SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                  FORM 10-KSB

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
                     For fiscal year ended December 31, 1997

                         Commission file number 0-18389

                                   ----------

                          WORLD WIDE STONE CORPORATION
              ----------------------------------------------------
              (Exact Name of Small Business Issuer in Its Charter)

           NEVADA                                         33-0297934
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

          5236 South 40th Street, Phoenix, Arizona 85040 (602) 438-1001
          -------------------------------------------------------------
               (Address, including zip code, and telephone number,
               including area code, of issuer's executive offices)

   Securities registered pursuant to Section 12(b) of the Exchange Act: None

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $.001 per share
                   Preferred Stock, par value $.001 per share

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act  during the  preceding  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[ ] No[X]

Check if there is no disclosure of delinquent  filers in response to item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

Issuer's revenue for its most recent fiscal year: $3,111,918.

As of  September  30,  1998,  there were  outstanding  34,703,768  shares of the
issuer's Common Stock, par value $.001 per share (the "Common Stock"). There are
no shares of the issuer's  preferred  stock  outstanding.  The aggregate  market
value of Common Stock held by  nonaffiliates  of the issuer  (9,452,323  shares)
based on the closing price of the  registrant's  Common Stock as reported in the
National Quotation Bureau's "Pink Sheets" on September 30, 1998, was $1,984,988.
For purposes of this  computation,  all officers,  directors and 10%  beneficial
owners of the registrant are deemed to be affiliates.  Such determination should
not be deemed an  admission  that such  officers,  directors  or 10%  beneficial
owners are, in fact, affiliates of the registrant.

Documents incorporated by reference: None.

EXPLANATORY  NOTE: The issuer has voluntarily  filed reports for prior reporting
periods on Forms 10-K and Forms 10-Q, although it qualified as a "small business
issuer," as defined in Item 10(a) of Regulation  S-B, during all prior reporting
periods.  Accordingly, the issuer has elected to file this Annual Report on Form
10-KSB.
<PAGE>
                          WORLD WIDE STONE CORPORATION

                          ANNUAL REPORT ON FORM 10-KSB

                       FISCAL YEAR ENDED DECEMBER 31, 1997

                                TABLE OF CONTENTS
                                                                            PAGE
                                                                            ----

PART I....................................................................... 1

      ITEM 1.  DESCRIPTION OF BUSINESS....................................... 1

      ITEM 2.  DESCRIPTION OF PROPERTY.......................................12

      ITEM 3.  LEGAL PROCEEDINGS.............................................12

      ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........13

PART II......................................................................14

      ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS......14

      ITEM 6.  SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND
               ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
               OPERATIONS....................................................15

      ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................19

      ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE...........................19

PART III.....................................................................20

      ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
               PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT....20

      ITEM 10. EXECUTIVE COMPENSATION........................................22

      ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT....................................................24

      ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................24

PART IV......................................................................25

      ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..............................25

SIGNATURES...................................................................26

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................................F-1

                                        i
<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

         The  Company  quarries,  manufactures,  and  markets a wide  variety of
dimensional stone products.  Dimensional stone products consist of natural stone
that is cut to standard sizes or to sizes  specified in  architectural  designs.
The Company's  products are used for both interior and exterior  applications in
residential and commercial buildings, primarily as floor, wall, and patio tiles,
decorative  trim and  architectural  accents,  countertops  and  tabletops,  and
panels.  The Company markets and distributes its products  throughout the United
States  primarily  on a wholesale  basis  through  approximately  20  authorized
stocking  distributors  and more  than 100  wholesale  distributors,  as well as
architects, residential and commercial developers, installation contractors, and
designers.

         The Company  was  originally  incorporated  in the state of Delaware in
1989 under the name  "Tacitus  Ventures,  Inc." for the purpose of acquiring and
operating  businesses.  In November 1989, Tacitus Ventures,  Inc. acquired World
Wide Stone Corporation,  a privately-held  Nevada  corporation,  and changed its
name to World Wide Stone Corporation. On November 30, 1989, the Company effected
a change of domicile to the state of Nevada by forming a new Nevada  corporation
and  dissolving  the Delaware  corporation.  The Company's  stone  quarrying and
manufacturing  operations  are conducted  through its wholly owned  subsidiaries
Cantera Stone, Inc., a Nevada  corporation;  Marmoles Muguiro,  S.A., de C.V., a
Mexican  corporation;  and  Sociedad  Piedra  Sierra,  S.A.  de C.V.,  a Mexican
corporation.  As used  herein,  the term  "Company"  refers to World  Wide Stone
Corporation and its subsidiaries, predecessors, and operating divisions.

INDUSTRY

         Stone has been used as a primary and decorative  building  material for
thousands of years.  According to published  reports,  world production of stone
materials reached  approximately 94.0 million tons in 1996.  Approximately 500.0
million square meters of fabricated stones were sold at a value of approximately
$20.0  billion in 1996,  an  increase of 9.7% over 1995  consumption.  Published
reports  also  indicate  that  consumption  of stone and marble is  expected  to
increase to 680.0 million square meters in 2000 and to almost 4.0 billion square
meters in 2025.

         Published  reports  indicate  that Italy  produces the vast majority of
finished  dimensional stone each year. A large proportion of current dimensional
stone industry  production involves quarrying large blocks of stone and shipping
them to processing centers in Italy, Germany,  Japan, Brazil, the United States,
and other countries. After processing, the finished stones are then shipped to a
final  destination for  installation.  As a result,  shipping costs and the time
factors  associated with ocean transport become  increasingly  important factors
due to shorter building schedules and lack of advance planning by consumers. The
development of sophisticated, high-capacity computer-controlled stone processing
machinery in recent years has enabled  dimensional stone product  manufacturers,
including the Company,  to increase  output and control costs in spite of higher
costs for transportation and skilled workers.

PRODUCTS

         The  Company  currently  markets a wide  variety of  dimensional  stone
products under the "Durango  Stone(TM)"  brand name. The Company markets several
lines of dimensional stone products that are produced in a variety of colors and
finishes, as follows:

          +    HONED AND POLISHED.  The Company uses traditional stone finishing
               techniques to provide a highly  polished  surface to stone tiles,
               panels,  and  countertops.  The Company offers honed and 
<PAGE>
               polished dimensional stone products in a wide variety of standard
               and  irregular  shapes and sizes,  all of which  provide a highly
               elegant and luxurious appearance.

          +    DURANGO ANCIENT(TM). Instead of honing and polishing the finished
               surface,  the Company tumbles unfinished stones in large drums in
               a process that wears the surface to  replicate  hundreds of years
               of wear and weathering.  This process yields finished stones with
               an aged  appearance  that is highly  attractive  in interior  and
               exterior applications where a highly weathered look is desired.

          +    DURANGO  ANTIQUE(TM).  The Company utilizes a multi-step  process
               that  includes  sandblasting  and acid  washing to yield a highly
               textured  surface with more traction  than a honed  finish.  This
               product is popular  in wet areas  such as patios,  walkways,  and
               pool or spa decks.  Durango  Antique(TM)  provides extra traction
               and a cooler  surface,  even in hot weather,  similar to but much
               cooler  than "cool  deck"  products  often used  around  swimming
               pools.

          +    DURANGO ACCENTS(TM).  The Company offers an increasing variety of
               strips,  tiles,  and panels  that are  designed  to  enhance  and
               compliment its lines of Durango  Stone.  Architects and designers
               can select from various  sizes and shapes of Durango  Accents(TM)
               for use as borders,  back splashes,  and highlights and to create
               unique decorative mosaics of pattern and color.

         The Company  manufactures and markets Durango  Stone(TM)  products in a
wide  variety  of  standard  sizes  ranging  from 1" x 1" to 24" x 24" tiles for
floors and walls.  In  addition,  the  Company  cuts stone  slabs to standard or
custom  sizes  for  countertops,  vanity  tops,  panels,  furniture,  and  other
applications.  The wide range of colors, finishes, and sizes enables architects,
designers, and end users to create unique and distinctive applications.  Samples
of  certain of the  Company's  stone  products  have been  tested for  hardness,
abrasion resistance (durability), water absorption, and coefficient of friction.

         The  Company's  marble  limestone  products  feature  base  colors that
include ivory, beige-taupe,  peach, ivory-beige, brown, or gold. The base colors
are accented by black or white flecks and "flowerings"  ranging from sandy beige
to pewter-gray.  The Company's  travertine products range in color from ivory to
beige to a combination of taupe and ivory,  with occasional black or gray flecks
or flowering.

SALES, MARKETING, AND DISTRIBUTION

         The Company  markets its  dimensional  stone products  primarily in the
United  States.  The Company  employs an in-house  sales force that  markets its
products primarily to approximately 20 authorized  stocking  distributors and to
more than 100 wholesale  distributors of dimensional stone products,  as well as
architects, residential and commercial developers, installation contractors, and
designers.  Representatives  of the Company  also attend  several  domestic  and
international  building industry trade shows each year. In addition, the Company
advertises  its  dimensional  stone  products  and has been  featured  in recent
articles in major  industry  publications  such as DIMENSIONAL  STONE  MAGAZINE,
STONE WORLD MAGAZINE,  and CONTEMPORARY  STONE DESIGN.  The Company  maintains a
showroom at its  headquarters  in Phoenix,  Arizona,  where the Company's  sales
staff  assists  wholesale  buyers,  installation  contractors,  architects,  and
designers to become familiar with the Company's  products and their features and
uses.

         The Company utilizes the services of independent  freight forwarders in
El Paso and Laredo, Texas to manage the importation and storage of the Company's
products at the United  States  border with  Mexico.  These  freight  forwarders
transload  the products at the border,  manage the customs  process,  and either
store the products in a bonded  warehouse or ship the products to the  Company's
warehouse in Phoenix, Arizona or directly to the customer.

                                       2
<PAGE>
QUARRYING AND MANUFACTURING

QUARRYING

         The Company currently extracts marble limestone and travertine from two
quarry  sites in  Coahuila,  Mexico.  The Company pays the owners of the land on
which its  developed  quarry sites are located a royalty based upon the quantity
of stone  extracted by the Company.  In September  1998,  the Company  agreed to
rescind  its rights to  extract  stone from a third  quarry  site in  Chihuahua,
Mexico.

         The  Company  has  engaged  an  independent   contractor  that  employs
approximately  10 to 20 workers to extract the stone from the  Company's  quarry
sites. The Company owns a portion of the equipment,  tools, and supplies used by
the  contractor  to  extract  stone from the  quarries.  The  Company  currently
extracts  approximately  300 cubic meters  (approximately  10,600 cubic feet) of
stone per month from its primary quarry site.

         The quarry  workers drill pilot holes to define the large quarry blocks
or  monoliths to be  extracted.  These blocks are the height of the quarry face,
which  generally is 30 to 40 feet high.  After  drilling  the pilot  holes,  the
quarry workers  utilize  diamond wire saws to free the monoliths from the quarry
face. The monoliths are then cut into three to five blocks of approximately five
feet by six feet by eight feet and weighing about 20,000 pounds each. The quarry
workers then use a front-end loader to load the blocks onto trucks for transport
to the Company's facilities in Durango, Durango, Mexico.

MANUFACTURING AND FINISH PROCESSING

         After the large  stone  blocks  arrive at the  Company's  manufacturing
facilities,  the Company's  skilled  workers utilize a variety of large machines
that split and cut the slabs into progressively smaller blocks. To produce honed
and polished stone products, the workers first utilize computer operated diamond
saws and wire saws to cut the blocks into "billets" measuring  approximately 1.5
inches by 16 inches by 8 feet in length.  The billets are then split length-wise
into two strips and processed through a calibrating  machine that grinds them to
an exact thickness of approximately 10 millimeters.  Workers then fill holes and
voids with a cement-like  material.  After the filling  material has dried,  the
strips are honed,  polished,  and cut to finished sizes.  Workers then bevel the
edges of the tiles,  and the tiles are dried to reveal the natural  color of the
stone. The Company's workers then carefully examine and sort the tiles for color
and  character  as well as  production  defects.  Tiles with  defects are either
repaired or rejected and cut into smaller tiles that can be sold by the Company.
Tiles  without  defects  are  packaged   according  to  their  respective  color
categories  and  shipped to the  Company's  warehouse  in Phoenix,  Arizona,  to
warehouses in Laredo and El Paso, Texas, or directly to the Company's  customers
for  installation  at the end users' home or  business.  The  Company  currently
produces  approximately  3,000 square feet of honed and polished  stone products
per day and  ships  approximately  66,000  square  feet of  honed  and  polished
products per month to the United States.

         To produce Durango Ancient(TM) stone products, the workers place blocks
of stones  into large  tumblers  (drums)  and  vibratories  where the stones are
tumbled and vibrated  together with abrasive  materials of various  sizes.  This
process  produces the appearance of several hundred years of wear and weathering
in as little as one hour.  After tumbling,  the workers split and cut the blocks
into finished dimensions, sort according to color and character, and package for
shipping.  The Company  currently  produces  approximately  2,150 square feet of
Durango Ancient(TM) stone products per day and ships approximately 48,000 square
feet of Durango Ancient(TM) products per month to the United States.

         The Company  produces  Durango  Antique(TM)  stone  products  through a
process that includes  sandblasting  and acid washing.  This process  produces a
highly  textured  surface  with a variety  of unique  appearances.  The  Company
currently  produces  approximately 350 square feet of Durango  Antique(TM) stone
products  per  day  and  ships   approximately  8,000  square  feet  of  Durango
Antique(TM) products per month to the United States.

