<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 December 31, 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 December 31,
1997: 31,869,285.
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INDEX
PART 1. FINANCIAL INFORMATION Page
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
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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, 1997 and December 31, 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
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STELAX INDUSTRIES LTD
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1997 1997
------------ ------------
Unaudited
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,406,880 $ 6,186,712
Accounts receivable-trade, net (allowance for
doubtful accounts at Dec. 31, and March 31,
1997, $9,190 and $24,600, respectively) 1,638,224 293,001
-related parties (Note 4) 9,565 --
Inventory-raw materials 125,020 302,513
-work in process 865,785 366,847
-finished goods 336,701 213,522
Prepaids and other current assets 68,117 37,623
------------ ------------
Total Current Assets 4,450,292 7,400,218
PROPERTY & EQUIPMENT-AT COST:
Plant & machinery 9,057,154 8,060,727
Building 837,276 810,792
Land 270,136 270,136
------------ ------------
10,164,566 9,141,655
Accumulated Depreciation (732,665) (398,541)
------------ ------------
Total Property & Equipment 9,431,901 8,743,114
INTANGIBLE ASSETS (accumulated amortization at
Dec. 31 and March 31, 1997 of $87,345 and
$47,749, respectively) 536,992 538,991
OTHER ASSETS 49,271 74,444
------------ ------------
TOTAL ASSETS $ 14,468,456 $ 16,756,767
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,697,725 $ 1,415,583
Convertible note payable 195,982 195,982
Payable to related parties (Note 4) 47,515 20,228
------------ ------------
Total Current Liabilities 1,941,222 1,631,793
STOCKHOLDERS' EQUITY :
Common stock - 50,000,000 shares authorized,
no stated par value; issued
and outstanding 31,869,285 shares
at December 31 and March 31, 1997 21,821,087 21,821,087
Accumulated deficit (9,572,861) (6,844,173)
Cumulative translation adjustments 279,008 148,060
------------ ------------
$ 12,527,234 $ 15,124,974
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,468,456 $ 16,756,767
============ ============
</TABLE>
See notes to financial statements.
2
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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,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 636,920 $ 214,926 $ 2,485,307 $ 306,376
Cost of sales 1,002,469 301,399 3,762,555 427,007
----------- ----------- ----------- -----------
Gross loss (365,549) (86,473) (1,277,248) (120,631)
Selling, general and administrative
expenses (including depreciation and amortization
of $374,073 and $344,415 for the nine months
ending Dec. 31, 1997 and 1996, respectively) 537,650 686,012 1,588,588 1,387,562
----------- ----------- ----------- -----------
Net loss from operations (903,199) (772,485) (2,865,836) (1,508,193)
Other income (expense):
Interest income 25,744 72,156 139,991 156,178
Interest expense (2,248) -- (2,844) (24,337)
----------- ----------- ----------- -----------
Net loss $ (879,703) $ (700,329) $(2,728,689) $(1,376,352)
=========== =========== =========== ===========
Net loss per share $ (0.03) $ (0.02) $ (0.09) $ (0.05)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
3
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STELAX INDUSTRIES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Presented in United States dollars)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
December 31, December 31,
1997 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,728,689) $ (1,376,352)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 374,073 344,415
Allowance for doubtful accounts (15,410) --
Foreign currency transaction gain (loss) 130,948 272,196
Changes in operating assets and liabilities:
Decrease (increase) in receivables (1,339,378) (285,021)
Decrease (increase) in inventory & other assets (449,945) (745,890)
Increase (decrease) in accounts
payable & accrued interest 309,430 17,979
------------ ------------
Net cash used in operating activities (3,718,971) (1,772,673)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (1,060,861) (453,275)
------------ ------------
Net cash used by investing activities (1,060,861) (453,275)
FINANCING ACTIVITIES:
Note payable issue -- 195,982
Payment of Maritime payable -- (1,033,561)
Net proceeds from common stock -- 10,418,362
------------ ------------
Net cash provided by financing activities -- 9,580,783
------------ ------------
Increase (decrease) in cash and cash equivalents (4,779,832) 7,354,835
Cash & cash equivalents at beginning of period 6,186,712 41,147
------------ ------------
Cash & cash equivalents at end of period $ 1,406,880 $ 7,395,982
============ ============
Interest paid $ -- $ 77,236
============ ============
Income taxes paid $ -- $ --
============ ============
Non Cash Transactions:
Investment acquired by equity issue $ -- $ 131,040
============ ============
</TABLE>
See notes to financial statements.
4
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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, 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 27,033,377 outstanding during the nine month period ended
December 31, 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 December 31, 1997, funds are owed by the Company totaling $47,515 to the
president of the Company. As of March 31, 1997, the Company owed the president
$20,228. At December 31, 1997 $9,565 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
The operating results of the Company through December 31, 1997 show the
lack of success of the Company in being able to earn profits in the production
of solid stainless steel. As a result, management of the Company has decided to
phase out of the solid stainless steel business. The Company's original business
plan called for the production of solid stainless steel to satisfy three
objectives: the commissioning of the Company's facility in Wales, United
Kingdom, building a production infrastructure and achieving positive cash flow.
The Company was able to meet the first two objectives. However, the objective of
positive cash flow has not been achieved as of December 31, 1997. At the time of
the Company's original business plan, stainless steel prices were at historic
high. Since that time, however, stainless steel prices have continued to drop.
Fortunately, the Company has developed a backlog for its patented product
Nuovinox, the ultimate objective for the Company. The lower solid stainless
steel prices created by the collapse of the Asian economy enhances the Company's
position in Nuovinox, a lower priced alternative to solid stainless steel. Since
approximately 80% of the cost of Nuovinox is tied to the price of solid
stainless steel, the lower prices of stainless steel have opened up new market
opportunities for Nuovinox. Nuovinox can compete with galvanized and coated
products more competitively and will make Stelax's rebar products more
economically acceptable.
Management feels confident that the redirection of the operations discussed
above will help accelerate the Company in establishing a dominant position in
the market with Nuovinox and establish significant improvements in the Company's
financial performance and cash flows.
Liquidity and Capital Resources
As of December 31, 1997 the Company had cash of $1,406,880 and net accounts
receivable of $1,638,224. The Company continues to consume cash on a quarterly
basis to fund prior losses, to purchase inventory and to finance accounts
receivable. While the Company's liquidity position is good as of December 31,
1997, as the Company's operations are redirected fully to the production of
Nuovinox, the Company may be required to seek outside sources of additional debt
and/or equity funds. For the immediate term, liquidity will be enhanced by
collecting existing receivables and utilizing existing inventory.
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: February 15, 1998 /s/ Harmon Hardy
------------------------------------
Harmon Hardy
President/Chief Financial Officer
8
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<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-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,407
<SECURITIES> 0
<RECEIVABLES> 1,638
<ALLOWANCES> 9
<INVENTORY> 1,327
<CURRENT-ASSETS> 4,450
<PP&E> 10,165
<DEPRECIATION> 732
<TOTAL-ASSETS> 14,468
<CURRENT-LIABILITIES> 1,941
<BONDS> 0
0
0
<COMMON> 21,821
<OTHER-SE> (9,572)
<TOTAL-LIABILITY-AND-EQUITY> 14,468
<SALES> 2,485
<TOTAL-REVENUES> 2,485
<CGS> 3,762
<TOTAL-COSTS> 3,762
<OTHER-EXPENSES> 1,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3)
<INCOME-PRETAX> (2,865)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,728)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
