SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number 0-27929
WATERFORD STERLING CORPORATION
------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 62-1655508
- -------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization
200 S. Knowles Avenue, Winter Park, Florida 32790
-------------------------------------------------
(Address of principal executive offices)
(407) 622-2040
-------------------------
(Issuer's telephone number)
SKREEM.COM CORPORATION
----------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
As of June 10, 2001, 20, 887,815 shares of the issuer's Common Stock,
$.01 par value, outstanding.
SKREEM.COM CORPORATION
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 2001 and
December 31, 2000.......................................... 3
Statements of Operations for the Three Months
Ended March 31, 2001 and 2000............................. 4
Statements of Cash Flows for the Three Months Ended March
31, 2001 and 2000.......................................... 5
Notes to Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................10
PART II - OTHER INFORMATION..................................................11
SIGNATURES ...........................................................12
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
WATERFORD STERLING CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
March 31, 2001
ASSETS
CURRENT ASSETS:
Cash $ 10,310
Prepaid expenses (Note 4) 114,142
------------
Total current assets 124,452
MARKETABLE SECURITIES:
Available for sale securities (Note 5) 19,500
------------
EQUIPMENT:
Office equipment 40,761
Accumulated depreciation ( 13,188)
------------
27,573
OTHER ASSETS:
Prepaid expenses - long term (Note 4) 43,536
Organization costs net of amortization 577
------------
$ 215,638
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 2,137
Accrued expenses 26,620
Notes payable - related parties (Note 6) 189,356
------------
Total current liabilities 218,113
STOCKHOLDERS EQUITY (Deficit):
Common stock, par value $.01;
authorized 30,000,0000 shares; issued
and outstanding 20,887,815 shares 208,878
Capital in excess of par 1,353,049
Deficit accumulated during the
development stage (1,564,402)
------------
Total stockholders' deficit ( 2,475)
------------
$ 215,638
============
See accompanying notes to financial statements
3
WATERFORD STERLING CORPORATION
(A Development Stage Company)
CONSOLIDATE STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2001 and 2000
May 17, 1989 (date of Inception) To March 31, 2001
March 31, 2001 March 31, 2000 Inception to
-------------- -------------- March 31, 2001
REVENUE
Sales of software $ - - $652,458
Sales of furniture 70,393 - 70,393
Interest income 2,152 9,465 53,097
------------- ---------------- ---------------
72,545 9,465 775,948
COST AND EXPENSES:
Cost of furniture sold 58,244 - 58,244
Selling, general & administrative 361,110 78,080 1,589,937
Interest 2,250 - 5,847
Depreciation and amortization 2,319 1,485 19,060
Loss on sale of investments 36,762 - 36,762
------------- ---------------- ---------------
Total expenses 460,685 79,565 1,709,850
LOSS BEFORE EXTRAORDINARY ITEM (388,140) (70,100) (933,902)
EXTRAORDINARY ITEM
Non-temporary loss on securities (Note 5) (630,500) - (630,500)
NET LOSS (1,018,640) (70,100) (1,564,402)
OTHER COMPREHENSIVE INCOME
Unrealized gain or available-for-sale securities 200,000 - -
COMPREHENSIVE LOSS $(818,640) $(70,100) $(1,564,402)
============= ================ ===============
Loss per common share before extraordinary item $(.02) $(.01)
Extraordinary loss per common share (.03) -
------------- ----------------
Net loss per common share (.05) (.01)
============= ================
Weighted average shares outstanding 18,476,704 13,545,315
============= ================
4
WATERFORD STERLING CORPORATION
(A Development Stage Company)
CONSOLIDATE STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2001 and 2000
May 17, 1989 (date of Inception) To March 31, 2001
March 31, 2001 March 31, 2000 Inception to March 2001
-------------- -------------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustment to reconcile net loss to $ (1,018,641) $ (70,101) $ (1,564,402)
net cash by operating activities:
Loss on sale of investments 36,762 - 36,762
Depreciation and amortization 2,319 1,485 13,548
(Increase) in accounts receivable - (5,005) -
Bad debt - - 12,074
Decrease in prepaid expenses 12,875 - 12,875
Increase (decrease) in accounts payable (40,216) (10,060) 26,620
Bank overdraft 2,137 - 2,137
Revenue in non-cash transaction - - (650,000)
Non-temporary loss on securities 630,500 - 630,500
Expenses paid and debts settled with common
stock 263,082 - 443,348
Loss on exchange of notes receivable for
prepaid rent - - 45,200
Other expenses incurred in non-cash
transactions - - 44,248
------------------ ------------------ ----------------------
Net cash (used) by operations (111,182) (83,681) (947,090)
------------------ ------------------ ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of securities available for sale
Issuance of notes receivable 13,238 - 13,238
Collections on notes receivable - - (290,733)
Purchase of marketable securities - - 78,658
Purchase of equipment - - (50,000)
Increase in organization costs - (10,291) (40,761)
- - (936)
------------------ ------------------ ----------------------
Net cash (used) by investing activities 13,238 (10,291) (290,534)
------------------ ------------------ ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock for
cash
Loans from related parties - - 1,009,344
95,590 - 238,590
------------------ ------------------ ----------------------
Net cash provided from financing activities
95,590 - 1,247,934
------------------ ------------------ ----------------------
NET INCREASE IN CASH (2,354) (93,972) 10,310
Cash, beginning 12,664 377,089 -
------------------ ------------------ ----------------------
Cash, ending $ 10,310 $ 283,117 $ 10,310
================== ================== ======================
See (Note 8) for supplemental disclosures.