         During  1997,  the Company  increased  its  emphasis on  improving  the
quality as well as the quantity of dimensional  stone products that it produces.
The  Company  believes  that  it  will  be  able  to  compete  effectively 

                                       3
<PAGE>
with dimensional  stone products imported from Italy and other countries so long
as it can deliver stone products of comparable quality while taking advantage of
the lower  shipping costs and faster  delivery  schedules from its facilities in
Mexico.  The  Company  strives to increase  product  quality  through  increased
training,  improvements  to  production  systems,  and  incentive  programs that
include  bonuses paid to employees  who meet goals  relating to  production  and
quality standards.

EQUIPMENT AND MACHINERY

         Since 1993,  the Company has  invested  approximately  $2.0  million in
equipment  and  machinery   utilized  in  its  stone   quarrying  and  finishing
operations.  The equipment  utilized for dimensioning and surfacing the finished
stone  products are highly  complex and  therefore  the most capital  intensive.
Recent advances in quarrying  technologies  have resulted in increased costs for
quarry equipment. The following is a list of the equipment currently utilized by
the Company in its operations.

                                QUARRY EQUIPMENT

1 - Marini diamond wire saw               3 - 22-wheel tractor trailers for
3 - Mexican-made diamond wire saw             block hauling
2 - Caterpillar electric power plants     1 - 350 cfm Ingersoll-Rand compressor
1 - Front end loader                      1 - 450 cfm Case compressor
1 - Caterpillar on tracks                 6 - rock hammer drills
1 - 20-ton water truck                    1 - Marini down hole driller
                                          2 - Mexican-made down hole drillers

                  MANUFACTURING AND FINISH PROCESSING EQUIPMENT

1 - 63-inch Zonato blockcutter            1 - Ultra Matic vibratory
1 - Mexican-made 47.2-inch blockcutter    1 - Ultra Matic "Big Bertha" vibratory
1 - Zambon four-head splitting machine    1 - Small round vibratory
3 - Zambon head cut-off saws              1 - Sandblasting rig with 350 cfm
1 - 12-head Zonato 25 3/4-inch                DeVilbiss compressor
    calibrating and polishing machine     5 - Pick-up trucks
1 - 10-head Terzago 17 3/4-inch           1 - 10-wheel truck
    calibrating and polishing machine     1 - Nissan forklift
1 - Levi Tunisi 4-head splitting machine  1 - 20-ton gantry crane
1 - Zonato cut-off saw                    1 - Design Force beveling machine
8 - Target tub saws                       1 - Zonato drying and buffing oven
1 - 530-gallon Mekanica tumbler           3 - Mordenti jib saws
1 - 1,320-gallon Mekanica tumbler         2 - U.S.-made gangsaws

BACKLOG

         The Company  strives to ship its products as quickly as possible  after
receipt of purchase  orders from its customers.  The Company does not maintain a
material backlog of orders.

TRADEMARKS AND PATENT RIGHTS

         Although  the  Company's  business  historically  has not  depended  on
trademark or patent  protection,  the Company recognizes the increasing value of
its various  trade  names and marks.  The  Company is taking  steps  designed to
protect,  maintain,  and increase the value of its trade names and marks.  There
can be no assurance,  however,  that the Company will be able to obtain legal or
other  protection for its trade names and marks or that any protections that the
Company  obtains  will be adequate to maintain or enhance the value of its trade
names or marks.
                                       4
<PAGE>
COMPETITION

         The  dimensional  stone  industry is highly  fragmented  and  extremely
competitive.   The  Company  competes  with  many  domestic  and   international
companies,  some of which have  greater  market  recognition  and  substantially
greater financial, technical, marketing,  distribution, and other resources than
the Company  possesses.  The Company  believes that its primary  competitors are
dimensional stone product manufacturers that obtain their stone from quarries in
Italy and Turkey,  which yield stone  products  that compete with the  Company's
products in terms of appearance,  quality,  and price. The Company also competes
indirectly with  manufacturers of other products,  such as ceramic tile, carpet,
or wood flooring products and plastic laminate or Corian(TM) countertops,  which
are sold for use as  flooring,  countertops,  and other  installations  in which
dimensional stone products may be used. The Company competes  principally on the
basis of the increasing  popularity of dimensional  stone  products;  the color,
quality, and appeal of its products; product design; the prices and availability
of its  products;  and its  ability to deliver  products  to market  sooner than
overseas  manufacturers  of competing  products.  The Company  believes that the
geographical  proximity of its Mexican  processing  facilities to its markets in
the United States  provides a  competitive  advantage by enabling the Company to
fill orders on much shorter lead times than its overseas competitors.  There can
be no assurance  that the Company will continue to compete  successfully  in the
future.  See  Item 1,  "Description  of  Business  -  Special  Considerations  -
Competition."

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  remodelling.  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.   See  Item  1,   "Description   of  Business  -  Special
Considerations - Certain Factors That Could Adversely Affect Operating Results."

NATURE OF THE COMPANY'S MARKETS

         The Company designs and markets dimensional stone products primarily in
those  styles and colors  that  historically  have not been  subject to frequent
fluctuations in demand. The markets for the Company's products,  however, may be
subject to changing customer tastes, a high level of competition, and a constant
need to create and market new products. Demand for dimensional stone products is
influenced by the popularity of certain types of stone as well as  architectural
styles,  cultural and demographic  trends in society,  marketing and advertising
expenditures, and general economic conditions. Because these factors can change,
customer  demand  also can shift.  Certain of the  Company's  dimensional  stone
products may be  successfully  marketed for only a limited time. The Company may
not  always be able to respond to  changes  in  customer  demand  because of the
amount of time and financial  resources that may be needed to bring new products
to market.  The  inability  to respond to market  changes  would have an adverse
impact  on the  Company.  See Item 1,  "Description  of  Business  -  Products,"
"Description of Business - Sales and Marketing," and  "Description of Business -
Competition."

SOURCES AND AVAILABILITY OF RAW MATERIALS AND SUPPLIES

         The  Company   currently  obtains  all  of  its  marble  limestone  and
travertine  from two quarry  sites in Coahuila,  Mexico.  Based upon the exposed
quarry face as well as the length,  depth,  and spacing of various  quarry holes
drilled in the course of its quarry operations,  the Company currently estimates
that its primary  quarry  contains at least 2.0 million  cubic  meters of marble
limestone and travertine.  The Company currently  consumes  approximately  4,000
cubic  meters of stone per year.  Accordingly,  the Company  believes  that this
quarry will be sufficient to meet the Company's  requirements for this stone for
an  indefinite  period  at  the  Company's   currently   anticipated  levels  of
production.  Although the Company has a long-term  lease for its primary quarry,
the  inability  to obtain  stone from this site for even a short  period of time
could have a material adverse affect on the Company. See Item 1, "Description of
Business - Special  Considerations  - Limited  Availability of Desirable  Quarry
Sites;  Dependence on Third Parties for Quarry  Operations."  In September 1998,
the Company  agreed to rescind its rights to mine a large  deposit of homogenous
green quartzite in the state of Chihuahua, Mexico.

                                       5
<PAGE>
         The Company  utilizes a variety of supplies for its  dimensional  stone
quarrying and finishing  operations.  These supplies include  industrial diamond
segments for saw blades,  diamond wires, diamond tooling, and various abrasives.
The  Company  believes  that  all of the  supplies  that are  necessary  for the
production of its dimensional stone products are readily available from multiple
sources.

GOVERNMENT REGULATION; ENVIRONMENTAL MATTERS

         The Company is subject to various federal and state  governmental  laws
and regulations of the United States and Mexico related to  occupational  safety
and health,  labor,  and wage  practices  as well as federal,  state,  and local
governmental  regulations  relating to the use,  storage,  discharge,  handling,
emission,  generation,  manufacture,  and disposal of toxic,  volatile, or other
hazardous  substances used to produce the Company's products.  The processing of
dimensional  stone  products  utilizes  significant  amounts of fresh  water and
produces certain inert materials,  primarily calcium carbonate,  as by-products.
The Company believes that these by-products are harmless to the environment.  In
addition,  the Company has  installed a water  purification  system at its stone
processing  facility in Mexico.  This system reclaims  approximately  90% of the
water used in the Company's stone  processing  operations.  The waste created by
the stone processing  operations is transported off-site on a regular basis by a
third-party waste hauler.  Failure to comply with current or future governmental
laws and regulations  could result in the imposition of substantial fines on the
Company,  suspension  of  production,  alteration of its  production  processes,
cessation of  operations,  or other actions that could  materially and adversely
affect the Company's business,  financial condition,  and results of operations.
The  Company  believes  that  it  currently  is  in  material   compliance  with
environmental  and other laws applicable to its quarrying and dimensional  stone
manufacturing operations.

INSURANCE

         The Company maintains a $2.0 million liability insurance policy with an
additional $1.0 million in commercial umbrella liability  coverage.  The Company
maintains  insurance  on its  vehicles  in  Mexico.  Otherwise,  the  Company is
self-insured  for losses incurred in connection with its Mexican  operations and
facilities. The Company believes its insurance coverage is adequate.

EMPLOYEES

         As of September 30, 1998, the Company employed 132 persons, all of whom
were employed full-time.  Of the total number employed by the Company,  118 were
engaged  in  factory  operations,  5 in  sales  and  marketing,  4 in  warehouse
functions, and 5 in administrative functions,  including the Company's executive
officers.  All of the Company's  factory  employees  are located in Mexico.  The
Company has  experienced  no work  stoppages  and is not a party to a collective
bargaining agreement. The Company believes that it maintains good relations with
its employees.

         The Company  strives to foster  continuous  quality  improvement at its
factory  operations in Mexico and corporate  headquarters  in Phoenix,  Arizona,
through a program based on "Control  Systems  Theory." The Company believes that
Control  Systems  Theory  forms  the  basis  for an  appropriate  multi-cultural
approach to a multi-national  company. This theory maintains that all people are
internally  motivated and will not produce  quality  products or services unless
their needs for belonging, accomplishment, freedom, and fun are met. What people
choose in order to meet  these  needs  will vary from  person to person and from
culture to culture.  Control  Systems Theory as adopted by the Company  involves
active  interest  by  management  in the  needs of the  Company's  employees;  a
non-threatening,   participatory  environment;  more  effective  training;  more
empowerment   for  decision   making;   and   increased   emphasis  on  personal
responsibility.  The  Company  stresses  cooperation  rather than  coercion.  In
implementing  Control Systems Theory,  the Company  de-emphasized  final product
inspections  in favor of  training  its workers to inspect  their own work.  The
Company  also  emphasizes a quality  environment  in its factory as an essential
element for quality  production.  The Company  believes that the  application of
Control   Systems   Theory  has  proven  to  be  beneficial  in  increasing  the
satisfaction  and  cooperation  of its employees and the quality of its finished
products.  The Company has made a  commitment  to  continuing  education  of its
employees  and the  application  of Control  Systems  Theory  principles  in its
operations.

                                       6
<PAGE>
                             SPECIAL CONSIDERATIONS

         THE FOLLOWING FACTORS, IN ADDITION TO THOSE DISCUSSED ELSEWHERE IN THIS
REPORT,  SHOULD BE  CAREFULLY  CONSIDERED  IN  EVALUATING  THE  COMPANY  AND ITS
BUSINESS.

CERTAIN FACTORS THAT COULD ADVERSELY AFFECT OPERATING RESULTS

         The  Company's  operating  results are  affected  by a wide  variety of
factors that could adversely impact its net sales and operating  results.  These
factors,  many of which are  beyond  the  control of the  Company,  include  the
Company's  ability to identify trends in markets that the Company targets and to
introduce  products that take  advantage of those trends;  the ability to locate
and obtain the rights to quarry new  sources of stone;  the  ability to build or
acquire  additional  facilities  and  equipment  necessary to quarry and produce
finished stone products at competitive prices; its ability to design and arrange
for timely  production  and delivery of its products;  market  acceptance of the
Company's  products;  the level  and  timing  of  orders  placed  by  customers;
seasonality;  the popularity and life cycles of and customer  satisfaction  with
products  designed and marketed by the Company;  the timing of  expenditures  in
anticipation  of  orders;  the  cyclical  nature  of the  markets  served by the
Company; and competition and competitive pressures on prices.

         The Company's  ability to increase its sales and  marketing  efforts to
increase the  visibility of its products in order to stimulate  customer  demand
and its  ability to monitor  and  control  manufacturing  processes  in order to
maintain  satisfactory delivery schedules are important factors in its long-term
prospects.  A  slowdown  in demand  for the  Company's  products  as a result of
changing consumer tastes and spending patterns,  economic  conditions,  or other
broad-based factors could adversely affect the Company's operating results.

POSSIBLE NEED FOR ADDITIONAL CAPITAL

         The Company believes that its existing capital  resources and cash flow
from operations will be sufficient to satisfy the Company's capital requirements
during the next 12-month period. The Company,  however,  may be required to seek
additional  equity or debt  financing to finance future  acquisitions  of quarry
rights, to construct or acquire facilities or equipment,  to develop new product
lines,  or to provide funds to take advantage of other  business  opportunities.
The Company cannot predict the timing or amount of any such capital requirements
at this time. Although the Company has been able to obtain adequate financing on
acceptable terms in the past, there can be no assurance that such financing will
continue  to be  available  on  acceptable  terms.  In  particular,  the Company
believes that difficulties or uncertainties  encountered by lenders that wish to
utilize the Company's equipment and facilities located in Mexico as security may
make it more  difficult  or costly for the  Company to obtain  purchase or lease
financing  in the future.  If such  financing is not  available on  satisfactory
terms,  the Company may be unable to expand its business at the rate desired and
its  operating  results may be  adversely  affected.  Debt  financing  increases
expenses and must be repaid  regardless of operating  results.  Equity financing
could result in additional dilution to existing shareholders.

