASE IN CASH 117,314 186,424
CASH, beginning of period 151,147 279,167
--------- ---------
CASH, end of period $ 268,461 $ 465,591
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 49,536 $ 29,733
========= =========
Cash paid for income taxes $ 64,500 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(1) INTERIM FINANCIAL REPORTING:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions to Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States 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 and
six-month periods ended June 30, 2000 are not necessarily indicative of the
operating results that may be expected for the entire year ending December 31,
2000. These financial statements should be read in conjunction with the
Company's Form 10-KSB for the year ended December 31, 1999.
(2) INVENTORY:
Inventory is stated at the lower of cost or market. Inventory and cost of goods
sold include all normal operating costs incurred at the Company's three
factories in Mexico as well as freight charges from Mexico to the United States.
Included in these operating costs was depreciation of property, plant and
equipment of $123,681 and $92,678 for the three months ended June 30, 2000 and
1999, respectively, and $203,284 and $169,558 for the six months ended June 30,
2000 and 1999, respectively. Additional costs incurred for initial production
quality issues and inefficiencies, including $39,000 of depreciation related to
the Company's third factory, were excluded from inventory and included in slab
refinishing expense during the three and six months ended June 30, 2000. As of
June 30, 2000, inventory was located at a plant in Durango, Mexico, at a
showroom-warehouse in Phoenix, Arizona, and at a warehouse in El Paso, Texas.
Inventory at June 30, 2000, consists of finished goods and raw materials of
$1,014,791 and $380,377, respectively.
(3) EARNINGS PER SHARE:
The Company utilizes Statement of Financial Accounting Standards (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. In
March 2000, the Company's Board of Directors approved a 1-for-30 reverse stock
split of the Company's common stock. If approved by the shareholders, each 30
shares of the Company's common stock outstanding prior to the reverse stock
spilt will represent one share of common stock following the reverse stock
spilt. Stockholders will receive consideration for fractional shares as a result
of the reverse stock spilt. If approved, the Company's net income per share
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would be restated as $0.25 and $0.12 for the three months ended June 30, 2000
and 1999, respectively, and $0.35 and $0.33 for the six months ended June 30,
2000 and 1999, respectively.
(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 in accordance with SFAS No. 52, FOREIGN
CURRENCY TRANSLATION.
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 as foreign currency remeasurement
adjustments. 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. In March 2000, the
building was transferred to a director of the Company as part of a divorce
settlement. Because the Company entered into the lease with a third party prior
to the officer's acquisition of the building and the subsequent transfer to the
director, the Company believes that the terms of the lease are no less favorable
to the Company than could be obtained from non-affiliated parties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED 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 our 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 2000 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 us as of the filing date of this
Report, and we assume no obligation to update any such forward-looking
statements. It is important to note that our actual results could differ
materially from those in such forward-looking statements as a result of a
variety of factors, including those identified in our Form 10-KSB for the year
ended December 31, 1999, as filed with the Securities and Exchange Commission.
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<PAGE>
INTRODUCTION
We quarry, manufacture, and market a wide variety of dimensional stone products.
We extract marble limestone and travertine blocks from quarries located in
Mexico. We then transport the blocks to factories operated by our wholly-owned
Mexican subsidiaries in Durango, Durango, Mexico, where the blocks are cut,
honed, polished or tumbled, then dimensioned and packaged. We market our
dimensional stone products primarily in the United States through distributors,
dealers, and designers. In addition, we sell nominal quantities of our products
in Europe and Canada.
RESULTS OF OPERATIONS OF THE COMPANY FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2000
REVENUE. Revenue for the three months ended June 30, 2000 was $2,585,015, a 97%
increase over revenue of $1,311,754 for the three months ended June 30, 1999.
Revenue for the six months ended June 30, 2000 was $4,631,133, a 71% increase
over revenue of $2,706,685 for the six months ended June 30, 1999. We attribute
the increase in revenue to increased production and continued market acceptance
and demand for our products. Production from our honed tile factory for the
three and six-month periods ended June 30, 2000 was 25% and 12% higher than the
same periods in 1999. Production from our ancient tile factory for the three and
six-month periods ended June 30, 2000 was 80% and 60% higher than the same
periods in 1999.