5
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY
Business activity
The Company, a Delaware corporation was incorporated on May 17, 1989, and is
currently in the development stage. The Company intends to acquire and develop
high technology software firms, and to engage in the sourcing and marketing of
furniture and accessories to the hospitality and time share market..
In April 1999 the Company changed its name from Commerce Centers Corporation to
Skreem.com Corporation and approved a reverse stock split of 3 shares of
outstanding stock for 5 shares. The report has been prepared as if the stock
split had occurred at inception.
In January 2001 the Company changed its name from Skreem.com Corporation to
Waterford Sterling Corporation.
Accounting method
The Company's financial statements are prepared using the accrual method of
accounting.
Principles of consolidation
The consolidated financial statements include the accounts of Skreem.com
Corporation and Waterford Florida, Inc., both Nevada corporations. All material
intercompany transactions have been eliminated.
Computer software costs
The Company expenses research and development costs related to software
development that has not reached technological feasibility and started
production for sale. Thereafter costs are capitalized and amortized over a
maximum of five years or expected life of the product, whichever is less.
Income (loss) per share
The computation of income (loss) per share of common stock is based on the
weighted average number of shares outstanding, after the stock split.
Statement of cash flows
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents for purposes of the
statement of cash flows.
Financial instruments
The Company estimates that the fair value of all financial instruments at March
31, 2001 do not differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance sheets.
6
Dividend policy
The Company has not yet adopted a policy regarding payment of dividends.
Estimates and assumptions
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
Marketable securities:
Certain equity securities are classified as available for sale as defined by
SFAS 115. In accordance with that Statement, they are reported at aggregate fair
value with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity.
2. INCOME TAXES
The Company complies with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. At March 31, 2001 the Company had a net operating
loss ("NOL") carry forward for United States income tax purposes of
approximately $918,140. The NOL carryforward expires in increments beginning in
2004. The Company's ability to utilize its net NOL carryforward is subject to
the realization of taxable income in future years, and under certain
circumstances, the Tax Reform Act of 1986 restricts a corporation's use of its
NOL carryforward. The Company believes that there is at least a 50% chance that
the carryforward will expire unused, therefore, any tax benefit from the loss
carryforward has been fully offset by a valuation reserve.
3. ACQUISITION OF SUBSIDIARIES
In April 1999 the Company, Skreem.com Corporation, a Delaware corporation
("SCD") acquired all of the outstanding stock of Skreem.com Corporation, a
Nevada corporation ("SCN") through a stock for stock exchange in which the
stockholders of SCN received 9,600,000 post stock split common shares of the SCD
in exchange for all of the stock of the SCN. Skreem.com Corporation ("SCN") was
incorporated in Nevada on January 29, 1999 for the purpose of developing high
technology software.
For reporting purposes, the acquisition is treated as an acquisition of the
Company ("SCD") by Skreem.com Corporation of Nevada ("SCN") (reverse
acquisition) and a recapitalization of SCN with its historical financial
statements being combined with the Company's. No proforma statements have been
included since the acquisition is considered to be a reverse acquisition.