INTERNATIONAL TRADE, EXCHANGE, AND FINANCING

         The Company  currently  obtains all of its  dimensional  stone products
from  Mexico and its  dimensional  stone  processing  facilities  are located in
Mexico. The Company has capital investments in facilities,  tools, and equipment
in Mexico that  amounted to more than $5.0 million as of December 31, 1997.  The
Company  believes that final  production of its  dimensional  stone  products at
factories  in Mexico  enables the Company to obtain  these items on a cost basis
that  enables  the  Company to market its  products  profitably.  The  Company's
dependence on foreign  personnel and the Company's  maintenance of equipment and
inventories abroad expose it to certain economic and political risks,  including
risks  associated  with  establishing  and  maintaining   satisfactory  internal
controls at its Mexican  operations;  political and economic  conditions abroad;
and the possibility of expropriation,  supply disruption, currency controls, and
exchange  fluctuations  as well as changes  in tax laws,  tariffs,  and  freight
rates.  Protectionist  trade  legislation in either the United States or foreign
countries,  such as a change in the current tariff structures,  export or import
compliance  laws, or other trade policies,  could adversely affect the Company's
ability to  manufacture  its products  outside the United States or the price at
which the Company can 
                                       7
<PAGE>
obtain  those  products.   The  Company  has  not  experienced  any  significant
interruptions in obtaining its dimensional stone products to date.

         All of the  Company's  purchases  from  its  Mexican  subsidiaries  are
denominated  in United States  dollars.  As a result,  the Company,  through its
Mexican  subsidiaries,  may be subject to risks associated with  fluctuations in
the value of the Mexican peso in the future.  These risks  include the potential
for  inflationary  pressures and the disruptive  effects on the employees of the
Company's Mexican subsidiaries that may occur as a result of any devaluations of
the peso that may occur in the future.  The  devaluation of the peso in December
1994  resulted  in a  short-term  decrease  in the  Company's  costs to  produce
dimensional stone products in Mexico. The Company, however, increased wages paid
to employees of its Mexican  subsidiaries in order to reduce the negative impact
that the currency  devaluation had on the workers' standards of living.  Because
of the factors  described  above,  any  devaluations  of the Mexican peso in the
future could have an adverse effect on the Company's operating results.

         To date,  the Company has made limited sales of its  dimensional  stone
products  in Canada and other  foreign  countries.  Sales in  foreign  countries
currently do not  represent a material  portion of the  Company's  revenue.  All
sales outside the United States are denominated in United States  dollars.  As a
result, the Company does not bear any risks that may be associated with exchange
rate fluctuations in connection with such sales.

LIMITED AVAILABILITY OF DESIRABLE QUARRY SITES; DEPENDENCE ON THIRD PARTIES FOR
QUARRYING OPERATIONS

         Although  the  Company  has rights to two  quarry  sites,  the  Company
currently obtains  substantially all of its stone blocks from one quarry site in
Coahuila,   Mexico.  The  Company  located  this  quarry  site  after  extensive
geological searches by the Company's  management.  The Company believes that the
stone extracted from this site possess  distinctive  characteristics in terms of
color and quality that make this particular type of marble  limestone unique and
attractive.  The Company  extracts  stone from this quarry  pursuant to existing
contractual  arrangements with the owners of the land. The inability to continue
to extract sufficient quantities of stone from this site for even a short period
of time may have a material adverse effect on the Company's  financial condition
and results of  operations.  There can be no assurance that the Company would be
able to locate an alternative source of stone with desirable  characteristics on
a timely  basis in the event that it is unable to obtain  stone from its primary
quarry site.

         The Company  depends  upon  third-party  contractors  to extract  stone
blocks from the Company's quarry sites in Mexico. Although the Company owns some
of the tools,  equipment,  and supplies utilized in the quarrying  process,  the
Company  has limited  control  over the  quarrying  processes  themselves.  As a
result, any difficulties  encountered by the third-party contractors that result
in production  delays or the inability to fulfill orders on a timely basis could
have a  material  adverse  effect  on the  Company.  The  Company  does not have
long-term   contracts  with  its  third-party   contractors.   The  Company  has
experienced   short-term   interruptions   in  services  from  its   third-party
contractors  in the  past  and was  able to take  temporary  measures  to  avoid
prolonged disruption to its quarrying operations.  Although the Company believes
it would be able to secure  other  third-party  contractors  that could  conduct
quarrying  operations  for  the  Company,  the  Company's  operations  could  be
adversely  affected  if it  lost  its  relationship  with  any  of  its  current
contractors.  The Company generally does not maintain an inventory of sufficient
size that would provide protection for an interruption of supply in excess of 60
days.

RELIANCE ON INDEPENDENT DISTRIBUTION CHANNELS

         The Company markets and distributes its products  throughout the United
States  primarily  through a network of  authorized  stocking  distributors  and
wholesale buyers as well as architects,  developers,  installation  contractors,
and  designers.  Stocking  distributors  generally  stock  inventories  only  in
quantities deemed sufficient to fill anticipated short-term orders. As a result,
orders  generally can be cancelled and volume levels changed or delayed on short
notice  to the  Company.  The  Company  may not be able  to  replace  cancelled,
delayed,  or reduced  orders in a timely  manner.  The Company  depends upon its
network  of  independent  distributors,  wholesalers,  and  others  to sell  its
products to end users, to perform  installation  services,  and to perform other
services  after the sale.  Most of these  distributors,  wholesalers,  and other
purchasers  of stone  products  carry  products  that compete  

                                       8
<PAGE>
directly with the Company's  products and other dimensional stone  manufacturers
compete  intensely  for  their  attention.  There can be no  assurance  that the
Company will be able to maintain favorable  relationships with the distributors,
wholesalers, and others that currently carry or sell the Company's product lines
in order to encourage them to promote and sell its products  instead of those of
its competitors. There also can be no assurance that the Company will be able to
develop similar  relationships with additional  distributors,  wholesalers,  and
others in the future.  See Item 1, "Description of Business - Sales,  Marketing,
and Distribution."

WEAKNESSES IN INTERNAL CONTROLS

         The Company's  independent public  accountants  reported to the Company
that, in the course of the audit of the Company's  financial  statements for the
year ended  December 31, 1997,  they  discovered  certain  conditions  that they
believe constitute  material weaknesses in the internal control structure of the
Company.  These  weaknesses,  however,  did not cause the Company's  auditors to
modify their reports on the Company's financial  statements for fiscal 1997. The
Company has  determined  to take such steps as may be  necessary  to address and
correct  weaknesses  in its  internal  controls.  In this  regard,  the  Company
recently  employed a Chief  Accounting  Officer  and has begun  development  and
implementation   of  policies  and  procedures   designed  to  ensure   accurate
classification  and timely  recording  of  significant  transactions  as well as
development  and  implementation  of a management  reporting  system designed to
facilitate management oversight of business operations and financial reporting.

RAPID MARKET CHANGES

         The Company designs and markets dimensional stone products primarily in
those  styles and colors  that  historically  have not been  subject to frequent
fluctuations in demand. The markets for the Company's products may be subject to
rapidly changing  customer  tastes, a high level of competition,  and a constant
need to create and market new products. Demand for dimensional stone products is
influenced by the popularity of certain types of stone as well as  architectural
styles, cultural and demographic trends, marketing and advertising expenditures,
and general  economic  conditions.  Because these  factors can change,  customer
demand also can shift.  Certain of the Company's new dimensional  stone products
may be successfully marketed for only a limited time. The Company may not always
be able to respond to changes in customer taste and demand because of the amount
of time and  financial  resources  that may be required to bring new products to
market.  The inability to respond to market changes could have an adverse impact
on the Company's operations. See Item 1, "Description of Business - Products."

DEPENDENCE ON NEW PRODUCTS

         The Company  historically  has focused on producing  dimensional  stone
products in traditional  colors,  styles, and finishes.  The Company's operating
results  will  depend to a  significant  extent on its  ability to  continue  to
develop and  introduce  new  dimensional  stone  products on a timely basis that
compete   effectively   on  the  basis  of  price  and  that  address   customer
requirements.  The  success  of new  product  introductions  depends  on various
factors, including proper new product selection,  successful sales and marketing
efforts, timely production and delivery of new products, and consumer acceptance
of new products. There can be no assurance that any new products will receive or
maintain  substantial market acceptance.  The Company's future operating results
could be  adversely  affected if the Company is unable to design,  develop,  and
introduce  competitive  products on a timely basis. See Item 1,  "Description of
Business - Products."

COMPETITION

         The  dimensional  stone  products  markets  are highly  fragmented  and
extremely competitive. The Company competes with many domestic and international
companies,  some of which have  greater  market  recognition  and  substantially
greater financial, technical, marketing,  distribution, and other resources than
the Company possesses.

                                       9
<PAGE>
         The Company  believes that its  relationships  with many of the leading
dimensional   stone   processing   equipment   manufacturers,   importers,   and
distributors  represent a  significant  advantage  over its  competitors  in the
dimensional stone products industry. Accordingly, the Company strives to develop
and  strengthen   these   relationships.   The  Company's   ability  to  compete
successfully depends on a number of factors both within and outside its control,
including the quality,  appearance,  uniqueness,  pricing,  and diversity of its
products;  the continued popularity of its available stone products; the quality
of  its  customer  services;  its  ability  to  recognize  industry  trends  and
anticipate  shifts in consumer  demands;  its success in designing and marketing
new products; the availability of adequate sources of manufacturing capacity and
its ability to meet  delivery  schedules;  its  efficiency  in filling  customer
orders;  its ability to develop and maintain  effective  marketing programs that
enable  it  to  sell  its  products;  product  introductions  by  the  Company's
competitors;  the  number,  nature,  and success of its  competitors  in a given
market;  and general  market and economic  conditions,  including  trends in the
residential  and commercial  building  industries in the United States and other
countries.  The  Company  currently  competes  principally  on the  basis of the
increasing  popularity of dimensional stone products;  the color,  quality,  and
appeal of its  products;  product  design;  the prices and  availability  of its
products;  and its ability to deliver  products to market  sooner than  overseas
manufacturers of competing products.  There can be no assurance that the Company
will continue to be able to compete successfully in the future.

FLUCTUATIONS IN SALES

         The second  and third  calendar  quarters  of each year  generally  are
characterized  by higher  sales of  dimensional  stone  products  because of the
increased  level of  residential  construction  activities  during those months.
Seasonal  fluctuations  in  quarterly  sales may  require  the  Company  to take
temporary  measures,  including  increased  personnel,   borrowings,  and  other
operational  changes,  and  could  result  in  unfavorable   quarterly  earnings
comparisons. The Company also may be subject to periodic declines experienced by
the building industry in general. See Item 1, "Description of Business - Special
Considerations - Certain Factors That Could Adversely Affect Operating Results."

MANAGEMENT OF GROWTH

         Since  1993,   the  Company's   business   operations   have  undergone
significant  changes and growth,  including  locating,  obtaining  the rights to
develop,  and developing its sources of stone;  emphasis on and expansion of its
dimensional  stone product  lines;  and  significant  investments in facilities,
equipment,  and  tooling.  The  Company's  ability  to  manage  effectively  any
significant  future  growth,  however,  will  require it to further  enhance its
operational,  financial, management, and internal control systems; to expand its
facilities and equipment; to produce and receive products on a timely basis; and
to successfully hire, train, and motivate additional  employees.  The failure of
the  Company to manage its growth on an  effective  basis  could have a material
adverse  effect on the  Company's  operations.  The  Company  may be required to
increase  staffing and other expenses as well as to make expenditures on capital
equipment and manufacturing  facilities in order to meet the anticipated  demand
of its customers.  Sales of the Company's dimensional stone products are subject
to changing consumer tastes,  and customers for the Company's products generally
do not  commit  to firm  orders  for  more  than a short  time in  advance.  The
Company's profitability would be adversely affected if the Company increases its
expenditures in anticipation of future orders that do not  materialize.  Certain
customers also may increase  orders for the Company's  products on short notice,
which would place an excessive short-term burden on the Company's resources.

DEPENDENCE ON KEY PERSONNEL

         The Company's  development  and  operations to date have been,  and its
proposed  operations  will be,  substantially  dependent  upon the  efforts  and
abilities of its senior management, including Franklin Cunningham, the Company's
Chairman  of the Board,  President,  and Chief  Executive  Officer.  The loss of
services of one or more of its key employees, particularly Mr. Cunningham, could
have a material adverse affect on the Company. The Company does not maintain key
person  life  insurance  on the  life  of  Mr.  Cunningham  or any of its  other
officers.

                                       10
<PAGE>
CONTROL BY MANAGEMENT

         The directors and executive officers of the Company and the officers of
the Company's  Mexican  subsidiaries  currently own  approximately  72.8% of the
Company's outstanding Common Stock. Accordingly,  such shareholders collectively
have the power to elect all of the members of the  Company's  Board of Directors
and thereby to control the business and policies of the Company.