COST OF GOODS SOLD; SLAB REFINISHING; GROSS PROFIT. Cost of goods sold was
$1,233,603 and $746,122 for the three months ended June 30, 2000 and 1999,
respectively. Cost of goods sold was $2,335,014 and $1,418,423 for the six
months ended June 30, 2000 and 1999, respectively. Gross profit as a percentage
of revenue, including slab refinishing expense, was 38% and 43% for the three
months ended June 30, 2000 and 1999, respectively, and was 38% and 48% for the
six months ended June 30, 2000 and 1999, respectively. Slab refinishing expense
was $370,162 and $0 for the three months ended June 30, 2000 and 1999,
respectively, and was $539,620 and $0 for the six months ended June 30, 2000 and
1999, respectively. Slab refinishing expense represents all fixed costs incurred
for our third factory in excess of amounts required for normal production
activity and for costs incurred to resolve initial production quality issues.
Gross profit as a percentage of revenue, excluding slab refinishing expense, was
52% and 43% for the three months ended June 30, 2000 and 1999, respectively and
was 50% and 48% for the six months ended June 30, 2000 and 1999, respectively.
The increase in gross profit as a percentage of revenue, excluding slab
refinishing expense, is due to the substantial increase in production and sales
from our ancient tile factory. This factory produces all of our Durango Ancient
products, mesh-mount patterns and accent pieces. These product lines represent
our highest margin items.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense was $473,862 and $347,239 for the three months ended June
30, 2000 and 1999, respectively. Selling, general, and administrative expense
was $974,521 and $717,827 for the six months ended June 30, 2000 and 1999,
respectively. The increase in selling, general, and administrative expense is
due to increases in personnel, and increased spending on advertising and
promotion.
PROVISION FOR INCOME TAXES. We have accounted for the utilization of our net
operating loss carryforwards during the six months ended June 30, 1999 by
reducing our deferred tax asset by $201,000 and recording a related provision
for income taxes of $113,000 and $88,000 for the three months ended March 31,
1999 and June 30, 1999, respectively. We have recorded a provision for income
taxes of $84,720 and $ 205,580 for the three months ended March 31, 2000 and
June 30, 2000, respectively, using an effective rate of 43% in each quarter. The
provision for income taxes for the six months ended June 30, 2000 is comprised
of a current amount of $229,772 and a deferred amount of $60,528.
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SEASONALITY
Historically, we have 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. We may also be subject to periodic
declines experienced by the building industry in general.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital position increased to $1,085,336 at June 30, 2000 from
$708,989 at December 31, 1999. The increase was attributable to increases in
cash and accounts receivable and decreases in accounts payable and accrued
liabilities. The improvement in our working capital position can be attributed
to improved cash flows resulting from increased monthly sales levels.
Our net cash provided by operating activities was $394,030 for the six months
ended June 30, 2000, compared to net cash used in operating activities of $4,510
for the six months ended June 30, 1999. The change was primarily attributable to
a decrease in inventory as a result of increased monthly sales levels during the
six-months ended June 30, 2000. Specifically, we had record sales during the
month of June 2000.
We have a $500,000 revolving line of credit with Bank One, Arizona NA. Interest
on amounts borrowed under the line of credit is payable at the bank's prime rate
plus 1.5%, or a total of 11.0% at June 30, 2000. The line of credit expires on
August 13, 2000, and is secured by our inventory, accounts receivable, and
intangible assets. Franklin E. Cunningham, our Chairman of the Board, President,
and Chief Executive Officer, also has personally guaranteed our obligations
under the line of credit. We had outstanding borrowings of $0 and $250,000 at
June 30, 2000 and December 31, 1999, respectively. We had $500,000 and $250,000
available to us under the line of credit at June 30, 2000 and December 31, 1999,
respectively.
In January 2000, we entered into a capital lease agreement with Banc One Leasing
Corporation in order to refinance the balance outstanding on the line of credit
at December 31, 1999. The lease has a five-year term and bears interest at a
rate of 9.29% per annum. We have the option to purchase the equipment for a
nominal amount at the end of the lease term.
We anticipate that our current cash resources, expected cash flow from
operations, and equipment financing will be sufficient to fund our capital needs
during the next 12 months at our current level of operations. We may be required
to obtain additional capital to fund our planned growth during the next 12
months and beyond, particularly for expansion of our facilities and operations
in Mexico. Potential sources of any such capital may include the proceeds from
bank financing, strategic alliances, and offerings of our 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 our business.
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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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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: August 14, 2000 World Wide Stone Corporation
By: /s/ Aaron T. Macneil
------------------------------------
Aaron T. Macneil, Chief Financial
Officer
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