<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, 1998
( ) 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,
1998: 32,316,729.
<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 December
31, 1998 and December 31, 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
<PAGE> 4
STELAX INDUSTRIES LTD
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1998 1998
Unaudited
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 18,065 $ 852,892
Inventory-Raw materials 12,840 124,664
Work in process 108,543 700,930
Finished goods 209,458 247,163
Accounts Receivable-Trade, net (allowance for
doubtful accounts at Dec. 31 and March 31,
1998, $49,785 and $93,593, respectively) 223,721 597,426
Prepaids and other current assets 33,633 87,380
------------ ------------
Total Current Assets 606,260 2,610,455
PROPERTY & EQUIPMENT-AT COST:
Plant & Machinery 9,252,351 9,155,297
Building 849,097 840,240
Land 270,136 270,136
------------ ------------
10,371,584 10,265,673
Accumulated Depreciation (1,165,034) (825,263)
------------ ------------
Total Property & Equipment 9,206,550 9,440,410
INTANGIBLE ASSETS (accumulated amortization of
$144,432 and $101,924 at Dec. 31 and
March 31, 1998, respectively) 512,697 548,509
OTHER ASSETS 21,959 37,495
------------ ------------
TOTAL ASSETS $ 10,347,466 $ 12,636,869
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,597,053 $ 1,833,281
Convertible notes payable -- 195,982
Payable to related parties (Note 4) 124,801 81,352
------------ ------------
Total Current Liabilities 1,721,854 2,110,615
STOCKHOLDERS' EQUITY:
Common stock - 50,000,000 shares
authorized, no stated par value;
issued and outstanding 32,316,729 and
31,869,285 shares at Dec. 31 and
March 31, 1998, respectively 22,017,069 21,821,087
Cumulative translation adjustments 233,158 240,501
Accumulated deficit (13,624,615) (11,535,334)
------------ ------------
Total Stockholders' Equity $ 8,625,612 $ 10,526,254
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 10,347,466 $ 12,636,869
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE> 5
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,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales (Note 5) (199,523) 636,920 241,275 2,485,307
Cost of sales 106,260 1,002,469 1,048,510 3,762,555
------------- ------------- ------------- -------------
Gross loss (305,783) (365,549) (807,235) (1,277,248)
Selling, general and administrative expenses
(including depreciation and amortization of
$382,279 and $374,073 for the nine months
ending Dec. 31, 1998 and 1997, respectively) 397,605 537,650 1,284,498 1,588,588
------------- ------------- ------------- -------------
Loss from operations (703,388) (903,199) (2,091,733) (2,865,836)
Other income (expense):
Interest income 1,134 25,744 15,892 139,991
Interest expense (1,296) (2,248) (13,442) (2,844)
------------- ------------- ------------- -------------
Net loss $ (703,550) $ (879,703) $ (2,089,283) $ (2,728,689)
============= ============= ============= =============
Weighted average shares of common stock 31,971,419 31,869,285 31,903,453 31,869,285
============= ============= ============= =============
Net loss per share $ (0.02) $ (0.03) $ (0.07) $ (0.09)
============= ============= ============= =============
</TABLE>
See notes to financial statements.
3
<PAGE> 6
STELAX INDUSTRIES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Presented in United States dollars)
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
December 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,089,283) $(2,728,689)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation & amortization 382,279 374,073
Allowance for doubtful accounts (43,808) (15,410)
Foreign currency transaction gain (loss) (7,343) 130,948
Changes in operating assets and liabilities:
Decrease (increase) in receivables 417,513 (1,339,378)
Decrease (increase) in inventory & other assets 811,199 (449,945)
Increase (decrease) in accounts
payable & accrued interest (192,777) 309,430
----------- -----------
Net cash (used) provided by operating activities (722,220) (3,718,971)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (112,607) (1,060,861)
----------- -----------
Net cash used by investing activities (112,607) (1,060,861)
FINANCING ACTIVITIES
Note payable conversion (195,982) --
Common stock issue 195,982 --
=========== ===========
Net cash provided by financing activities -- --
Increase (decrease) in cash and cash
equivalents (834,827) (4,779,832)
Cash & cash equivalents at beginning
of period 852,892 6,186,712
----------- -----------
Cash & cash equivalents at end of period $ 18,065 $ 1,406,880
=========== ===========
Interest paid $ 13,442 $ --
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
</TABLE>
See notes to financial statements.
