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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 September 30, 1998
( ) 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 0-18052
STELAX INDUSTRIES LTD.
(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) 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,
1998: 31,869,285.
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INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page
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<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>
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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 September
30, 1998 and September 30, 1997.
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, 1998.
1
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STELAX INDUSTRIES LTD
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
Unaudited
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<S> <C> <C>
CURRENT ASSETS:
Cash $ 163,139 $ 852,892
Inventory-Raw materials 25,917 124,664
Work in process 209,153 700,930
Finished goods 172,335 247,163
Accounts Receivable-Trade, net (allowance for
doubtful accounts at Sept. 30 and March 31,
1998, $95,200 and $93,593, respectively) 519,451 597,426
Prepaids and other current assets 81,354 87,380
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Total Current Assets 1,171,349 2,610,455
PROPERTY & EQUIPMENT-AT COST:
Plant & Machinery 9,254,719 9,155,297
Building 849,313 840,240
Land 270,136 270,136
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10,374,168 10,265,673
Accumulated Depreciation (1,045,793) (825,263)
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Total Property & Equipment 9,328,375 9,440,410
INTANGIBLE ASSETS (accumulated amortization of
$130,890 and $101,924 at Sept. 30 and
March 31, 1998, respectively) 525,151 548,509
OTHER ASSETS 11,649 37,495
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TOTAL ASSETS $ 11,036,524 $ 12,636,869
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,596,863 $ 1,833,281
Convertible notes payable 195,982 195,982
Payable to related parties (Note 4) 99,419 81,352
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Total Current Liabilities 1,892,264 2,110,615
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, 1998, respectively 21,821,087 21,821,087
Cumulative translation adjustments 244,238 240,501
Accumulated deficit (12,921,065) (11,535,334)
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Total Stockholders' Equity $ 9,144,260 $ 10,526,254
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 11,036,524 $ 12,636,869
============ ============
</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 Six Months Ended
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September 30, September 30, September 30, September 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales 16,919 1,304,378 440,798 1,848,387
Cost of sales 470,432 1,579,822 942,250 2,760,086
------------ ------------ ------------ ------------
Gross loss (453,513) (275,444) (501,452) (911,699)
Selling, general and administrative expenses
(including depreciation and amortization of
$249,497 and $242,380 for the six months
ending Sept. 30, 1998 and 1997, respectively) 546,322 540,091 886,893 1,051,533
------------ ------------ ------------ ------------
Loss from operations (999,835) (815,535) (1,388,345) (1,963,232)
Other income (expense):
Interest income 6,010 51,329 14,758 114,247
Interest expense (10,082) -- (12,146) --
------------ ------------ ------------ ------------
Net loss $ (1,003,907) $ (764,206) $ (1,385,733) $ (1,848,985)
============ ============ ============ ============
Weighted average shares of common stock 31,869,285 31,869,285 31,869,285 31,869,285
============ ============ ============ ============
Net loss per share $ (0.03) $ (0.02) $ (0.04) $ (0.06)
============ ============ ============ ============
</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>
Six Months Ended
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September 30, September 30,
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,385,733) $(1,848,985)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation & amortization 249,497 242,380
Allowance for doubtful accounts 1,607 (15,590)
Foreign currency transaction gain (loss) 3,737 (42,893)
Changes in operating assets and liabilities:
Decrease (increase) in receivables 76,368 (917,226)
Decrease (increase) in inventory & other assets 697,223 32,547
Increase (decrease) in accounts
payable & accrued interest (218,349) 65,317
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Net cash (used) provided by operating activities (575,650) (2,484,450)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (114,103) (669,455)
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Net cash used by investing activities (114,103) (669,455)
Increase (decrease) in cash and cash
equivalents (689,753) (3,153,905)
Cash & cash equivalents at beginning
of period 852,892 6,186,712
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Cash & cash equivalents at end of period $ 163,139 $ 3,032,807
=========== ===========
Interest paid $ 12,146 $ --
=========== ===========
Income taxes paid $ -- $ --
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</TABLE>
See notes to financial statements.
<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, 1998 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, 1998.
(2) LOSS PER SHARE
Loss per share was based on the weighted average number of common shares
31,869,285 outstanding during the six month period ended September 30, 1998 and
1997.
(3) INCOME TAXES
The Company has net operating loss carry forwards of approximately $420,000 for
Canada and $6,200,000 for the U.K.
(4) RELATED PARTY TRANSACTIONS
As of September 30, 1998, funds are owed by the Company totaling $99,419 to the
president of the Company. As of March 31, 1998, the Company owed the president
$81,352.
5
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ITEM 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations.
Results of Operation
Revenues during the six months ended September 30, 1998 were $440,798 as
compared to $1,848,387 for the comparable period in 1997. This decrease reflects
management's previously announced decision to cease production and sale of
stainless steel. The Company has significantly reduced overhead and headcount at
its facility in Wales resulting in a reduced loss of $1,385,733 for the six
months ended September 30, 1998 as compared to a loss of $1,848,985 for the six
months ended September 30, 1997.
Liquidity and Capital Resources
The Company's liquidity position continues to deteriorate as the Company
continues to experience losses. At September 30, 1998 the Company had cash and
net accounts receivable of $682,590. The Company continues to consume cash to
fund losses and to finance accounts receivable. In the short term management has
been concentrating on liquidating the Company's remaining inventory and
collecting all outstanding receivables. Management of the Company believes the
Company will be required to seek outside sources of additional debt and/or
equity capital.
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 first 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: November 13, 1998 /s/ Harmon Hardy
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Harmon Hardy
President/Chief Financial Officer
8
<PAGE> 11
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 163
<SECURITIES> 0
<RECEIVABLES> 519
<ALLOWANCES> 95
<INVENTORY> 407
<CURRENT-ASSETS> 1,171
<PP&E> 10,374
<DEPRECIATION> 1,045
<TOTAL-ASSETS> 11,036
<CURRENT-LIABILITIES> 1,892
<BONDS> 0
0
0
<COMMON> 21,821
<OTHER-SE> 244
<TOTAL-LIABILITY-AND-EQUITY> 11,036
<SALES> 441
<TOTAL-REVENUES> 441
<CGS> 942
<TOTAL-COSTS> 942
<OTHER-EXPENSES> 886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (1,386)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,386)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