THIN TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; PENNY STOCK RULES

         The  Company's  Common  Stock  currently  is  quoted  in  the  National
Quotation  Bureau's "Pink  Sheets." The trading  volume of the Company's  Common
Stock  historically  has been  limited,  and there can be no  assurance  that an
active  public  market  for the  Company's  Common  Stock will be  developed  or
sustained.  The trading price of the Company's Common Stock in the past has been
and in the future could be subject to wide fluctuations in response to quarterly
variations  in  operating   results  of  the  Company,   actual  or  anticipated
announcements  of new  products  by the Company or its  competitors,  changes in
analysts' estimates of the Company's financial  performance,  general conditions
in the markets in which the Company competes,  worldwide  economic and financial
conditions,  and other  events or factors.  The stock market in general also has
experienced  extreme  price  and  volume  fluctuations  that  have  particularly
affected the market prices for many rapidly  expanding  companies and often have
been  unrelated to the  operating  performance  of such  companies.  These broad
market  fluctuations  and other factors may adversely affect the market price of
the Company's  Common  Stock.  See Item 5, "Market for Common Equity and Related
Stockholder Matters."

         The  Company's  Common Stock in the past has been and from time to time
in the future may be subject to the "penny stock" rules as promulgated under the
Securities  Exchange Act of 1934, as amended (the "Exchange  Act"). In the event
that no exclusion  from the definition of a "penny stock" under the Exchange Act
is available,  then any broker engaging in a transaction in the Company's Common
Stock will be required to provide any customer with a risk disclosure  document,
disclosure of market quotations,  if any,  disclosure of the compensation of the
broker-dealer  and its  salesperson  in the  transaction,  and  monthly  account
statements  showing the market  values of the Company's  securities  held in the
customer's  accounts.  The bid and offer quotation and compensation  information
must be provided prior to effecting the transaction and must be contained on the
customer's  confirmation.   Certain  brokers  are  less  willing  to  engage  in
transactions  involving "penny stocks" as a result of the additional  disclosure
requirements  described  above,  which may make it more difficult for holders of
the Company's Common Stock to dispose of their shares.

SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL DEPRESSIVE EFFECT ON STOCK PRICE

         Of the  34,703,768  shares of Common Stock  outstanding as of September
30, 1998,  approximately  3,600,000 shares are eligible for resale in the public
market without restriction unless held by an "affiliate" of the Company, as that
term is defined under the  Securities  Act of 1933, as amended (the  "Securities
Act"). The approximately  31,100,000  remaining shares of Common Stock currently
outstanding  are  "restricted  securities," as that term is defined in Rule 144,
and may be sold only in compliance with Rule 144, pursuant to registration under
the Securities Act, or pursuant to an exemption  therefrom.  Affiliates also are
subject to certain of the resale  limitations of Rule 144 as  promulgated  under
the Securities Act. Generally, under Rule 144, each person who beneficially owns
restricted  securities with respect to which at least one year has elapsed since
the later of the date the shares were  acquired from the Company or an affiliate
of the Company may, every three months, sell in ordinary brokerage  transactions
or to  market  makers an amount  of  shares  equal to the  greater  of 1% of the
Company's  then-outstanding Common Stock or, if the shares are quoted on a stock
exchange or Nasdaq,  the average  weekly trading volume for the four weeks prior
to the proposed  sale of such  shares.  Sales under Rule 144 also are subject to
certain   manner-of-sale   provisions  and  notice   requirements   and  to  the
availability of current public  information  about the Company.  A person who is
not an  affiliate,  who has not been an  affiliate  within three months prior to
sale, and who beneficially  owns restricted  securities with respect to which at
least two  years  have  elapsed  since  the  later of the date the  shares  were
acquired  from the  Company or from an  affiliate  of the Company is entitled to
sell  such  shares  under  Rule  144(k)  without  regard  to any  of the  volume
limitations or other  requirements  described  above. An aggregate of 25,081,445
shares held by the Company's officers and directors 

                                       11
<PAGE>
currently are available for sale under Rule 144. Sales of substantial amounts of
Common Stock by  shareholders  of the Company,  or even the  potential  for such
sales, are likely to have a depressive  effect on the market price of the Common
Stock and could impair the Company's  ability to raise capital  through the sale
of its equity securities.

LACK OF DIVIDENDS

         The Company has never paid any cash  dividends  on its Common Stock and
does not  currently  anticipate  that it will pay  dividends in the  foreseeable
future.  Instead,  the Company  intends to apply  earnings to the  expansion and
development of its business.

CHANGE IN CONTROL PROVISIONS

         The  Company's   Articles  of  Incorporation  and  Nevada  law  contain
provisions  that may have the  effect  of  making  more  difficult  or  delaying
attempts by others to obtain  control of the Company,  even when those  attempts
may be in the best interests of shareholders. The Articles of Incorporation also
authorize the Board of Directors,  without shareholder approval, to issue one or
more series of preferred stock, which could have voting, liquidation,  dividend,
conversion,  or other rights that adversely affect or dilute the voting power of
the holders of Common Stock.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         Certain  statements and information  contained in this Report under the
headings "Description of Business" and "Management's  Discussion and Analysis of
Financial Condition and Results of Operations" concerning future,  proposed, and
anticipated  activities  of the  Company;  certain  trends  with  respect to the
Company's revenue,  operating results,  capital resources, and liquidity or with
respect to the markets in which the Company  competes or the  dimensional  stone
industry in general;  and other  statements  contained in this Report  regarding
matters that are not historical facts are  forward-looking  statements,  as such
term is defined in the Securities Act. Forward-looking statements, by their very
nature, include risks and uncertainties,  many of which are beyond the Company's
control. Accordingly,  actual results may differ, perhaps materially, from those
expressed in or implied by such forward-looking  statements.  Factors that could
cause actual results to differ materially from such  forward-looking  statements
include those discussed  elsewhere  under this Item 1,  "Description of Business
Special Considerations."

ITEM 2. DESCRIPTION OF PROPERTY

         The  Company  leases  a  facility  in  Phoenix,   Arizona,   containing
approximately  10,000 square feet. The lease term expires in December 2002, with
two five-year renewal options.  The Company uses approximately 3,000 square feet
of the facility for its corporate offices and showroom and  approximately  7,000
square feet for warehouse space.

         The Company owns  approximately 5.4 acres of land in Durango,  Durango,
Mexico where its  dimensional  stone  processing  facilities  are  located.  The
Company owns four  buildings,  containing an aggregate of  approximately  40,000
square feet, located on this property. The Company utilizes these facilities for
its stone processing, finishing, selection, and warehousing operations.

ITEM 3. LEGAL PROCEEDINGS

         On February 7, 1997, the Company filed a lawsuit against Mario Ruiz and
Progressive  Transfer Company,  the Company's transfer agent. The Company sought
to  recover  certificates  representing  4,310,000  shares of  Common  Stock and
1,666,667  shares of  preferred  stock from Mr. Ruiz for  failure to  contribute
certain  assets  as  consideration  for  such  shares.  The  Company  authorized
Progressive  Transfer  Company,  the Company's  transfer  agent,  to cancel such
shares on the Company's stock records.  The Company named  Progressive  Transfer
Company as a party to the  lawsuit as a  formality  to prevent  the  inadvertent
transfer of the certificates held by Mr. Ruiz. On June 19, 1998, the Company and
Mr. Ruiz settled this lawsuit. Pursuant to the settlement, Mr. Ruiz

                                       12
<PAGE>
has  relinquished  his rights  with  respect  to the shares of Common  Stock and
preferred stock that were the subject of the lawsuit.

         In  September   1998,   the   Company,   through  one  of  its  Mexican
subsidiaries,  initiated  litigation  with  Multibanco  Comermex  S.A. and Banca
Serfin S.A.  ("Banca  Serfin") for the release of the lien against certain trust
assets. The lawsuit alleges that the debt owed by the Company to Banca Serfin is
much less than the bank has  claimed.  The bank  claims  that the  Company  owes
approximately  $900,000.  The Company is vigorously litigating its position that
it has repaid all  borrowings  owed to Banca Serfin.  The Company  established a
reserve of  approximately  $900,000 in 1996 to cover any damages  resulting from
the lawsuit  and is no longer  accruing  interest  related to the balance on its
financial statements. Although the Company believes that the expected outcome of
this matter will not have a material adverse effect on the results of operations
or the financial  condition of the Company,  there can be no assurance  that the
Company will achieve a favorable outcome in this litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.

                                       13
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The  Company's  Common  Stock  currently  is  quoted  in  the  National
Quotation  Bureau's  "Pink Sheets"  under the symbol  "WWST." The Company has no
shares of  preferred  stock  outstanding.  The  following  table  sets forth the
quarterly high and low closing sale prices of the Company's Common Stock for the
calendar periods indicated.
                                                           COMMON STOCK
                                                        ------------------
                                                         HIGH         LOW
                                                         ----         ---
          1995:
             First Quarter.........................     $ 1.00       $1.00
             Second Quarter........................       1.00        1.00
             Third Quarter.........................       1.00        1.00
             Fourth Quarter........................       1.00        1.00

          1996:
             First Quarter.........................     $ 0.50       $0.25
             Second Quarter........................       0.25        0.25
             Third Quarter.........................       0.88        0.50
             Fourth Quarter........................       0.63        0.03

          1997:
             First Quarter.........................     $ 0.34       $0.06
             Second Quarter........................       0.34        0.06
             Third Quarter.........................       0.50        0.03
             Fourth Quarter........................       0.50        0.03

          1998:
             First Quarter.........................     $ 0.22       $0.03
             Second Quarter........................       0.63        0.03
             Third Quarter.........................       0.21        0.03

         As of  September  30,  1998,  there were  approximately  500 holders of
record of the Company's  Common Stock.  On September 30, 1998, the closing sales
price of the Company's  Common Stock on the National  Quotation  Bureau's  "Pink
Sheets" was $.21 per share.

         The Company has not  declared or paid any cash  dividends on its Common
Stock  and  does  not  intend  to  declare  or pay  any  cash  dividends  in the
foreseeable  future. The payment of dividends,  if any, is within the discretion
of the Board of Directors and will depend on the Company's earnings, if any, its
capital  requirements  and  financial  condition,  and such other factors as the
Board of Directors may consider.

         On February 14, 1997,  the Company issued an aggregate of 40,000 shares
of Common  Stock to Peter K.  Kloepfer.  The Company  issued the shares  without
registration  under  the  Securities  Act in  reliance  on  Section  4(2) of the
Securities Act.

                                       14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

         The following table summarizes certain selected consolidated  financial
data of the  Company  and is  qualified  in its  entirety  by the more  detailed
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and  Analysis  of  Financial  Condition  and  Results of  Operations"  appearing
elsewhere  in this  Report.  The data for fiscal 1995 and 1996 has been  derived
from the financial  statements of the Company audited by Mark Shelley,  CPA. The
data for fiscal  1997 has been  derived  from the  financial  statements  of the
Company audited by Arthur Andersen LLP, independent public accountants.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                                                   1995            1996          1997
                                                   ----            ----          ----
                                        (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF OPERATIONS:
<S>                                            <C>             <C>             <C>
Net sales ..................................   $ 1,077,479    $ 1,928,733    $ 3,111,918
Cost and expenses:
  Cost of sales ............................       764,358      1,042,384      1,679,015
  Selling, general and administrative ......     1,583,190        675,716      1,015,835
  Depreciation and amortization ............        10,232         11,299         21,385
                                               -----------    -----------    -----------
Operating income (loss) ....................    (1,280,301)       199,334        395,683
Interest income (expense) and other, net ...        47,116         (5,656)        63,980
                                               -----------    -----------    -----------
Income (loss) before (provision for)
 benefit from income taxes .................    (1,233,185)       193,678        459,663
(Provision for) benefit from income taxes ..           (50)           (50)       300,000
                                               -----------    -----------    -----------
Net income (loss) ..........................   $(1,233,235)   $   193,628    $   759,663
                                               ===========    ===========    ===========
Basic and diluted earnings per common share
 and common share equivalent (1) ...........   $     (0.04)   $      0.01    $      0.02
                                               ===========    ===========    ===========
Basic and diluted weighted average number of
 common shares and common share equivalents
 outstanding (1) ...........................    31,359,840     34,727,786     35,073,683

CONSOLIDATED BALANCE SHEET DATA
  (AT END OF PERIOD):
Cash .......................................   $    23,570    $    43,756    $   221,660
Working capital(2) .........................       285,371        342,040       (294,750)
Total assets ...............................     3,550,440      3,980,588      5,086,418
Notes payable to banks and long-term debt ..       166,540        169,334        305,889
Total stockholders' equity .................     2,566,288      2,811,721      3,571,384
</TABLE>
----------
(1)   Because the Company has no  outstanding  convertible  securities  or other
      common  stock  equivalents,  the  amounts  reported  for basic and diluted
      earnings  per share are the same and the  amounts  reported  for basic and
      diluted weighted average common shares are the same.
(2)   The decrease in working capital in fiscal 1997 was primarily  attributable
      to a reclassification of debt on the Company's  financial  statements from
      long-term to current liabilities as a result of the Company's dispute with
      Banca Serfin over the amounts owed. See Item 3, "Legal Proceedings."

                                       15
<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
                            AND RESULTS OF OPERATIONS

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         The  statements  contained  in this  Report on Form 10-KSB 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.
Among the factors that could cause actual  results to differ  materially are the
factors discussed in Item 1, "Description of Business - Special Considerations."

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.