4
<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 nine months ended December 31, 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 of
31,903,453 and 31,869,285 outstanding during the nine month period ended
December 31, 1998 and 1997, respectively.
(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 December 31, 1998, funds are owed by the Company totaling $124,801 to the
president of the Company. As of March 31, 1998, the Company owed the president
$81,352.
(5) SALES
In the three month period ending December 31, 1998, there were no new sales. The
only activity in sales relates to an agreed upon reduction in selling price of
selected prior sales. This reduction was due to deviations in the specifications
of stock received and in product delivered.
(6) STOCKHOLDERS' EQUITY
On December 10, 1998, the convertible notes payable totaling $195,982 were
converted into common shares of the Company. This transaction resulted in
447,444 common shares being issued per the terms of the agreement.
(7) SUBSEQUENT EVENT
On January 1, 1999, the president of the subsidiary and the president of the
Company converted debt owed into common shares of the Company. The debt
converted totaled $225,000 and resulted in 1,125,000 additional common shares
being issued and 1,125,000 common share options. The options are at $.50 a share
and are valid for 5 years.
During January 1999, new common shares totaling 750,000 shares were issued for
$210,000, of which the president of the Company paid $50,000 of the total. In
conjunction with the equity sales, 650,000 options were granted at a range of
$.30 to $.50 a share. The president of the Company received part of the options
on comparable terms as other investors. In a separate transaction, 1,100,000
options were granted at a range of $.30 to $1.00 a share.
On January 11, 1999, options were exercised on 1,372,000 shares for $137,200.
The Company has advanced 90% of the exercise price and each individual has
personal liability for repayment of the debt.
5
<PAGE> 8
ITEM 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations.
Results of Operation
Revenues for the three months ended December 31, 1998 were negative as a
result of agreed upon reductions in selling price of selected prior sales of
solid stainless steel made in prior quarters. These reductions arose from errors
in specifications on raw materials received by the Company which in turn were
carried forward to product delivered to customers.
Revenues during the nine months ended December 31, 1998 were $241,275 as
compared to $2,485,307 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 $2,089,283 for the nine
months ended December 31, 1998 as compared to a loss of $2,865,836 for the nine
months ended December 31, 1997.
Liquidity and Capital Resources
The Company's liquidity position continues to deteriorate as the Company
continues to experience losses. At December 31, 1998 the Company had cash and
net accounts receivable of $241,786. The Company continues to consume cash to
fund losses. In the short term, for the purpose of providing current cash flow,
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.
Year 2000 Disclosures
The Company does not believe the Company or its operations are subject to
any year 2000 issues which are within the Company's control to correct. The
Company is a small purchaser of raw materials from various vendors in the United
Kingdom. The Company does not have any direct computer communications with any
customer or supplier.
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 first 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 16, 1999 /s/ Harmon Hardy
--------------------- -----------------------------------------
Harmon Hardy
President/Chief Financial Officer
8
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<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-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 223
<ALLOWANCES> 50
<INVENTORY> 331
<CURRENT-ASSETS> 606
<PP&E> 9,206
<DEPRECIATION> 1,165
<TOTAL-ASSETS> 10,347
<CURRENT-LIABILITIES> 1,721
<BONDS> 0
0
0
<COMMON> 22,017
<OTHER-SE> (13,391)
<TOTAL-LIABILITY-AND-EQUITY> 10,347
<SALES> 241
<TOTAL-REVENUES> 241
<CGS> 1,048
<TOTAL-COSTS> 1,048
<OTHER-EXPENSES> 1,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (2,089)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,089)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,089)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
