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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 033-27667-FW
STELAX INDUSTRIES LTD.
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(Exact name of registrant as specified in its charter)
British Columbia NONE
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4004 Beltline Road, Suite 107
Dallas, Texas 75244
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 490-5566
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of registrant's Common Stock at December 31,
1996: 31,869,285.
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INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <C> <C>
ITEM 1. Financial Statements. 2
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 6
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K. 7
Signature Page. 8
</TABLE>
i
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PART I
ITEM 1. Financial Statements
The accompanying financial statements are unaudited for the interim period, but
include all adjustments (consisting only of normal recurring accruals) which
management considers necessary for the fair presentation of results at December
31, 1996 and Demcember 31, 1995.
Moreover, these financial statements do not purport to contain complete
disclosures in conformity with generally accepted accounting principles and
should be read in conjunction with the Registrant's audited financial
statements at and for the fiscal year ended March 31, 1996.
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STELAX INDUSTRIES LTD.
CONSOLIDATED BALANCE SHEETS
(Presented in United States Dollars)
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1996 1996
(Unaudited)
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<S> <C> <C>
CURRENT ASSETS:
Cash $ 7,395,982 $ 41,147
Accounts receivable-trade 269,111 --
Receivable from related parties (Note 4) 15,910 --
Inventory 694,024 3,365
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Total Current Assets 8,375,027 44,512
PROPERTY & EQUIPMENT-AT COST:
Plant & Machinery 7,348,484 6,785,493
Building 810,410 810,410
Land 270,136 270,136
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8,429,030 7,866,039
Accumulated Depreciation (307,848) --
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Total Property & Equipment 8,121,182 7,866,039
INTANGIBLE ASSETS (accumulated amortization of
$36,567 at December 31, 1996) 508,247 523,490
OTHER ASSETS 70,531 15,300
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TOTAL ASSETS $ 17,074,987 $ 8,449,341
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 679,244 $ 264,041
Payable to Maritime -- 1,033,561
Convertible note payable 195,982 --
Accrued interest -- 52,899
Payable to related parties (Note 4) 198,213 542,538
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Total Current Liabilities 1,073,439 1,893,039
STOCKHOLDERS' EQUITY (Note 5):
Common stock - 50,000,000 shares
authorized, no stated par value;
issued and outstanding 31,869,285 and
18,733,906 shares at December 31, 1996
and March 31, 1996, respectively 21,841,087 11,291,686
Accumulated deficit (5,839,539) (4,735,384)
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$ 16,001,548 $ 6,556,302
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 17,074,987 $ 8,449,341
============ ============
</TABLE>
See notes to financial statements.
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STELAX INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Presented in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 214,926 $ -- $ 306,376 $ --
Cost of Sales 301,399 -- 427,007 --
------------ ------------ ------------ ------------
Gross Profit (86,473) -- (120,631) --
Selling, general and administrative
expenses (including depreciation and amortization
of $344,415 for the nine months ended December
31, 1996) 686,012 210,314 1,387,562 333,290
------------ ------------ ------------ ------------
Net loss from operations (772,485) (210,314) (1,508,193) (333,290)
Other income (expense):
Interest income 72,156 -- 156,178 --
Interest expense -- (31,119) (24,337) (31,119)
------------ ------------ ------------ ------------
Net loss $ (700,329) $ (241,433) $ (1,376,352) $ (364,409)
============ ============ ============ ============
Net loss per share $ (0.02) $ (0.01) $ (0.05) $ (0.02)
============ ============ ============ ============
</TABLE>
See notes to financial statements.
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STELAX INDUSTRIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Presented in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
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December 31, December 31,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,376,352) $ (364,409)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 344,415 --
Changes in operating assets and
liabilities:
Decrease (increase) in receivables (285,021) --
Decrease (increase) in investment option -- 212,500
Decrease (increase) in inventory & other assets (745,890) --
Increase (decrease) in accounts
payable & accrued interest 17,979 354,472
Foreign currency transaction gain 272,196 --
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Net cash used in operating activities (1,772,673) 202,563
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (453,275) (2,896,631)
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Net cash used by investing activities (453,275) (2,896,316)
FINANCING ACTIVITIES:
Note payable issue 195,982 299,985
Issue (payment) of Maritime payable (1,033,561) 1,255,305
Net proceeds from common stock 10,418,362 1,418,026
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Net cash provided by financing activities 9,580,783 2,973,316
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Increase (decrease) in cash and cash
equivalents 7,354,835 279,248
Cash & cash equivalents at beginning
of period 41,147 67
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Cash & cash equivalents at end of period $ 7,395,982 $ 279,315
============ ============
Interest paid $ 77,236 $ 0
============ ============
Income taxes paid $ 0 $ 0
============ ============
Non Cash Transactions:
Investment acquired by equity issue $ 131,040 $ 5,337,500
============ ============
</TABLE>
See notes to financial statements.
