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 September 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from__________to__________.
Commission File Number 0-27929
WATERFORD STERLING CORPORATION
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(Exact name of small business issuer as specified in its charter)
Nevada 62-1655508
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 Knowles Avenue, Winter Park, FL 32789
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(Address of principal executive offices)
(407) 622-2040
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(Issuer's telephone number)
N/A
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(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (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 twelve (12) months (or such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days. Yes X No
As of November 10, 2001, 20,887,815 shares of Common Stock of the
issuer were outstanding.
SKREEM.COM CORPORATION
FORM 10-QSB
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1 . Financial Statements
Consolidated Balance Sheets as of September 30, 2001 .............. 3
Consolidated Statements of Operations-for the three months
and nine months ended September 30, 2001 and 2000 and from
inception to September 2001........................................ 4
Consolidated Statements of Cash Flows- for the nine months ended
September 30, 2001 and 2000 and from inception to September
30, 2001........................................................... 5
Notes to Consolidated Financial Statements......................... 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations..........10
WATERFORD STERLING CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, 2001
ASSETS
CURRENT ASSETS:
Cash $ 4,243
Prepaid expenses (Note 4) 116,345
----------
Total current assets 120,588
EQUIPMENT:
Office equipment 40,761
Accumulated depreciation (17,825)
----------
22,936
OTHER ASSETS:
Prepaid expenses - long term (Note 4) 14,802
Organization costs net of amortization 437
----------
$ 158,763
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses 13,703
Notes payable - related parties (Note 6) 339,467
----------
Total current liabilities 353,170
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 (1,756,334)
----------
Total stockholders' deficit (194,407)
----------
$ 158,763
==========
See accompanying notes to financial statements
3
WATERFORD STERLING CORPORATION
(A Development Stage Company)
Consolidated Statements Of Operations
For The Three Months Ended September 30, 2001 and 2000
For The Nine Months Ended September 30, 2001 and 2000
And May 17, 1989 (Date Of Inception) To September 30, 2001
Inception
Three Months Ended Nine Months Ended To
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000 2001
---------------------------- ---------- ---------- -----------
REVENUE:
Sales of software $ - $ 606,234 $ - $ 651,234 $ 652,458
Sales of furniture 221 - 77,370 - 77,370
Interest income 1,922 6,098 5,946 23,157 56,890
----------- ----------- ----------- ---------- -----------
2,143 612,332 83,316 674,391 786,718
COST AND EXPENSES:
Cost of furniture sold - - 70,072 - 70,072
Selling, general and
administrative 60,551 138,821 562,574 393,170 1,791,399
Interest 5,791 - 13,961 581 17,558
Depreciation and
amortization 2,319 1,630 6,956 4,553 23,698
Loss (gain) on sale of
investments - - 9,825 - 9,825
------------ ----------- ------------ ---------- ----------
Total expenses 68,661 140,451 663,388 398,304 1,912,552
------------ ----------- ------------ ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (66,518) 471,881 (580,072) 276,087 (1,125,834)
------------ ----------- ------------ ---------- ----------
EXTRAORDINARY ITEM
Non-temporary loss
on securities - - (630,500) - (630,500)
------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS) ( 66,518) 471,881 (1,210,572) 276,087 (1,756,334)
OTHER COMPREHENSIVE
INCOME
Unrealized gain on available
for sale securities - 211,265 200,000 173,765 -
------------ ----------- ------------ ------------ ------------
COMPREHENSIVE
INCOME (LOSS) $( 66,518) $ 683,146 $(1,010,572) $ 449,852 $(1,756,334)
============ =========== ============ ============ ===========
Income (loss) per common share
before extraordinary item $ - $ .03 $ (.03) $ (.03)
Extraordinary loss per
common share - - (.03) -
------------ ----------- ------------ -------------
Net income ( loss)
per common share $ - $ .03 $ (.06) $ (03)
============ =========== ============ =============
Weighted average
shares outstanding 20,887,815 13,545,315 20,092,943 13,679,987
============ =========== ============ =============
See accompanying notes to financial statements
4
WATERFORD STERLING CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended September 30, 2001 and 2000
May 17, 1989 (date of Inception) To September 30, 2001
Inception
To
Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001
---------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,210,572) $ 276,087 $(1,756,334)
Adjustment to reconcile net loss to
net cash used by operating activities:
Loss on sale of investments 9,824 - 9,824
Depreciation and amortization 7,096 4,553 18,325
(Increase)in accounts receivable - (8,615) -
Bad debt - - 12,074
Decrease in prepaid expenses 39,406 - 39,406
