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Previous: CYPRESS EQUIPMENT FUND LTD, 10-Q, 1997-11-13 |
Next: ENEX 88 89 INCOME & RETIREMENT FUND SERIES 3 L P, 10QSB, 1997-11-13 |
<PAGE> 1
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 September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission File Number 0-18052
STELAX INDUSTRIES LTD.
-----------------------------------------
(Exact name of registrant as specified in its charter)
British Columbia NONE
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4004 Beltline Road, Suite 107
Dallas, Texas 75244
-----------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 233-6041
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 of such short 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 September 30,
1997: 31,869,285.
<PAGE> 2
INDEX
-----
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page
----
<S> <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>
<PAGE> 3
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 September
30, 1997 and September 30, 1996.
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, 1997.
1
<PAGE> 4
STELAX INDUSTRIES LTD
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
<TABLE>
<CAPTION>
ASSETS
September 30, March 31,
1997 1997
Unaudited
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,032,807 $ 6,186,712
Accounts receivable-trade, net (allowance for
doubtful accounts at Sept. 30, and March 31,
1997, $9,010 and $24,600,respectively) 1,221,518 293,001
-related parties (Note 4) 4,299 --
Inventory-raw materials 378,236 302,513
-work in process 360,880 366,847
-finished goods 101,601 213,522
Prepaids and other current assets 46,354 37,623
------------- -------------
Total Current Assets 5,145,695 7,400,218
PROPERTY & EQUIPMENT-AT COST:
Plant & machinery 8,679,554 8,060,727
Building 827,694 810,792
Land 270,136 270,136
------------- -------------
9,777,384 9,141,655
Accumulated Depreciation (614,932) (398,541)
------------- -------------
Total Property & Equipment 9,162,452 8,743,114
INTANGIBLE ASSETS (accumulated amortization at
Sept. 30 and March 31, 1997 of $73,392 and
$47,749, respectively) 546,728 538,991
OTHER ASSETS 75,331 74,444
------------- -------------
TOTAL ASSETS $ 14,930,206 $ 16,756,767
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,375,943 $ 1,415,583
Convertible note payable 195,982 195,982
Payable to related parties (Note 4) 125,185 20,228
------------- -------------
Total Current Liabilities 1,697,110 1,631,793
STOCKHOLDERS' EQUITY :
Common stock - 50,000,000 shares authorized,
no stated par value; issued
and outstanding 31,869,285 shares
at Sept. 30 and March 31, 1997 21,821,087 21,821,087
Accumulated deficit (8,693,158) (6,844,173)
Cumulative translation adjustments 105,167 148,060
------------- -------------
$ 13,233,096 $ 15,124,974
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 14,930,206 $ 16,756,767
============= =============
</TABLE>
See notes to financial statements.
<PAGE> 5
STELAX INDUSTRIES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Presented in United States dollars)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
September 30, September 30,
1997 1996
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,848,985) $ (676,023)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 242,380 205,408
Allowance for doubtful accounts (15,590) --
Foreign currency transaction gain (loss) (42,893) (15,231)
Changes in operating assets and liabilities:
Decrease (increase) in receivables (917,226) (97,025)
Decrease (increase) in inventory & other assets 32,547 (847,990)
Increase (decrease) in accounts
payable & accrued interest 65,317 109,033
--------------- ---------------
Net cash used in operating activities (2,484,450) (1,321,828)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (669,455) (246,114)
--------------- ---------------
Net cash used by investing activities (669,455) (246,114)
FINANCING ACTIVITIES:
Note payable issue -- 195,982
Payment of Maritime payable -- (1,033,561)
Net proceeds from common stock -- 10,425,362
--------------- ---------------
Net cash provided by financing activities -- 9,587,783
--------------- ---------------
Increase (decrease) in cash and cash
equivalents (3,153,905) 8,019,841
Cash & cash equivalents at beginning
of period 6,186,712 41,147
--------------- ---------------
Cash & cash equivalents at end of period 3,032,807 8,060,988
=============== ===============
Interest paid -- 77,236
=============== ===============
Income taxes paid -- --
=============== ===============
Non Cash Transactions:
Investment acquired by equity issue -- 131,040
=============== ===============
</TABLE>
See notes to financial statements.