On January 31, 2001, the Company executed and Exchange Agreement for the
acquisition of all of the issued and outstanding shares of Waterford Florida,
Inc. in exchange for 7,000,000 share of the Company's common stock. Waterford
Florida, Inc. is currently engaged in the sourcing and marketing of furniture
and accessories to the hospitality and time share market, however, at the date
of acquisition it had not commenced this activity.
7
4. PREPAID EXPENSES
The Company leases office space under a noncancellable operating lease agreement
effective January 1, 2001 which expires December 31, 2002. The Company has
prepaid the rent for the two years specified in the lease agreement.
Consideration for the prepayment was based on the present value of 24 months at
$5,000 per month, discounted at 8% or $110,553. The Company has also prepaid
$60,000 to its legal counsel, which represents an estimate of anticipated
expenses for one year. Prepaid expenses at March 31, 2001 are as follows:
Prepaid rent $ 97,678
Prepaid legal 60,000
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$157,678
=======
Current $114,142
Non current 43,536
-------
$157,678
=======
5. MARKETABLE SECURITIES
The cost and estimated fair values of marketable securities at March 31, 2001
are as follows:
Gross
Unrealized Fair
Cost Gains/ (Losses) Value
------------ ---------------- ---------
$ 19,500 $ - $19,500
The Company owned 650, 000 shares of Grand Slam Treasures with an original cost
of $650,000 based on the market value of the stock at the date of acquisition.
During the period ended March 31, 2001 Grand Slam Treasures changed its name and
adopted a reverse stock split of 100 to 1 for its common shares. The approximate
market value of this security at March 31, 2001 was $19,500. The Company
considered this change in value to be of a non-temporary nature and accordingly
recorded a loss of $630,500 during the period, thereby establishing a new cost
basis of $19,500.
Proceeds from the sale of securities available for sale totaled $13,238 for the
three months ended March 31, 2001, on which gross losses of $36,762 were
realized.
6. RELATED PARTY TRANSACTIONS
During February 1998, the Company issued 1,585,258 post stock split shares to
five major stockholders and two persons who were both officers and directors.
The consideration for the issuance was assumption of the Company's accrued
liabilities in the amount of $21,920 by the above mentioned shareholders, and
the agreement by them to fund future Company expenditures in the amount of
$4,500.
The shares issued pursuant to the acquisition agreement as described in note 3
were issued to four individuals who collectively represent a controlling
interest of the Company.
During May 2000, the Company borrowed $50,000 from its President payable on
demand at 8%. On September 26, 2000, the Company issued 75,000 shares of its
common stock in settlement of the $50,000 note including accrued interest.
8
The Company has borrowed additional funds from related parties payable on demand
and bearing interest at 10% as follows at March 31, 2001:
Notes payable - President of the Company $125,980
Notes payable - Market Management, a company
in which the President has an interest 60,360
Accrued interest 3,016
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$189,356
=======
7. GOING CONCERN
The accompany financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has suffered recurring losses from
operations from its inception. Continuation of the Company as a going concern is
dependent upon obtaining additional working capital for any future planned
activity and management of the Company will be required to develop a strategy
which will accomplish this objective. There can be no assurance that the Company
can be successful in this effort.
8. SUPPLEMENTAL CASH FLOW DISCLOSURES
Inception to
March 31, March 31, March 31,
2001 2000 2001
------------ ---------- --------------
Non-cash operating and financing activities:
Non-cash sales $ - $ - $650,000
======== ======== ==========
Other non-cash operating expenses $ - $ - $ 89,448
======== ======== ==========
Issuance of common stock for expenses $263,082 $ - $443,348
======== ======== ==========
Issuance of common stock for note payable $ - $ - $ 50,000
======== ======== ==========
9. COMMITMENTS
The Company leases office space under a noncancellable operating lease agreement
effective January 1, 2001 which expires December 31, 2002. Minimum lease
payments of $60,000 per year for 2001 and 2002 are required. The Company has
prepaid this obligation (refer to note 4).
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company, a Delaware corporation was incorporated on May 17, 1989, and is
currently in the development stage. The Company intends to acquire and develop
high technology software firms, and to engage in the sourcing and marketing of
furniture and accessories to the hospitality and time share market.