         In 1993,  the Company  obtained a commitment  for debt  financing  from
Banca Serfin S.A. and received  the initial  installments  on this  financing in
July 1993.  The Company used these funds to begin  rebuilding  the  machinery it
uses to produce marble  limestone and travertine  dimensional  stone products as
well as to  prospect  for new  quarry  deposits.  As a  direct  result  of those
prospecting efforts,  during 1993 the Company successfully  acquired a lease for
its current source of marble  limestone block. In 1993, the Company also ordered
new equipment from Italy in order to increase  production to profitable  levels.
The Company  received  this  machinery in August 1994 and had it  installed  and
operational  in  September  1994.  This new  equipment  enabled  the  Company to
approximately  triple production volume without an appreciable increase in costs
other  than  interest  expense  related  to  the  purchase  financing  for  this
equipment.  As a result, the Company  significantly  reduced the per square foot
cost to  produce  stone  tiles or  slabs,  which  has  enabled  the  Company  to
significantly increase profitability.  Although the Company finished fiscal 1994
with a net  loss of  approximately  $264,000,  this  represented  a  substantial
improvement  over prior  years.  Fiscal  1995 was a year of  revenue  growth and
stabilization  of  operations.  The  Company's  Arizona  showroom and  warehouse
operation  enabled the Company to penetrate the Arizona  market and increase its
profit margins. Fiscal 1996 represented a year of substantial growth, with a 79%
increase in revenue over fiscal 1995 and net income of $193,628.

         The Company  shipped its first  truckload  of "Truly  Tumbled"  Durango
Stone(TM) products in November 1996. The Company initiated marketing efforts for
this new product  during  1997 and has  achieved  successful  levels of sales to
date. The Company  believes that  production of this product will continue to be
profitable  due to  economies  of scale  and  further  utilization  of  existing
machinery.

         During 1997,  the Company  focused on sales  growth,  net profits,  and
increased production capacity.  The Company expanded its Mexican facilities from
approximately 30,000 square feet to approximately 40,000 square feet in order to
house  additional  machinery  purchased  during  1997  and to  provide  expanded
warehouse  space.  The Company also  expanded  water  treatment  facilities  and
constructed new administrative offices as well as a new employee dining room and
bathrooms. During 1997, the Company also doubled quarry production by adding new
diamond  wire  saws  and  drillers.   The  Company  financed  all  of  its  1997
improvements, construction, and

                                       16
<PAGE>
equipment purchases through cash flows from operations.  The Company's employees
reworked  and  installed  new and used  machinery  and the  entire  project  was
completed  with a  relatively  small  investment.  This  was also due in part by
further utilizing the capacity of some of the machinery of the original plant.

RESULTS OF OPERATIONS OF THE COMPANY FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1997

         REVENUE. The Company's revenue for the year ended December 31, 1997 was
$3,111,918,  which  represents a 61% increase over revenue of $1,928,733 for the
year ended December 31, 1996. 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  increased  from
$1,042,384 during the year ended December 31, 1996 to $1,679,015 during the year
ended  December 31,  1997.  This  increase is  attributed  to the  corresponding
increase  in sales  during  the same  period.  Cost of  goods  sold  represented
approximately  54% of  revenue  in each of fiscal  1996 and 1997.  Gross  profit
increased  to  $1,432,903  in fiscal  1997 from  $888,349 in fiscal  1996.  As a
percentage of revenue,  gross profit remained  constant at approximately  46% in
each year. This consistency  reflects the Company's  ability to properly control
costs in proportion to increased revenue.

         SELLING,  GENERAL, AND ADMINISTRATIVE  EXPENSE.  Selling,  general, and
administrative  expense  increased  from $675,716 in the year ended December 31,
1996 to  $1,015,835  in the year  ended  December  31,  1997.  The  increase  is
attributable  to the  corresponding  increase in sales  during the same  period.
Selling,  general, and administrative expense represented  approximately 35% and
33% of revenue during the years ended December 31, 1996 and 1997,  respectively.
Included in selling,  general,  and administrative  expenses for fiscal 1997 are
charges taken in the fourth quarter for (i) approximately  $95,000 of additional
accruals  to create a reserve  for the  maximum  potential  loss  related to the
contested Mexican bank loan; (ii) approximately  $105,000 in additional accruals
related to various Mexican taxes and other administrative  expenses; and (iii) a
charge  of  approximately   $100,000  taken  to  write  off  various  loans  and
receivables deemed uncollectible by the Company.

         DEPRECIATION AND AMORTIZATION.  Depreciation and amortization increased
from $11,299  during the year ended December 31, 1996 to $21,385 during the year
ended December 31, 1997. The Company  anticipates  that this trend will continue
as the Company expands its operations by purchasing additional property,  plant,
and equipment during 1998 and subsequent years.

         OTHER INCOME  (EXPENSE)  AND OTHER,  NET.  Other income  (expense)  and
other,  net, changed to $63,980 in fiscal 1997 from ($5,656) in fiscal 1996. The
change was primarily  attributable to an increase in currency remeasurement gain
due to the strength of the United States dollar  against the Mexican peso during
1997.  Interest expense for the year ended December 31, 1997, was  approximately
$9,000,  which is net of a fourth quarter reversal of  approximately  $52,000 of
interest expense  previously accrued during the first six months of 1997 for the
disputed  Mexican bank debt. The reversal  relates to the Company's policy to no
longer accrue interest on the disputed balance of Mexican bank debt. See Item 3,
"Legal Proceedings."

         (PROVISION  FOR)  BENEFIT  FROM INCOME  TAXES.  The Company  recorded a
$300,000 benefit from income taxes in fiscal 1997 as a result of recognizing the
tax  benefits of its net  operating  losses  against  continuing  earnings.  The
Company has a net operating  loss  carryforward  balance of  approximately  $2.0
million  from losses  incurred  in the early  1990's.  The  Company  reduced the
previously  established  valuation  allowance because  management has determined
that it is more likely than not that the Company  will  utilize  that portion of
available net operating loss carryforwards in fiscal 1998.

         NET INCOME.  Net income for fiscal 1997  increased  by 292% to $759,663
over net income of $193,628 in fiscal 1996 as a result of increased  revenue and
containment of costs as a percentage of revenue from fiscal 1996 to fiscal 1997,
as well as the $300,000 benefit from income taxes described above.

                                       17
<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  remodelling.  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  to a deficit  of
($294,750) at December 31, 1997 from $342,040 at December 31, 1996. The decrease
of $636,790 was  primarily  attributable  to a  reclassification  of debt on the
Company's financial statements from long-term to current liabilities as a result
of the Company's  dispute with Banca Serfin over the amounts  owed.  See Item 3,
"Legal Proceedings." Current assets increased from $669,788 at December 31, 1996
to  $1,007,411  in 1997.  This  increase was due  primarily  to increased  sales
revenue,  which  resulted  in  increases  in cash,  accounts  receivable,  and a
build-up of inventory to service its order backlog at December 31, 1997.

         The Company's operating activities provided net cash of $666,103 during
the year  ended  December  31,  1997.  The  major  element  contributing  to net
operating cash flow was earnings from operations.

         The  Company  invested  $624,754  during  fiscal  1997 to  enhance  its
factories and to purchase equipment and machinery, primarily in Mexico. This was
an  increase  of  $334,557  from 1996 to 1997.  The  Company  intends to acquire
additional  property,  plant,  and equipment  during 1998 and in future years in
order to continue  its current  sales  volumes  and to  accommodate  anticipated
increases in demand for its products.

         During fiscal 1997, the Company obtained  $190,000 in long-term debt by
obtaining bank equipment financing in December 1997. The bank financing consists
of a  promissory  note that bears  interest at the rate of the bank's prime rate
plus 2.0%. The note matures on December 8, 2000.

         The  Company's  current  cash  resources  and  expected  cash flow from
operations  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  resulting  from   construction  of  new  facilities  or  acquisitions  of
additional equipment or additional business operations. However, 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  currently is upgrading
its internal  computer network in order to integrate its management  information
systems throughout its organizational  structure,  as well as to ensure that its
process  control  equipment  will  be able to  deal  appropriately  and  without
malfunctions  caused  by "Year  2000"  issues.  The  Company  currently  has two
internal  information  technology  systems  employees  and an external  computer
engineer working on upgrades to its computer  network.  The Company  anticipates
that the network system, which is intended to improve the content,  quality, and
flow of  information  within the Company,  will be operational  during  calendar
1999. 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 

                                       18
<PAGE>
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 will be approximately $25,000 for internal and external computer
network services.

         The Company is unable to fully assess the impact of the Year 2000 issue
as of the filing date of this Report.  Because the  Company's  business  depends
significantly upon telephone communications within the continental United States
and  between  the United  States and Mexico,  Canada,  and  Europe,  the Company
believes that telephone  communication  system failures 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.  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.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Reference is made to the Consolidated  Financial Statements,  the notes
thereto,  and the reports thereon  commencing at page F-1 of this Report,  which
financial statements, notes, and reports are incorporated herein by reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE

         Effective  February 18, 1998, the Company  dismissed Mark Shelley,  CPA
("Shelley")  and  engaged  Arthur  Andersen  LLP  ("Arthur   Andersen")  as  its
independent public accountants. The change in independent public accountants was
approved  by the Board of  Directors  of the  Company.  Shelley's  report on the
financial  statements of the Company for the year ended  December 31, 1996,  did
not contain an adverse  opinion or a disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope, or accounting principles. During the
term of  Shelley's  engagement,  there  were no  disagreements  on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure which, if not resolved to the  satisfaction of Shelly,  would
have caused him to make reference to the subject matter of the  disagreement  in
connection with his report. Prior to retaining Arthur Andersen,  the Company had
not  consulted  with Arthur  Andersen  regarding the  application  of accounting
principles  or the type of  opinion  that  might be  rendered  on the  Company's
financial  statements.  The Company has  authorized  Shelley to respond fully to
inquiries from Arthur Andersen.

                                       19
<PAGE>
                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

         The  following  table  sets forth  certain  information  regarding  the
Company's directors and executive officers.

            NAME           AGE                    POSITION HELD
            ----           ---                    -------------

Franklin E. Cunningham     47         Chairman of the Board, President, and
                                        Chief Executive Officer
Spencer W. Cunningham      49         Executive Vice President, Chief Financial
                                        Officer, Treasurer, and Director
Lee M. Cunningham          47         Vice President and Director
Timothy H. Ligget          39         Chief Accounting Officer and Director
Michael D. Nafziger        43         Director of National Sales, Secretary, and
                                        Director
L. Ernest Whitesel         61         Director

         FRANKLIN  E.  CUNNINGHAM  founded  the  Company  and has  served as its
President and Chief  Executive  Officer since August 1989 and as Chairman of the
Board since November 1991. Mr. Cunningham served as the Company's Treasurer from
August  1989 to March  1998.  From  1983 to 1989,  Mr.  Cunningham  served  as a
consultant and agent to various  architectural  stone and ceramic tile materials
and   equipment   suppliers,   manufacturers,    manufacturer   representatives,
distributors,  architects,  and designers in the United States,  Italy, Germany,
Taiwan, Spain, Portugal,  India, Turkey, and Indonesia.  Mr. Cunningham has been
involved in various aspects of the architectural stone and ceramic tile industry
since 1973. Mr.  Cunningham is the husband of Lee M.  Cunningham and the brother
of Spencer W. Cunningham.

         SPENCER W.  CUNNINGHAM  has served as Executive Vice President and as a
director of the Company  since  August 1994,  as Treasurer of the Company  since
March 1998, and as Chief  Financial  Officer of the Company since November 1998.
Mr.  Cunningham  also served as Vice  President  of the Company from August 1989
until May 1991.  From January 1985 to November 1991, Mr.  Cunningham  operated a
real  estate  construction   company  and  served  as  an  independent  business
development  consultant in Ohio and Arizona.  Mr.  Cunningham was employed as an
association group insurance administrator and broker from 1980 through 1984. Mr.
Cunningham is the brother of Franklin E.  Cunningham and the  brother-in-law  of
Lee M. Cunningham.

         LEE M.  CUNNINGHAM  has  served  as a  director  of the  Company  since
September  1990.  Mrs.  Cunningham  served  as  Secretary  of the  Company  from
September 1990 to November 1998 and has served as Vice President  since November
1998. Mrs.  Cunningham also served as Secretary of the Company from October 1989
to March 1990. Mrs.  Cunningham is a licensed general contractor in the State of
Arizona  and has been  engaged in various  aspects  of the  interior  design and
furnishings,   building  products  and  building  construction,   and  importing
industries  since 1973. Mrs.  Cunningham also is active as a consultant in human
resources and leadership, and facilitates seminars for professional growth. Mrs.
Cunningham  is the wife of  Franklin  E.  Cunningham  and the  sister-in-law  of
Spencer W. Cunningham.

         TIMOTHY  H.  LIGGET  has served as Chief  Accounting  Officer  and as a
director of the Company since November 2, 1998. Mr. Ligget has served in several
management  positions in public  accounting  firms and in private industry since
1981. He is a Certified Public Accountant in the state of Arizona.

         MICHAEL D.  NAFZIGER has served as the  Company's  Director of National
Sales as a director of the Company  since August  1996,  and as Secretary of the
Company since November 1998. Mr.  Nafziger  served as the Company's  Director of
Operations from November 1995 to August 1996. Prior to joining the Company,  Mr.
Nafziger served as
                                       20
<PAGE>
Vice President - Marketing for Genesis Technology Group from 1981 to 1983 and as
President  of   Ultraset/Profinish   from  1983  to  1991.   Mr.   Nafziger  was
self-employed as a consultant from 1991 until November 1995.

