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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, 1999
( ) 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.
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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) 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,
1999: 36,089,442
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<TABLE>
<CAPTION>
INDEX
PART I. 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
SET NEW
</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, 1999, and September 30, 1998.
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, 1999.
1
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STELAX INDUSTRIES LTD
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
<TABLE>
<CAPTION>
ASSETS
September 30, March 31,
1999 1999
Unaudited
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<S> <C> <C>
CURRENT ASSETS:
Cash $ 30,763 $ 42,973
Note Receivable 141,480 141,480
Inventory-Raw materials 3,874 --
Work in process 4,530 55,278
Finished goods 109,222 140,385
Accounts Receivable-Trade, net (allowance for
doubtful accounts at Sept. 30 and March 31,
1999, $0 and $0, respectively) 56,958 19,505
Prepaids and other current assets 32,613 49,689
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Total Current Assets 379,440 449,310
PROPERTY & EQUIPMENT-AT COST:
Plant & Machinery 9,249,561 9,249,561
Building 848,843 848,843
Land 270,136 270,136
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10,368,540 10,368,540
Accumulated Depreciation (1,523,125) (1,276,183)
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Total Property & Equipment 8,845,415 9,092,357
INTANGIBLE ASSETS (accumulated amortization of
$187,087 and $157,054 at Sept. 30 and
March 31, 1999, respectively) 518,085 501,846
OTHER ASSETS 24,178 22,175
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TOTAL ASSETS $ 9,767,118 $ 10,065,688
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,393,250 $ 1,452,699
Convertible notes payable 318,914 --
Payable to related parties (Note 4) 596,374 210,738
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Total Current Liabilities 2,308,538 1,663,437
STOCKHOLDERS' EQUITY:
Common stock - 50,000,000 shares authorized, no stated par value; issued
and outstanding 36,089,442 & 35,963,729 shares at Sept. 30 and March 31,
1999, respectively 22,954,361 22,885,219
Cumulative translation adjustments 198,496 202,864
Accumulated deficit (15,694,277) (14,685,832)
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Total Stockholders' Equity $ 7,458,580 $ 8,402,251
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,767,118 $ 10,065,688
============ ============
</TABLE>
See notes to financial statements.
2
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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,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,008,439) $ (1,385,733)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation & amortization 276,975 249,497
Allowance for doubtful accounts -- 1,607
Foreign currency transaction gain (loss) (4,368) 3,737
Changes in operating assets and liabilities:
Decrease (increase) in receivables (37,453) 76,368
Decrease (increase) in inventory & other assets 93,110 697,223
Increase (decrease) in accounts
payable & accrued interest 395,323 (218,349)
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Net cash (used) provided by operating activities (284,852) (575,650)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (46,272) (114,103)
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Net cash used by investing activities (46,272) (114,103)
FINANCING ACTIVITIES
Convertible note payable issue 318,914 --
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318,914 --
Increase (decrease) in cash and cash
equivalents (12,210) (689,753)
Cash & cash equivalents at beginning
of period 42,973 852,892
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Cash & cash equivalents at end of period $ 30,763 $ 163,139
============ ============
Interest paid $ 7,400 $ 12,146
============ ============
Income taxes paid $ -- $ --
============ ============
</TABLE>
See notes to financial statements.
3
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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
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Sales 49,854 16,919 93,443 440,798
Cost of sales 209,865 470,432 358,238 942,250
------------ ------------ ------------ ------------
Gross loss (160,011) (453,513) (264,795) (501,452)
Selling, general and administrative expenses
(including depreciation and amortization of
$276,975 and $249,497 for the six months
ending Sept. 30, 1999 and 1998, respectively) 368,162 546,322 716,018 886,893
------------ ------------ ------------ ------------
Loss from operations (528,173) (999,835) (980,813) (1,388,345)
Other income (expense):
Interest income -- 6,010 -- 14,758
Interest expense (19,316) (10,082) (27,626) (12,146)
------------ ------------ ------------ ------------
Net loss $ (547,489) $ (1,003,907) $ (1,008,439) $ (1,385,733)
============ ============ ============ ============
Weighted average shares of common stock 35,989,691 31,869,285 35,976,781 31,869,285
============ ============ ============ ============
Net loss per share $ (0.02) $ (0.03) $ (0.03) $ (0.04)
============ ============ ============ ============
</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 six months ended September 30, 1999 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, 1999.
(2) LOSS PER SHARE
Loss per share was based on the weighted average number of common shares of
35,976,781 and 31,869,285 outstanding during the six month period ended
September 30, 1999 and 1998, 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 September 30, 1999, funds are owed by the Company totaling $572,303 to
the President of the Company and his affiliates. Of this amount, $438,333
represents draws and accrued interest upon the line of credit established by
the President on behalf of the Company. As of March 31, 1999, the Company owed
the President of $135,643. The president of the subsidiary is owed $24,071 and
$75,095 as of September 30 and March 31, 1999, respectively.
(5) STOCKHOLDERS' EQUITY:
The Company lowered the option price on 1,100,000 existing options from $1.00
to $.50 a share. New options totaling 700,000 were issued at $.50 to $.80 a
share and are valid for three (3) years. Additionally, the Company issued
125,713 new shares of common stock in exchange for canceling $69,142.00 in
debt. The Company also issued $350,000 in convertible notes payable. The notes
bear a 9% interest rate and are due July, 2001.
5
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ITEM 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations.
Results of Operation
The Company's revenues decreased substantially during the six months ended
September 30, 1999 ($93,443.00) as compared to the comparable period in 1998
($440,798). The reduction in revenues is a result of the Company's decision in
1998 to cease production of stainless steel products. The Company reduced its
selling, general and administrative expense level during the comparable
periods. The Company's net loss also was reduced in the six month period in
1999 as compared to 1998.
Liquidity & Capital Resources
As noted in the Company's Annual Report on Form 10-K for the year ended March
31, 1999, the Company's liquidity position during fiscal year 1999 deteriorated
significantly as a result of the net losses experienced by the Company. These
losses continued through September 30, 1999, and are anticipated to continue
for the foreseeable future. The Company has significantly reduced its operating
expenses (as compared to 1998) in an effort to conserve cash pending the sale
of its Nuovinox products.
While management of the Company believes it has sufficient cash and current
assets to continue operations for the near term, the Company believes it will
be required to raise external financing prior to the end of the 2000 fiscal
year through the sale of debt, equity or a combination thereof. There can be no
assurance, however, that the Company will be successful in raising external
financing in which case the Company may be required to sell assets or seek a
joint venture relationship with a third party.
Inflation
The Company's operations may be impacted by the effects of inflation and
changing prices as increased prices may reduce the demand for steel products.
Additionally, the price of nickel has direct impact on the Company as nickel is
an integral component to the price of the stainless steel utilized in Nuovinox.
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 second 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 thereunto duly authorized.
STELAX INDUSTRIES LTD.
Date: November 19, 1999 /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> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 141
<ALLOWANCES> 0
<INVENTORY> 118
<CURRENT-ASSETS> 379
<PP&E> 10,368
<DEPRECIATION> 1,523
<TOTAL-ASSETS> 9,767
<CURRENT-LIABILITIES> 2,308
<BONDS> 0
0
0
<COMMON> 22,954
<OTHER-SE> 198
<TOTAL-LIABILITY-AND-EQUITY> 9,767
<SALES> 93
<TOTAL-REVENUES> 93
<CGS> 358
<TOTAL-COSTS> 716
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (1,008)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,008)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,008)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