Increase (decrease) in accounts payable (53,134) 1,215 13,703
Revenue in non-cash transaction - (650,000) (650,000)
Nontemporary 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 (313,798) (376,760) (1,149,706)
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of securities available for sale 59,676 - 59,676
Issuance of notes receivable - (62,075) (290,733)
Collections on notes receivable - 78,658 78,658
Purchase of marketable securities - - (50,000)
Purchase of equipment - (13,359) (40,761)
Increase in organization costs - - (936)
---------- -------- --------
Net cash provided (used)
by investing activities 59,676 3,224 (244,096)
---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock for cash - - 1,009,344
Loans from related parties 245,701 50,000 388,701
---------- -------- --------
Net cash provided from
financing activities 245,701 50,000 1,398,045
---------- -------- --------
NET INCREASE IN CASH (8,421) (323,536) 4,243
Cash, beginning 12,664 377,089 -
---------- -------- --------
Cash, ending $ 4,243 $ 53,553 $ 4,243
========== ======== ========
See (Note 8) for supplemental disclosures.
See accompanying notes to financial statements
5
WATERFORD STERLING CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
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
September 30, 2001 do not differ materially from the aggregate carrying values
of its financial instruments recorded in the accompanying balance sheets.
Dividend policy
The Company has not yet adopted a policy regarding payment of dividends.
6
WATERFORD STERLING CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
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.
1. INCOME TAXES
The Company complies with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. At September 30, 2001 the Company had a net
operating loss ("NOL") carry forward for United States income tax purposes of
approximately $1,109,500. The NOL carryforward expires in increments beginning
in 2004. The Company also had a net capital loss carryover of approximately
$640,000. 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.
2. 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.
3. 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 September 30, 2001 are as follows:
7
WATERFORD STERLING CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
Prepaid rent $ 71,147
Prepaid legal 60,000
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$131,147
Current $116,345
Non current 14,802
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$131,147
4. MARKETABLE SECURITIES
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, thereby establishing a new cost basis of $19,500.
The Company sold the shares during May and June for $46,438 resulting in a
realized gain of $26,938.
Proceeds from the sale of securities available for sale totaled $59,676 for the
nine months ended September 30, 2001, on which gross losses of $9,825 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.
The Company has borrowed additional funds from related parties payable on demand
and bearing interest at 8% and 10% resulting in notes payable and accrued
interest at September 30, 2001 as follows:
Notes payable - Stockholder of the Company $121,680
Notes payable - Market Management, a company
in which a major stockholder has an interest 203,360
Accrued interest 14,427
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$339,467
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
8. SUPPLEMENTAL CASH FLOW DISCLOSURES
Inception to
Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001
--------- ---------- -----------
Non-cash operating and financing activities:
Non-cash sales $ - $ 650,000 $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 $ 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 OR PLAN OF OPERATIONS
This report contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results could differ
materially from those set forth on the forward looking statements as a result of
the risks set forth in a Company's filings with the Securities and Exchange
Commission in general economic conditions and changes in the assumptions used in
making such forward looking statements.
Material Changes in Results of Operations
Three Months Ended Sep 30, 2001 Compared to the Three Months Ended Sep 30, 2000
Revenues for the three months ended September 30, 2001 decreased to
$2,143 from $612,332 for the three months ended September 30, 2000. This
decrease resulted from lack of software sales which totalled $606,234 for the
three months ended September 30, 2000 compared to $0 for the corresponding
period of the current year. In addition, the company reported interest income of
$1,922 for the three months ended September 30, 2001, a decrease of $4,176 from
the interest income of $6,098 from the corresponding period of 2000.
General and administrative expenses decreased by $78,270 or 56.4% to
$60,551 for the three months ended September 30, 2001 from $138,821 for the
corresponding period of the prior year. This decrease resulted from a reduction
in expenditures made by the Company in the development of its software products.
For the three months ended September 30, 2001, the Company incurred
interest expenses of $5,791 on funds borrowed from its principal shareholder.