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STELAX INDUSTRIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(presented in United States dollars)
(Unaudited)
(1) INTERIM FINANCIAL STATEMENTS
In the opinion of management, the interim financial statements reflect all
adjustments necessary to a fair statement of the results for the interim
periods presented. The results for the nine months ended December 31, 1996 are
not necessarily indicative of results to be expected for the entire year.
These financial statements, notes and analyses should be read in conjunction
with the Company's annual financials for the fiscal year ended March 31, 1996.
(2) LOSS PER SHARE
Loss per share was based on the weighted average number of common shares,
27,033,377 and 16,672,344 outstanding during the nine month period ended
December 31, 1996 and 1995, respectively.
(3) INCOME TAXES
The Company has net operating loss carryforwards of approximately $420,000 for
Canada and $141,000 for the U.K.
(4) RELATED PARTY TRANSACTIONS
As of December 31, 1996, funds are owed by the Company totaling $198,213 to the
President of the Company and his affiliates and funds are due from a director
of the Company totaling $15,910. As of March 31, 1996, the Company owed the
President and his affiliates $542,538.
(5) STOCKHOLDERS' EQUITY
The Company received a net $10,418,362 from the completion of a public stock
offering on the Le Nouveau Marche in July, 1996, a subordinate trading board of
France's Bourse stock exchange. Additionally, the Company sold convertible
notes payable, of which an unconverted balance of $195,982 remains at December
31, 1996.
The Company issued the final common stock required per the terms of the asset
acquisition agreement from fiscal year 1996, equaling 74,880 shares valued at
$131,040.
In July, 1996, the Company paid the balance of the amount owed to Maritime per
the terms of the asset acquisition agreement. As a result of the Company's
subsidiary operating in the United Kingdom, the Company has periodoic
adjustments in its financials due to fluctuating exchange rates. At December
31, 1996, the Company has incurred a translation gain of $272,196 recorded as
an increase to stockholders' equity.
In April, 1996, the Company granted 375,000 in common stock options at prices
ranging from $2.00 to $5.00 for corporate relation support and consideration
for the Company financing that occurred in the prior year.
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PART I
ITEM 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations.
Results of Operation.
During the nine months ended December 31, 1996, the Company commenced
initial shipments of product from its facilty in Wales, United Kingdom.
Revenues were $214,926 with cost of sales of $301,399 for the three month
period and $306,376 with cost of sales of $427,007 for the nine month period
reflecting an increasing amount of stainless steel products sold over prior
quarters. The Company's selling, general and administrative expenses were
$686,012 for the three month period and $1,387,562 for the nine month period
reflecting costs incurred in maintaining the facility pending completion of the
Company's financing, which occurred in July 1996, and recommencing operations.
As the Company acquired the steel mill facility in November 1995, there are no
comparable results of operations for the three months or nine months ended
December 31, 1995.
Liquidity and Capital Resources
In July 1996 the Company raised a net amount of $10,425,000 in equity.
These funds are sufficient for the Company to pursue its business objectives
over the next twelve months including bringing to full production the Company's
steel mill facility and purchasing raw inventory for sales of the Company's
stainless steel products.
6
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PART II
ITEM 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the third quarter for
which this Form 10-Q is filed.
7
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SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
STELAX INDUSTRIES LTD.
Date: February 13, 1997
/s/ Harmon Hardy
------------------------------------
Harmon Hardy
President/Chief Financial Officer
8
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,395
<SECURITIES> 0
<RECEIVABLES> 269
<ALLOWANCES> 0
<INVENTORY> 694
<CURRENT-ASSETS> 8,375
<PP&E> 8,429
<DEPRECIATION> 307
<TOTAL-ASSETS> 17,074
<CURRENT-LIABILITIES> 1,073
<BONDS> 0
0
0
<COMMON> 21,841
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,074
<SALES> 306
<TOTAL-REVENUES> 306
<CGS> 427
<TOTAL-COSTS> 427
<OTHER-EXPENSES> 1,387
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (1,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,376)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>