         L.  ERNEST  WHITESEL  has served as a  director  of the  Company  since
November  1992.  Mr.  Whitesel has engaged in business  investing  activities as
President of Hallmark Enterprises, Inc. since March 1991. Mr. Whitesel served as
the principal partner in a general insurance agency from 1981 to 1990.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the Exchange Act  requires the  Company's  directors,
officers,  and  persons  who own  more  than  10% of a  registered  class of the
Company's  equity  securities  to file  reports  of  ownership  and  changes  in
ownership with the Securities and Exchange Commission (the "Commission"). During
1998, the directors,  officers, and 10% stockholders of the Company became aware
that certain  transactions that are required to be disclosed under Section 16(a)
had not previously been reported. Therefore, the following persons recently made
late filings on Form 5 to disclose the following  holdings and/or  transactions:
Franklin E. Cunningham  reported a total of five  transactions  between 1992 and
1997  that  were  required  to be  previously  reported  on Form 4;  Spencer  W.
Cunningham  reported his beneficial  ownership of Common Stock that was required
to be previously  reported on Form 3 and a total of two transactions in 1994 and
1997 that were required to be previously  reported on Form 4; Lee M.  Cunningham
reported a total of five  transactions  between 1992 and 1997 that were required
to be previously reported on Form 4; Michael D. Nafziger reported his beneficial
ownership of Common Stock that was required to be previously reported on Form 3;
L. Ernest  Whitesel  reported his beneficial  ownership of Common Stock that was
required to be previously  reported on Form 3 and one  transaction  in 1994 that
was required to be  previously  reported on Form 4; Jaime M. Munos  reported his
beneficial ownership of Common Stock that was required to be previously reported
on Form 3 and a total of two  transactions  in 1995  that  were  required  to be
previously  reported on Form 4; and Alejandro M. Munos  reported his  beneficial
ownership of Common Stock that was required to be previously  reported on Form 3
and one transaction in 1995 that was required to be previously  reported on Form
4. The  Company  has  implemented  a program  that is  intended  to ensure  that
directors, officers, and 10% stockholders comply with their Section 16(a) filing
requirements on a timely basis in the future.

                                       21
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

COMPENSATION OF CHIEF EXECUTIVE OFFICER

         The  following  table sets forth  certain  information  concerning  the
compensation  earned by the  Company's  Chief  Executive  Officer for the fiscal
years ended  December 31, 1995,  1996, and 1997. No other officer of the Company
received compensation of $100,000 or more during fiscal 1997.

                           SUMMARY COMPENSATION TABLE

                                          ANNUAL COMPENSATION       ALL OTHER
                                         ----------------------    COMPENSATION
NAME AND PRINCIPAL POSITION       YEAR   SALARY ($)(1)  BONUS($)      ($)(2)
---------------------------       ----   -------------  --------   -------------

Franklin E. Cunningham            1997     $72,000        $0           $962
 Chairman of the Board, and       1996      72,000         0             --
 President and Chief Executive    1995      72,000         0             --
 Officer
----------
(1)   Mr. Cunningham also received certain  perquisites,  the value of which did
      not exceed 10% of his salary and bonus during fiscal 1997.
(2)   Amounts  shown for fiscal 1997  represent  premium  payments for term life
      insurance.

         The Company  offers its  employees,  including  directors  who also are
employees of the Company,  medical,  dental,  and life insurance  benefits.  The
Company  currently  has no stock  option plan or other  incentive  or  long-term
compensation plans or agreements, key employees of the Company.

DIRECTORS' COMPENSATION

         Directors of the Company  historically did not receive compensation for
serving as members of the Company's  Board of Directors and were not  reimbursed
for their expenses in attending meetings of the Board of Directors.  In November
1998,  the Board of  Directors  approved a program  under which  directors  will
receive $200 for each meeting  attended in person or by telephone.  In addition,
the Company will reimburse  directors for expenses related to out-of-town travel
to attend Board of Directors meetings.

LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND AGENTS

         The  Company's  Articles of  Incorporation  provide that no director or
officer  of the  Company  shall  be  personally  liable  to the  Company  or its
stockholders  for  monetary  damages  for any breach of  fiduciary  duty by such
person as a director  or officer,  except  that a director  or officer  shall be
liable,  to the extent  provided by  applicable  law,  (i) for acts or omissions
which involve  intentional  misconduct,  fraud or a knowing violation of law, or
(ii) for the payment of dividends in violation of restrictions imposed by Nevada
laws.  The effect of this  provision  in the  Articles  of  Incorporation  is to
eliminate  the rights of the Company and its  stockholders,  either  directly or
through  stockholders'  derivative  suits  brought on behalf of the Company,  to
recover  monetary damages from a director or officer for breach of the fiduciary
duty of care as a director or officer except in those  instances  provided under
Nevada law.

         The  Company's  Bylaws  require the Company to indemnify any person who
incurs  liability  or expense by reason of such  person  acting as a director or
officer of the Company, to the fullest extent allowed by Nevada law, except that
indemnification  is not permitted in relation to any matter in which such person
is found to be liable for negligence or misconduct. In the event that an action,
suit, or proceeding  is settled,  the Company may indemnify  such person only in
connection  with such matters  covered by the settlement as to which the Company
is advised by counsel  that the person to be  indemnified  did not commit such a
breach of duty. The Bylaws define  "expenses" to include,  but not to be limited
to, amounts of judgments, penalties or fines and interest thereon,

                                       22
<PAGE>
costs,  attorneys'  fees,  expert  witness fees, and amounts paid in settlement,
provided that such  settlement  is approved by the Company's  Board of Directors
before the  Company  indemnifies  a person  determined  to be  entitled  to such
indemnification.

         Section 78.751 of the Nevada General Corporation Law (the "Nevada GCL")
provides  that a corporation  may  indemnify its directors and officers  against
expenses,  including  attorneys'  fees,  judgments,  fines and  amounts  paid in
settlement  actually  and  reasonably  incurred  by the  director  or officer in
connection  with an action,  suit or proceeding in which the director or officer
has been made or is  threatened  to be made a party,  if the director or officer
acted in good faith and in a manner  that the  director  or  officer  reasonably
believed to be in or not opposed to the best interests of the corporation,  and,
with  respect to any criminal  proceeding,  had no reason to believe that his or
her  conduct  was  unlawful.  Any  such  indemnification  may  be  made  by  the
corporation  only  as  ordered  by a court  or as  authorized  by the  Company's
stockholders or Board of Directors in a specific case upon a determination  made
in  accordance  with the Nevada GCL that such  indemnification  is proper in the
circumstances.  Under the Nevada  GCL,  indemnification  may not be made for any
claim,  issue or matter as to which the director or officer has been adjudged by
a court of competent jurisdiction, after exhaustion of all appeals, to be liable
to the corporation or for amounts paid in settlement by the corporation,  unless
and only to the extent that the court in which the action or suit was brought or
other  court  of  competent  jurisdiction  determines  that  in  view of all the
circumstances  of the case,  the  director  or officer is fairly and  reasonably
entitled to indemnity  for such  expenses as the court deems  proper.  Under the
Nevada GCL, to the extent that a director or officer of a  corporation  has been
successful  on the  merits  or  otherwise  in  defense  of any  action,  suit or
proceeding or in defense of any claim, issue or matter therein,  the director or
officer must be  indemnified  by the  corporation  against  expenses,  including
attorneys' fees,  actually and reasonably incurred by the director or officer in
connection with the defense.

                                       23
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the shares
of the Company's Common Stock beneficially owned as of September 30, 1998 (i) by
each of the Company's  directors and executive  officers;  (ii) by all directors
and executive  officers of the Company as a group;  and (iii) by each person who
is known by the Company to own  beneficially  or exercise  voting or dispositive
control over more than 5% of the Company's Common Stock.

                                                          SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                         OWNED(2)
---------------------------------------                  ---------------------
                                                         NUMBER        PERCENT
DIRECTORS AND EXECUTIVE OFFICERS                         ------        -------
--------------------------------
Franklin E. Cunningham                                18,119,695(3)      52.2%
Spencer W. Cunningham                                  6,138,000(4)      17.7%
Lee M. Cunningham                                     18,119,695(3)      52.2%
Timothy H. Ligget                                        170,000            *
Michael D. Nafziger                                            0            *
L. Ernest Whitesel                                        23,750            *
Jaime Muguiro(5)                                       4,280,000         12.3%
Alejandro Muguiro(6)                                   1,520,000          4.4%
All directors and executive officers as
  a group (eight persons)                             25,251,455         72.8%
----------
* Less than 1% of outstanding shares of Common Stock.

(1)   Except as  otherwise  indicated,  each person  named in the table has sole
      voting and investment power with respect to all Common Stock  beneficially
      owned by him or her, subject to applicable  community property law. Except
      as otherwise  indicated,  each of such persons may be reached  through the
      Company at 5236 South 40th Street, Phoenix, Arizona 85040.
(2)   The  numbers and  percentages  shown  include  the shares of Common  Stock
      actually  owned as of  September  30, 1998 and the shares of Common  Stock
      that the person or group had the right to  acquire  within 60 days of such
      date. In  calculating  the  percentage of ownership,  all shares of Common
      Stock that the  identified  person had the right to acquire within 60 days
      of September 30, 1998 are deemed to be held by such person for the purpose
      of computing  the  percentage  of the shares of Common Stock owned by such
      person.
(3)   The  shares  indicated  are held  jointly by Mr.  and Mrs.  Cunningham  as
      husband  and  wife.  Includes  up to  5,000,000  shares  that  Spencer  W.
      Cunningham  has the right to  acquire  from Mr. and Mrs.  Cunningham.  See
      footnote 4.
(4)   Represents  1,138,000 shares of Common Stock held by Mr. Cunningham and up
      to  5,000,000  shares that Mr.  Cunningham  has the right to acquire  from
      Franklin and Lee Cunningham. See footnote 3.
(5)   Mr.  Muguiro is an officer and  director  of the  Company's  wholly  owned
      subsidiary,  Marmoles  Muguiro,  S.A. de C.V. Mr. Muguiro's address is c/o
      Marmoles  Muguiro,  S.A.  de C.V.,  Boulevard  Francisco  Villa,  Km 2 CD.
      Industrial, Durango, Durango, Mexico.
(6)   Mr.  Muguiro is an officer and  director  of the  Company's  wholly  owned
      subsidiary,  Marmoles  Muguiro,  S.A. de C.V. Mr. Muguiro's address is c/o
      Marmoles  Muguiro,  S.A.  de C.V.,  Boulevard  Francisco  Villa,  Km 2 CD.
      Industrial, Durango, Durango, Mexico.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Not applicable.

                                       24
<PAGE>
                                    PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

    Exhibit
    Number                   Exhibit
    ------                   -------

     3.1      Articles of Incorporation of the Registrant
     3.2      Bylaws of Registrant, as amended to date
     4.1      Form of Certificate of Common Stock
     16       Letter Re: Change in Accountants(1)
     27.1     Financial Data Schedule
----------
(1) Incorporated  by  reference to the  Registrant's  Form 8-K as filed with the
    Securities and Exchange Commission on March 27, 1998.

(b) REPORTS ON FORM 8-K.

            None

                                       25
<PAGE>
                                   SIGNATURES


     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                  WORLD WIDE STONE CORPORATION


Date:  November 3, 1998           /s/ Franklin E. Cunningham
                                  ----------------------------------------------
                                  Franklin E. Cunningham, Chairman of the Board,
                                  President, and Chief Executive Officer

     In accordance  with the  Securities  Exchange Act of 1934,  this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the date indicated.
<TABLE>
<CAPTION>

       Signature                        Capacity                       Date
       ---------                        --------                       ----
<S>                          <C>                                 <C>
/s/ Franklin E. Cunningham    Chairman of the Board, President,   November 3, 1998
----------------------------  and Chief Executive Officer
Franklin E. Cunningham        (Principal Executive Officer)


/s/ Lee M. Cunningham         Vice President and Director         November 3, 1998
----------------------------
Lee M. Cunningham

/s/ Spencer W. Cunningham     Executive Vice President, Chief     November 3, 1998
----------------------------  Financial Officer, Treasurer,
Spencer W. Cunningham         and Director (Principal Financial
                              Officer)

/s/ Michael D. Nafziger       Director of National Sales,         November 3, 1998
----------------------------  Secretary, and Director
Michael D. Nafziger


/s/ Timothy H. Ligget         Chief Accounting Officer and        November 3, 1998
----------------------------  Director (Principal Accounting
Timothy H. Ligget             Officer)


/s/ L. Ernest Whitesel        Director                            November 3, 1998
----------------------------
L. Ernest Whitesel
</TABLE>

                                       26
<PAGE>

                  WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                           PAGE
                                                                           ----

Reports of Independent Public Accountants...............................    F-2

Consolidated Balance Sheet as of December 31, 1997......................    F-4

Consolidated Statements of Operations for the Years
  Ended December 31, 1997 and 1996......................................    F-5

Consolidated Statements of Shareholders' Equity for the Years
  Ended December 31, 1997 and 1996......................................    F-6

Consolidated Statements of Cash Flows for the Years
  Ended December 31, 1997 and 1996......................................    F-7

Notes to Consolidated Financial Statements..............................    F-8



                                      F-1
<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To World Wide Stone Corporation:


We have audited the accompanying  consolidated balance sheet of WORLD WIDE STONE
CORPORATION (a Nevada  corporation) and subsidiaries as of December 31, 1997 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997.  These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  statements  based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of World Wide Stone Corporation
and subsidiaries as of December 31, 1997 and the  consolidated  results of their
operations  and their cash flows for the year then  ended,  in  conformity  with
generally accepted accounting principles.