<PAGE> 6
STELAX INDUSTRIES LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
(Presented in United States dollars)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 1,304,378 $ 2,202 $ 1,848,387 $ 91,450
Cost of sales 1,579,822 67,598 2,760,086 125,608
------------- ------------- ------------- -------------
Gross loss (275,444) (65,396) (911,699) (34,158)
Selling, general and administrative
expenses (including depreciation and amortization
of $242,380 and $205,408 for the six months
ending Sept. 30, 1997 and 1996, respectively) 540,091 473,305 1,051,533 701,550
------------- ------------- ------------- -------------
Net loss from operations (815,535) (538,701) (1,963,232) (735,708)
Other income (expense):
Interest income 51,329 84,022 114,247 84,022
Interest expense -- (3,492) -- (24,337)
------------- ------------- ------------- -------------
Net loss $ (764,206) $ (458,171) $ (1,848,985) $ (676,023)
============= ============= ============= =============
Net loss per share $ (0.02) $ (0.02) $ (0.06) $ (0.03)
============= ============= ============= =============
------------------
</TABLE>
<PAGE> 7
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 six months ended September 30, 1997 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, 1997.
(2) LOSS PER SHARE
Loss per share was based on the weighted average number of common shares
31,869,285 and 24,602,211 outstanding during the six month period ended
September 30, 1997 and 1996, respectively.
(3) INCOME TAXES
The Company has net operating loss carry forwards of approximately $420,000 for
Canada and $1,143,000 for the U.K.
(4) RELATED PARTY TRANSACTIONS
As of September 30, 1997, funds are owed by the Company totaling $125,185 to the
president of the Company. As of March 31, 1997, the Company owed the president
$20,228. At September 30, 1997 $4,299 had been advanced to the president of the
subsidiary.
5
<PAGE> 8
ITEM 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations.
Results of Operation
Revenues during the three and six months ended September 30, 1997 were well
in excess of revenues for the comparable periods in 1996 as the Company's
facility in Wales, United Kingdom continued to come on-line and sales continued
to increase. Revenues in the second fiscal quarter of 1998 also are above those
for the Company's first fiscal quarter of 1998. The Company's cost of sales as a
percentage of revenues increased in the six months of fiscal 1998 as a result of
stainless steel prices declining worldwide causing the Company to recognize, for
financial reporting purposes, the use of higher cost inventory which was
acquired before the decline of stainless steel prices. The Company, therefore,
suffered a loss at the margin level for the three months and six months ended
September 30, 1997 of $275,444 and $911,699, respectively. The Company believes
its operations will continue to be affected by pricing worldwide for stainless
steel products both at the revenue level and at the cost of sales level.
Selling, general and administrative expenses increased in the second fiscal
quarter over the comparable period in the prior year as a result of increased
staffing at the Company's facility and increased marketing and promotional
expenses for the Company's products.
Liquidity and Capital Resources
As of September 30, 1997 the Company had cash of $3,032,807 and net
accounts receivable of $1,221,518. The Company continues to consume cash on a
quarterly basis to fund prior losses, to purchase inventory as sales continue to
increase and to finance accounts receivable. While the Company's liquidity
position is good as of September 30, 1997, as the Company's operations continue
to expand, the Company may be required to seek outside sources of additional
debt and/or equity funds.
6
<PAGE> 9
PART II
ITEM 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fiscal quarter for
which this Form 10-Q is filed.
7
<PAGE> 10
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: November 12, 1997 /s/ Harmon Hardy
---------------------------------
Harmon Hardy
President/Chief Financial Officer
8
<PAGE> 11
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,032
<SECURITIES> 0
<RECEIVABLES> 1,226
<ALLOWANCES> 9
<INVENTORY> 839
<CURRENT-ASSETS> 5,145
<PP&E> 9,777
<DEPRECIATION> 614
<TOTAL-ASSETS> 14,930
<CURRENT-LIABILITIES> 1,697
<BONDS> 0
0
0
<COMMON> 21,821
<OTHER-SE> (8,588)
<TOTAL-LIABILITY-AND-EQUITY> 14,930
<SALES> 1,848
<TOTAL-REVENUES> 1,848
<CGS> 2,760
<TOTAL-COSTS> 2,760
<OTHER-EXPENSES> 1,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,849)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
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