In April 1999, the Company changed its name from Commerce Centers Corporation to
Skreem.com Corporation and approved a reverse stock split of 3 shares of
outstanding stock for 5 shares. The report has been prepared as if the stock
split had occurred at inception.
In January 2001, the Company changed its name from Skreem.com Corporation to
Waterford Sterling Corporation
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended March 31
Revenues for the three months ended March 31, 2001 increased by 63,080
or 6.664% to $72,545 from $9,465 for the three months ended March 31, 2000. This
increase in revenues resulted from the sale of furniture in the current quarter,
a business recently acquired by the Company. This increase was partially offset
by a decrease in interest income because of lower invested balances.
With the acquisition of Waterford Florida, Inc., the Company began
marketing and distributing furniture to the leisure industry. Cost of furniture
sold for the three months ended March 31, 2001 totaled $58,244 producing a gross
profit of $12,149 and a gross profit margin of 17.26%.
General and administrative expenses increased by $283,030 or 362.49% to
$361,110 for the three months ended March 31, 2001 from $78,080 for the
corresponding period of the prior year. This increase resulted from the
expenditures made by the Company in the development of its newly acquired
furniture business.
For the three months ended March 31, 2001, the Company incurred
interest expense of $2,250 on notes payable to the Company's principal
shareholder and to a related party corporation. The Company had no interest
expense for the corresponding period of the prior year.
Depreciation and amortization expense increased by $834 or 56.2% $2,319
for the three months ended March 31, 2001 from $1,485 for the corresponding
period of the prior year. The increase in depreciation and amortization expense
resulted from the increased investment in equipment and software development.
For the three months ended March 31, 2001, the Company incurred a loss
on the sale of investments of $36,762 from its sale of 36,762 from the sale of
Intermost Corporation securities. There was no loss on the sale of investments
for the corresponding period of the prior year.
As a result of the foregoing, the Company's net operating loss before
extraordinary items increased by $318,040 or 453.7% to $388,140 for the three
months ended March 31, 2001 from $70,100 for the corresponding period of the
prior year.
10
For the three months ended March 31, 2001 the Company also incurred an
extraordinary loss of $630,500 from a decline in the value of its holdings in
Grand Slam Treasures, Inc.
For the three months ended March 31, 2001, the Company also reported
other comprehensive income of $200,000 from unrealized gain on available for
sale securities. For the three months ended March 31, 2000, the Company had no
extra ordinary gains or losses and no other comprehensive income.
As a result of the foregoing, the Company's comprehensive loss
increased to $818,640 for the three months ended March 31, 2001 from $70,100 for
the corresponding period of the prior year.
CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the past twelve months, the Company has funded its operating losses
and capital requirements through the sale of securities in its portfolio and
loss from related parties. As of March 31, 2001, the Company had a cash balance
of $10,310 and working capital deficit of $93,661. This compares with cash of
$283,117 and working capital of $509,841 for the corresponding period of the
prior year.
Net cash used in operating activities increased to $111,182 from
$83,681 used in operations for the three months ended March 31, 2001 and 2000,
respectively. The increase in cash used in operations resulted from an increase
in the net operating loss which was partially offset by changes in current
accounts, non-cash losses from a decline in portfolio values and expenses which
were paid with common stock.
Cash flows from investing activities for the three months ended March
31, 2001 increased to $13,238 from $10,291 each being used in investing
activities for the corresponding period of the prior year. This increase
resulted from the sale of securities and the absence of equipment purchases.
Net cash provided by financing activities increased to $95,590 from $0
for the three months ended March 31, 2001 and 2000, respectively. This increase
resulted from loans from related parties of any sale of shares in the current
period.
The Company has experienced significant operating losses throughout its
history, and will acquire substantial funds for the development of its business.
Therefore, the Company's ability to survive is dependent on its ability to raise
capital through the issuance of stock or borrowing of additional funds. Without
the success of one of these options, the Company will not have sufficient cash
to satisfy its working capital and investment requirements for the next twelve
months.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
1. February 5, 2001 - reporting the acquisition of Waterford Florida,
Inc., the corporate name change and the new trading symbol.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
WATERFORD STERLING CORPORATION
/s/ Jacob Nguyen
-------------------------------
Jacob Nguyen, Chief Executive Officer
/s/ Mike Reynolds
-------------------------------
Mike Reynolds, Chief Financial Officer
June 12, 2001