                                           /s/ Arthur Andersen LLP

Phoenix, Arizona,
 October 19, 1998.

                                      F-2
<PAGE>
                                MARK SHELLEY, CPA
                               110 S. Mesa Dr. # 1
                               Mesa, Arizona 85210
                                 (602) 833-4054

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
World Wide Stone Corporation

     I  have  audited  the  consolidated  balance  sheet  of  World  Wide  Stone
Corporation as of December 31, 1996 and the  accompanying  related  consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  My  responsibility  is to express  an  opinion  on these  financial
statements based on my audit.

     I have conducted my audit in accordance  with generally  accepted  auditing
standards.  Those standards  require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

     In my opinion,  the financial  statements referred to above present fairly,
in all material respects, the financial position of World Wide Stone Corporation
as of December 31, 1996 and the  consolidated  results of their  operations  and
their cash flows for the year then ended in conformity  with generally  accepted
accounting principles.

                               Mark Shelley, CPA

                               by: /s/ Mark Shelley
                               --------------------


August 19, 1998

                                      F-3
<PAGE>
                  WORLD WIDE STONE CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1997


                                     ASSETS
CURRENT ASSETS:
   Cash                                                             $   221,660
   Accounts receivable                                                  137,421
   Inventories (Note 2)                                                 626,101
   Prepaid expenses and other                                            22,229
                                                                    -----------

     Total current assets                                             1,007,411

PROPERTY, PLANT AND EQUIPMENT, net (Notes 4, 5 and 6)                 3,292,591

COST IN EXCESS OF NET ASSETS ACQUIRED, net of
   accumulated amortization of $82,077 (Note 2)                         191,512

OTHER ASSETS:
   Other receivables (Note 8)                                           275,991
   Prepaid taxes                                                         18,913
   Deferred taxes (Note 7)                                              300,000
                                                                    -----------

     Total assets                                                   $ 5,086,418
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                  $    92,574
  Accrued liabilities                                                   216,571
  Current portion of long-term debt (Note 4)                             93,016
  Other (Note 6)                                                        900,000
                                                                    -----------

     Total current liabilities                                        1,302,161

LONG-TERM DEBT, net of current portion (Note 4)                         212,873
                                                                    -----------

                  Total liabilities                                   1,515,034
                                                                    -----------
COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS' EQUITY:
   Common stock, $0.001 par value, 100,000,000 shares
     authorized, 34,703,768 issued and outstanding                       34,704
   Additional paid-in capital                                         7,904,536
   Accumulated deficit                                               (4,367,856)
                                                                    -----------

     Total stockholders' equity                                       3,571,384
                                                                    -----------
     Total liabilities and stockholders' equity                     $ 5,086,418
                                                                    ===========

               The accompanying notes are an integral part of this
                          consolidated balance sheet.

                                      F-4
<PAGE>
                  WORLD WIDE STONE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996



                                                      1997              1996
                                                      ----              ----

REVENUE                                          $  3,111,918      $  1,928,733

COST OF GOODS SOLD                                  1,679,015         1,042,384
                                                 ------------      ------------

         Gross profit                               1,432,903           886,349

COST AND EXPENSES:
   Selling, general and administrative              1,015,835           675,716
   Depreciation and amortization                       21,385            11,299
                                                 ------------      ------------

         Income from operations                       395,683           199,334
                                                 ------------      ------------

OTHER INCOME (EXPENSE):
   Interest income                                      5,627                --
   Interest expense                                    (9,213)           (5,275)
   Gain (loss) on currency remeasurement               67,566              (381)
                                                 ------------      ------------

                                                       63,980            (5,656)
                                                 ------------      ------------

INCOME BEFORE INCOME TAXES                            459,663           193,678

BENEFIT (PROVISION) FOR INCOME TAXES                  300,000               (50)
                                                 ------------      ------------

         Net income                              $    759,663      $    193,628
                                                 ============      ============

EARNINGS PER SHARE
  Basic and diluted:
     Net income per share (Note 2)               $        .02      $        .01
                                                 ============      ============

     Weighted average number of common
       shares outstanding                          35,073,683        34,727,786
                                                 ============      ============



              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-5
<PAGE>

                  WORLD WIDE STONE CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996



<TABLE>
<CAPTION>
                                              Common Stock       Additional
                                         ---------------------    Paid-in    Accumulated
                                           Shares       Amount    Capital      Deficit      Total
                                           ------       ------    -------      -------      -----

<S>                                    <C>           <C>       <C>         <C>          <C>
BALANCE, December 31, 1995              34,385,868    $ 34,386  $7,853,049  $(5,321,147) $2,566,288
   Exercise of stock warrants (Note 9)   1,000,000       1,000      40,805           --      41,805
   Sales of common stock                    40,000          40       9,960           --      10,000
   Net income                                   --          --          --      193,628     193,628
                                       -----------    --------  ----------  -----------  ----------

BALANCE, December 31, 1996              35,425,868      35,426   7,903,814   (5,127,519)  2,811,721
   Return of stock from financial
     consultant (Note 9)                  (722,100)       (722)        722           --          --
   Net income                                   --          --          --      759,663     759,663
                                       -----------    --------  ----------  -----------  ----------

BALANCE, December 31, 1997              34,703,768    $ 34,704  $7,904,536  $(4,367,856) $3,571,384
                                       ===========    ========  ==========  ===========  ==========
</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-6
<PAGE>
                  WORLD WIDE STONE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


                                                            1997         1996
                                                            ----         ----
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                             $ 759,663    $ 193,628
 Adjustments to reconcile net income to net cash
  provided by operating activities-
   Depreciation and amortization                          273,895      223,782
   (Gain) loss on currency remeasurement                  (67,566)         381
   Reserve for Mexican bank debt (Note 6)                  94,834       48,666
   Deferred tax benefit                                  (300,000)          --
   Changes in certain assets and liabilities:
    (Increase) decrease in accounts receivable           (109,860)      81,555
    Increase in inventories                               (35,766)    (293,840)
    Increase in prepaid expenses and other                (14,093)      (8,136)
    (Increase) decrease in prepaid taxes                   49,662      (66,580)
    Increase in other receivable                         (133,227)     (56,927)
    Increase (decrease) in accounts payable               (20,922)      75,011
    Increase in accrued liabilities                       169,483       58,244
                                                        ---------    ---------

      Net cash provided by operating activities           666,103      255,784
                                                        ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property, plant, and equipment, net         (624,754)    (290,197)
                                                        ---------    ---------

      Net cash used in investing activities              (624,754)    (290,197)
                                                        ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Net proceeds from long-term debt                         180,004       11,861
 Payment on short-term notes payable                      (43,449)      (9,067)
 Issuance of common stock                                      --       51,805
                                                        ---------    ---------

      Net cash provided by financing activities           136,555       54,599
                                                        ---------    ---------

NET INCREASE IN CASH                                      177,904       20,186

CASH, beginning of year                                    43,756       23,570
                                                        ---------    ---------

CASH, end of year                                       $ 221,660    $  43,756
                                                        =========    =========

SUPPLEMENTAL CASH FLOW DISCLOSURE:
 Cash paid for interest                                 $   9,213    $   5,275
                                                        =========    =========

 Cash paid for income taxes                             $      --    $      --
                                                        =========    =========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-7
<PAGE>
                  WORLD WIDE STONE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1996


(1) NATURE OF OPERATIONS:

       NATURE OF OPERATIONS

World  Wide  Stone  Corporation,  a  Nevada  corporation,  and its  subsidiaries
(collectively,  the Company) are in the dimensional stone production,  quarrying
and sales  business.  Stone is cut,  finished and packaged at its two  factories
which  operate in Durango,  Mexico.  The  Company  quarries,  manufactures,  and
markets a wide variety of dimensional stone products. Dimensional stone products
consist of natural stone that is cut to standard sizes or to sizes  specified in
architectural  designs.  The  Company's  products are used for both interior and
exterior  applications  in residential  and commercial  buildings,  primarily as
floor,  wall,  and  patio  tiles,  decorative  trim and  architectural  accents,
countertops and tabletops,  and panels.  The Company markets and distributes its
products  throughout  the United States  primarily on a wholesale  basis through
approximately  20 authorized  stocking  distributors and more than 100 wholesale
distributors,  as well as architects,  residential  and  commercial  developers,
installation contractors, and designers.

       MANAGEMENT PLANS

The Company has  experienced  rapid growth over the last four years.  Management
believes that two major equipment purchases during 1997 and planned purchases of
additional  machinery in 1998 will allow the Company to  significantly  increase
production in its tumbled finish plant,  Sociedad Piedra Sierra de C.V.  located
in Durango, Mexico. The Company believes that this will lead to continued growth
in revenue in 1998 and 1999.

The Company is also planning its third  factory,  which is anticipated to double
existing  production.  The new  plant  will be built in  phases  similar  to the
Company's other  production  facilities.  The Company  estimates the first phase
will cost  approximately  $1.0  million,  which is expected to be raised in 1999
through  additional  equity  financing and/or bank debt,  supplier  credit,  and
earnings. Future growth is expected to be directly proportional to the amount of
capital  available  to  enable  the  Company  to  acquire  machinery,  construct
buildings, and develop its quarries.


                                      F-8
<PAGE>

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements include the accounts of World Wide Stone
Corporation  and its wholly owned  subsidiaries,  Cantera Stone,  Inc. (a Nevada
corporation),  Marmoles  Muguiro,  S.A.  de C.V.,  (a Mexican  corporation)  and
Sociedad  Piedra  Sierra,  S.A.  de C.V (a Mexican  corporation).  All  material
intercompany transactions, accounts, and balances have been eliminated.

       INVENTORIES

Inventories are stated at the lower of cost or market with cost being determined
under the specific  identification  method.  Market is the lower of  replacement
cost or net  realizable  value.  Inventories  and cost of goods sold include all
operating  expenses  incurred  at the two  plants in Mexico.  Inventories  as of
December  31,  1997 were  located  at the  plants  in  Durango,  Mexico,  at the
warehouse in Tempe,  Arizona,  and at bonded  warehouses  in El Paso and Laredo,
Texas.

Inventories at December 31, 1997 consist of the following:

           Finished goods                           $592,644
           Work in process                             7,061
           Raw materials                              26,396
                                                    --------
                                                    $626,101
                                                    ========

       COST OF GOODS SOLD

Depreciation expense included in cost of goods sold as indirect overhead for the
year ended at December  31, 1997 and 1996  amounted  to $252,510  and  $212,483,
respectively.

       COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED

The cost in excess of net assets  acquired is being amortized on a straight-line
basis over 15 years.  Amortization  expense for the 12 months ended December 31,
1997 and 1996 amounted to $18,239 for each period.  The  Company's  policy is to
evaluate the cost in excess of net assets  acquired  based on an  evaluation  of
such factors as the  occurrence of a significant  adverse event or change in the
environment  in which the business  operates.  If the  expected  future net cash
flows  (undiscounted  and without  interest) are less than the carrying value of
the asset upon the  occurrence  of such an event,  an  impairment  loss would be
recorded in the period such  determination  is made. No  impairment  losses have
been recognized in any of the periods presented.

                                      F-9
<PAGE>

       PROPERTY, PLANT AND EQUIPMENT

Major  renewals or  betterments  are  capitalized  while  maintenance  costs and
repairs are  expensed in the period  incurred.  Upon  retirement  or disposal of
depreciable  assets, the cost and related  accumulated  depreciation are removed
from the accounts  and the  resulting  gain or loss is reflected in  operations.
Statement of Financial  Accounting  Standards (SFAS) No. 121, ACCOUNTING FOR THE
IMPAIRMENT  OF  LONG-LIVED  ASSETS  AND  LONG-LIVED  ASSETS TO BE  DISPOSED  OF,
requires that  long-lived  assets to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset  may not be  recoverable  based on  estimated  future  cash  flows.  In
management's opinion, no such events or changes in circumstances have occurred.

       REVENUE RECOGNITION

Revenue is recognized upon product  shipment to the customer from the warehouses
in Arizona or Texas, or the factory in Durango, Mexico.

       USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

       FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated  fair value of financial  instruments  has been  determined by the
Company  using  available  market   information  and  valuation   methodologies.
Considerable  judgment is required in estimating fair values.  Accordingly,  the
estimates  may not be  indicative  of the amounts the Company could realize in a
current market exchange.

The carrying amounts of cash,  receivables and accounts payable approximate fair
values  since  they are  short-term  in  nature.  The  carrying  amounts  of the
Company's borrowing under the long-term debt instruments approximate fair value.
The fair value of the Company's  long-term  debt is estimated  using  discounted
cash flow analyses,  based on the Company's current incremental  borrowing rates
for similar types of borrowing arrangements.

       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
year.  Diluted  earnings per common share is  determined  assuming  that options
and/or  warrants were  exercised at the beginning of each year 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

                                      F-10
<PAGE>

as a result,  all prior period  earnings per share (EPS) data presented 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.

       CONCENTRATIONS OF CREDIT RISK

Financial  instruments which potentially expose the Company to concentrations of
credit  risk,  as defined  by SFAS No.  105,  DISCLOSURE  OF  INFORMATION  ABOUT
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATION OF CREDIT RISK, consist primarily of receivables. Concentration of
credit risk with respect to trade receivables is limited due to the large number
of  customers   spread  over  a  large  geographic  area.  The  Company's  trade
receivables are not secured.