The Company incurred no interest expense for the corresponding period of the
prior year.
Depreciation and amortization expense increased by $689 or 42.3% to
$2,319 for the three months ended September 30, 2001 from $1,630 for the
corresponding period of the prior year. The increase in depreciation and
amortization expense resulted from increased amortization expenses related to
software.
As a result of the foregoing, the Company incurred a net operating loss
of $66,518 the three months ended September 30, 2001. For the corresponding
period of the prior year, the Company had income before extraordinary items of
$471,881.
For the three months ended September 30, 2001, the Company reported
other comprehensive income, net of taxes, of $211,265. There was no
comprehensive income for the corresponding period of the current year. Because
of the foregoing, the Company reported comprehensive income of $683,146 for the
three months ended September 30, 2000 compared to a loss of $66,518 for the
corresponding three months of the current year.
Nine Months Ended September 30, 2001 Compared to the Nine Months Ended September
30, 2000
Revenues for the nine months ended September 30, 2001 decreased by
$591,075 to $83,316 from $674,391 for the nine months ended September 30, 2000.
This increase in revenues resulted from a decrease in the sale of software of
$651,234 and interest of $17,211 which was partially offsetr by $77,370 of
furniture sales. The cost of goods sold on such furniture was $70,072, producing
a gross margin of 9.43%.
General and administrative expenses increased by $169,404 or 43.1% to
$562,574 for the nine months ended September 30, 2001 from $393,170 for the
corresponding period of the prior year. This increase resulted from development
costs of getting the U.S. and Hong Kong offices ready to take furniture orders.
The Company also incurred interest expenses of $13,961 for the nine months ended
September 30, 2001 compared to interest expense of $581 for the corresponding
period of the prior year.
Depreciation and amortization expense increased by $2,403 or 52.8% to
$6,956 for the nine months ended September 30, 2001 from $4,553 for the
corresponding period of the prior year. The increase in depreciation and
amortization expense resulted from increased amortization of the Company's
software.
10
For the nine months ended September 30, 2001, the Company also incurred
a loss of $9,825 from the sale of certain investments. There was no such loss
for the corresponding period of the prior year.
As a result of the foregoing, the Company incurred a net operating loss
of $580,072 for the nine months ended September 30, 2001. This compares with
operating income of $276,087.
The Company incurred a loss of $630,500 for the nine months ended
September 30, 2001 from the non-temporary loss on securities. There was no such
loss during the corresponding period of the prior year.
In addition, the Company reported other comprehensive income, net of
taxes, of $200,000 from unrealized gain on securities for the nine months ended
September 30, 2001 compared to$173,765 for the nine months ended September 30,
2000. As a result of the foregoing, the Company incurred a comprehensive loss of
$1,010,572 for the nine months ended September 30, 2001 compared to
comprehensive income of $449,852 for the nine months ended September 30, 2000.
CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations and met its
capital requirements through the sale of stock. As of September 30, 2000, the
Company had a cash balance of $4,243 and a working capital deficit of $232,582.
Net cash used in operating activities decreased to $313,798 for the
nine months ended September 30, 2001 from $376,760 for the nine months ended
September 30, 2000. The decrease in cash used in operations principally resulted
from non-cash transactions of $630,500 from the non-temporary loss from
securitres and the $263,082 of expenses paid with common stock which was
partially offset by the increased loss in the current years.
Cash flows used in investing activities for the nine months ended
September 30, 2000 increased to $59,676 from $3,224 increase in investing
activities for the prior years. This increase resulted entirely from the sale of
securities available for sale in the current year.
Net cash provided by financing activities increased to $245,701 from
$50,000 for the nine months ended September 30, 2001 and 2000, respectively. The
entire amount of proceeds for both periods come from loans from related parties.
The Company has experienced an operating loss since inception, but was
profitable for both the three months and nine months ended September 30, 2000.
However, the Company will require substantial funds to continue in 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
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, thereunto duly authorized.
WATERFORD STERLING CORPORATION
Date: November 13, 2001 By:/s/ Jacob Nugyen
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Jacob Nugyen
President and Chief Executive Officer
Date: November 13, 2001 By:/s/ Michael J. Reynolds
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Michael J. Reynolds
Treasurer and Chief Financial Officer