       LIMITED AVAILABILITY OF QUARRY SITES

Although  the  Company  has lease  rights to three  quarry  sites,  the  Company
currently obtains substantially all of its stone blocks from two quarry sites in
Coahuila, Mexico. The Company believes that the stone extracted from these sites
possesses  distinctive  characteristics  in terms of color and quality that make
this particular type of marble limestone unique. The Company extracts stone from
these quarries  pursuant to existing lease  arrangements  with the owners of the
land.  Under the lease  agreements,  the Company  pays a royalty  based upon the
number of cubic meters of stone  extracted from the site.  The Company  believes
that these quarry sites will be sufficient  to meet the  Company's  requirements
for  this  type  of  marble  limestone  for an  indefinite  period  of  time  at
management's  anticipated  levels of production.  Although the Company currently
has secured  long-term  leases for its primary  quarry  sites,  the inability to
continue to extract  sufficient  quantities of stone from these sites for even a
short  period of time  would  have a material  adverse  effect on the  Company's
financial  condition and results of  operations.  There can be no assurance that
the  Company  would be able to  locate  an  alternative  source  of  stone  with
desirable  characteristics  on a timely  basis in the event that it is unable to
obtain stone from its primary quarry sites.

       DEPENDENCE ON THIRD PARTIES FOR QUARRYING OPERATIONS

The Company  depends upon  third-party  contractors to extract stone blocks from
the Company's  leased quarry sites in Mexico.  Although the Company owns some of
the tools,  equipment,  and  supplies  utilized in the  quarrying  process,  the
Company  has  limited  control  over the  quarrying  process.  As a result,  any
difficulties   encountered  by  the  third-party   contractors  that  result  in
production  delays or the  inability  to fulfill  orders on a timely basis could
have a  material  adverse  effect  on the  Company.  The  Company  does not have
long-term   contracts  with  its  third-party   contractors.   The  Company  has
experienced   short-term   interruptions   in  services  from  its   third-party
contractors  in the  past  and was  able to take  temporary  measures  to  avoid
prolonged  disruption to its operations.  Although the Company believes it would
be able to secure other  third-party  contractors  that could conduct  quarrying
operations for the Company, the Company's operations could be adversely affected
if it lost its  relationship  with any of its current  contractors.  The Company
does not maintain an inventory

                                      F-11
<PAGE>

of sufficient  amounts to provide  protection for any significant period against
an  interruption  of  supply,  particularly  if it were  required  to utilize an
alternative source of supply.

       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  translation 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.

       RECENTLY ISSUED ACCOUNTING STATEMENTS

The Financial  Accounting  Standards Board (FASB) issued SFAS No. 130, REPORTING
COMPREHENSIVE  INCOME,  and SFAS  No.  131,  DISCLOSURES  ABOUT  SEGMENTS  OF AN
ENTERPRISE  AND RELATED  INFORMATION,  in June 1997.  The Company is required to
adopt these  Statements  with its fiscal  year ending  December  31,  1998.  The
adoption of these new standards is not expected to have a material impact on the
Company's financial statements.

(3) 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.  The Company also agreed
to pay a royalty of 700 pesos per month  (approximately  91 U.S.  dollars) until
the deposit is operational and then 30 pesos  (approximately 4 U.S. dollars) per
cubic meter of stone quarried. The 30 pesos will be adjusted for inflation.

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 (see Note 10).

                                      F-12
<PAGE>

(4) LONG-TERM DEBT:

Long-term debt at December 31, 1997, consists of the following:

          Loan  from  bank,   interest  at  prime  (8.5%  at
          December  31,  1997) plus 2% per annum,  principal
          and  interest   payments  of  $6,175  due  monthly
          through  December  2000,  secured by  equipment             $ 190,000

          Various  loans,  interest  ranging  from  10.9% to
          12.0% per annum,  principal and interest  payments
          ranging  from  $432 to $597  due  monthly  through
          September 2001, secured by vehicles                           115,889
                                                                      ---------
                                                                        305,889
          Less: current portion                                         (93,016)
                                                                      ---------
          Total long-term portion                                     $ 212,873
                                                                      =========

Future maturities are as follows:

          Years Ending
          December 31,
          ------------

             1998                                                       $ 93,016
             1999                                                        101,561
             2000                                                        105,382
             2001                                                          5,930
                                                                        --------
                                                                        $305,889
                                                                        ========

(5) PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment are stated at cost. Depreciation is being provided
by use of the  straight-line  method  over  the  estimated  useful  lives of the
assets.

Property and equipment at December 31, 1997 is comprised of the following:

                                                       Useful
                                                       Lives            Amount
                                                       -----            ------
       Property, plant and specialty manufacturing
        systems located in Mexico                    10-40 years     $1,750,000
       Machinery, equipment and various vehicles
         located in Mexico                            5-12 years      2,295,040
       Machinery, equipment and vehicles located
         in the U.S.                                     5 years        181,455
                                                                     ----------
                                                                      4,226,495
       Accumulated depreciation                                        (933,904)
                                                                     ----------
       Net property, plant and equipment                             $3,292,591
                                                                     ==========

                                      F-13
<PAGE>

All property,  plant and specialty  manufacturing  systems located in Mexico are
held in a Mexican land trust in Durango,  Mexico.  The trust is  administered by
Multibanco  Comerex,  S.A. for the benefit of Cantera Stone,  Inc. The trust was
established in 1991 in accordance  with Mexican laws and  regulations  governing
transactions  involving  Mexican real property  purchased by foreign  investors.
Under the trust  agreement,  the  Company is granted  full  rights of  ownership
(rights to  construct,  lease,  sell,  etc.) and,  therefore,  these amounts are
reflected  in the  consolidated  financial  statements  as  assets  owned by the
Company.

(6) COMMITMENTS AND CONTINGENCIES:

       LITIGATION

In September 1998,  Marmoles  Muguiro S.A. de C.V. filed a lawsuit against Banca
Serfin S.A.  in Durango,  Mexico.  The lawsuit  alleges  that monies owed on the
Company's line of credit are significantly less than the bank alleges.  The bank
has claimed that 900,000 U.S. dollars is owed plus penalties and interest, which
the bank has offered to waive but the Company  contends  that the actual  amount
owed is  substantially  less.  The debt is secured by property and land that are
held in the Mexican Trust. Under that agreement, assets held in trust secure the
debt up to 1,400,000 new pesos  (approximately  175,000 U.S. dollars at December
31, 1997).

Under  the  advisement  of legal  counsel,  the  Company  recorded  a  liability
(reflected in other current liabilities in the accompanying consolidated balance
sheet) to cover the maximum  potential loss resulting from the Bank's claim. The
Company accrued approximately $95,000 in fiscal 1997 and $49,000 in 1996 related
to this claim. The Company is no longer accruing interest related to the balance
alleged by the bank. It is the opinion of management  and its legal counsel that
the expected  outcome of this matter will not have a material  adverse effect on
the results of operations or on the  financial  condition of the Company.  There
can be no assurance, however, that the Company will obtain a favorable result to
this lawsuit.

The Company  filed a lawsuit  against one of the original  incorporators  of the
Company and the Company's  stock transfer agent on February 7, 1997. The purpose
of the  lawsuit was to recover  certificates  representing  4,310,000  shares of
common  stock and  1,666,666  shares of  convertible  preferred  stock  that the
individual  did not return after failing to contribute  any of the agreed assets
required as consideration for the shares issued. On June 3, 1998, the individual
signed a settlement  agreement with the Company  relinquishing all rights, title
and interest to the aforementioned  shares. The shares were previously  returned
to authorized shares on the Company's books in 1990. Accordingly,  no adjustment
is reflected in the Company's 1997 financial statements for the settlement.

                                      F-14
<PAGE>

       OPERATING LEASES

The Company leases its corporate  offices and other  properties  under operating
leases.  Rent expense under these  arrangements was approximately  $45,000,  and
$33,000 for the years ended  December  31,  1997 and 1996,  respectively.  Total
future  commitments under these  noncancellable  agreements for the years ending
December 31, are as follows:

             1998                                         $ 49,000
             1999                                           57,000
             2000                                           58,000
                                                          --------
                                                          $164,000
                                                          ========

       ROYALTIES

The  Company  pays a royalty to a third  party on its leased  quarry of 90 pesos
(approximately  11.00 U.S.  dollars)  per cubic meter of stone  extracted.  This
amounted to  approximately  24,484 and 20,374  U.S.  dollars for the years ended
December 31, 1997 and 1996, respectively. These payments are included in cost of
goods sold and  inventory  in the  accompanying  statements  of  operations  and
balance sheet as applicable.  The royalty  agreements  expire in 2023,  with the
Company  retaining the right to extend the agreements an additional thirty years
at current terms (with minor adjustments for inflation).

(7) INCOME TAXES:

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
ACCOUNTING  FOR  INCOME  TAXES.  SFAS No. 109  requires  the use of an asset and
liability  approach in  accounting  for income  taxes.  Deferred  tax assets and
liabilities  are  recorded  based  on  the  differences  between  the  financial
statement  and tax bases of assets  and  liabilities  at the tax rates in effect
when these differences are expected to reverse.

The benefit (provision) for income taxes at December 31, 1997 and 1996 consisted
of the following:

                                              1997           1996
                                              ----           ----
         Current                            $     --      $    (50)
         Deferred                            300,000            --
                                            --------      --------

         Total                              $300,000      $    (50)
                                            ========      ========

                                      F-15
<PAGE>

A reconciliation  of the federal  statutory rate to the Company's  effective tax
rate for the years ended December 31 are as follows:

                                                             1997       1996
                                                             ----       ----
         Statutory federal rate                               34%        34%
         State taxes, net of federal benefit                   6          6
         Net operating loss carryforward utilized            (40)       (40)
         Reduction of valuation allowance                    (65)        --
                                                            ----       ----
                  Total                                      (65%)       --%
                                                            ====       ====

The  components  of the  Company's  deferred  taxes at December  31, 1997 are as
follows:

         Deferred tax assets (liabilities):
           Net operating loss carryforward                    $ 805,000
           Valuation allowance                                 (505,000)
                                                              ---------
                  Net deferred tax asset                      $ 300,000
                                                              =========

The Company  records a valuation  allowance  to reserve its gross  deferred  tax
assets in  situations  when it is not "more likely than not" that the asset will
be realized. During 1997, the Company recorded $300,000 of income tax benefit by
reducing the valuation allowance  established  previously because management has
determined  it is more likely than not it will utilize that portion of available
net operating loss carryforwards in fiscal 1998.

As of December 31, 1997,  the Company had net operating loss  carryforwards  for
federal  income tax  purposes of  approximately  $2,012,000  which expire in the
years 2006 through 2011.

(8) IVA TAXES RECEIVABLE:

Under Mexican law, a  value-added  tax (IVA tax) is levied on the value added to
goods and services by each business  entity at each level in the  production and
distribution  chain.  Under normal  business  conditions,  each  business in the
process  collects  tax on its  sales,  takes a credit for the tax it has paid on
purchases and remits or receives the net amount to/from the government. Only the
final consumer is not entitled to a refund for the tax paid. Because the Company
is an exporter of its  products  out of Mexico,  no IVA tax is  collected by the
Company from the end purchaser. However, the Company pays substantial amounts of
IVA tax for raw materials and services related to its Mexican operations.  As of
December  31, 1997,  the Company was entitled to an IVA tax refund  amounting to
approximately  276,000 U.S.  dollars.  Management  believes,  based upon written
confirmation  received from the Mexican government that all of the IVA taxes due
back to the Company will be collected in the fourth quarter of 1998.

                                      F-16
<PAGE>

(9) STOCK CONSULTING AGREEMENT:

Under the terms of a Consulting Agreement  (Agreement) effective August 12, 1996
between  the  Company  and  an  independent  financial  consulting   corporation
(Consultant),   the  Company  contracted  for  financial  and  public  relations
services.  The Consultant was to be compensated  for its duties and services via
warrants  issued by the  Company  for a total of up to  5,000,000  shares of the
Company's  common  stock.  The  warrants  could be earned by the  Consultant  in
performance increments.

Upon agreement and registration of the warrants, the first increment of warrants
were issued to the Consultant and immediately  exercised for 1,000,000 shares of
common  stock in August  1996.  In October  1996 the  Company  learned  that the
Consultant had been charged with alleged  criminal  wrong-doings  related to the
promotion of various other  companies.  Upon further inquiry and verification by
management,  the  Company  found  that the  Consultant's  principal  subject  to
investigation  by  federal  authorities  in the  matter.  The  Company  and  the
Consultant  agreed that,  whether or not its principal  became formally  charged
with any alleged  wrong-doing  in the matter,  the  Consultant had been rendered
ineffective  and  ineffectual  with  respect  to the terms and  purposes  of the
Agreement.  Therefore,  on  October  12,  1996,  under the terms and  conditions
thereof,  the Company  suspended the Agreement and  instructed the Consultant to
make  immediate  and complete  accounting to the Company all warrants and shares
remaining directly and indirectly in the Consultant's possession.

As of October 19, 1998, the Company has not yet received a full  accounting from
the  Consultant.  However,  the Company has received a partial  accounting,  the
return of some 722,100 shares of common stock,  and payments for warrants in the
total  amount of $41,805,  which are  reflected  in the  consolidated  financial
statements.
                                      F-17