<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 June 30, 1999
( ) 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
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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 June 30, 1999:
35,963,729
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INDEX
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<CAPTION>
Page
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PART 1. FINANCIAL INFORMATION
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 June 30,
1999, and June 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
June 30, March 31,
1999 1999
Unaudited
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<S> <C> <C>
CURRENT ASSETS:
Cash 9,646 42,973
Note Receivable 141,480 141,480
Inventory-Raw materials 2,642 --
Work in process 11,325 55,278
Finished goods 102,131 140,385
Accounts Receivable-Trade, net (allowance for
doubtful accounts at June 30 and March 31,
1999, $0 and $0, respectively) 42,485 19,505
Prepaids and other current assets 9,068 49,689
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Total Current Assets 318,777 449,310
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 (1,394,422) (1,276,183)
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Total Property & Equipment 8,974,118 9,092,357
INTANGIBLE ASSETS (accumulated amortization of
$171,355 and $157,054 at June 30 and
March 31, 1999, respectively) 523,555 501,846
OTHER ASSETS 20,552 22,175
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TOTAL ASSETS 9,837,002 10,065,688
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 1,289,852 1,452,699
Payable to related parties (Note 4) 584,552 210,738
----------- -----------
Total Current Liabilities 1,874,404 1,663,437
STOCKHOLDERS' EQUITY:
Common stock - 50,000,000 shares
authorized, no stated par value;
issued and outstanding 35,963,729 shares
at June 30 and March 31, 1999, respectively 22,885,219 22,885,219
Cumulative translation adjustments 224,161 202,864
Accumulated deficit (15,146,782) (14,685,832)
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Total Stockholders' Equity 7,962,598 8,402,251
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 9,837,002 10,065,688
=========== ===========
</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
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June 30, June 30,
1999 1998
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<S> <C> <C>
Sales 43,589 423,879
Cost of sales 148,373 471,818
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Gross loss (104,784) (47,939)
Selling, general and administrative expenses
(including depreciation and amortization of
$132,540 and $122,259 for the period ended
June 30, 1999 and 1998, respectively) 347,856 340,571
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Loss from operations (452,640) (388,510)
Other income (expense):
Interest income -- 8,748
Interest expense (8,310) (2,064)
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Net loss (460,950) (381,826)
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Weighted average shares of common stock 35,963,729 31,869,285
============ ===========
Net loss per share (0.01) (0.01)
============ ===========
</TABLE>
3
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STELAX INDUSTRIES LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Presented in United States dollars)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
June 30, June 30,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss (460,950) (381,826)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation & amortization 132,540 122,259
Allowance for doubtful accounts -- (235)
Foreign currency transaction gain 21,297 (90,849)
Changes in operating assets and liabilities:
Decrease (increase) in receivables (22,980) (32,697)
Decrease (increase) in inventory & other assets 121,809 394,846
Increase (decrease) in accounts
payable & accrued interest 210,967 (160,131)
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Net cash (used) provided by operating activities 2,683 (148,633)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (36,010) (75,592)
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Net cash used by investing activities (36,010) (75,592)
Increase (decrease) in cash and cash
equivalents (33,327) (224,225)
Cash & cash equivalents at beginning
of period 42,973 852,892
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Cash & cash equivalents at end of period 9,646 628,667
========== ==========
Interest paid 2,450 2,064
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Income taxes paid -- --
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</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 three months ended June 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
35,963,729 and 31,869,285 outstanding during the three month period ended June
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 June 30, 1999, funds are owed by the Company totaling $479,632 to the
President of the Company and his affiliates. Of this amount, $382,604 represents
draws 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 $104,920 and $75,095 as of June 30 and March
31, 1999, respectively.
(5) SUBSEQUENT EVENTS:
Subsequent to June 30, 1999, 450,000 options were issued at $.50 to $.80 a share
and are valid for 3 years. Additionally, the Company lowered the option price on
1,150,000 existing options to $.50 from $1.00. The Company issued $350,000 in
convertible notes. The notes bear a 9% interest rate and are due July 2001. In
exchange for canceling $69,142 in debt, the Company issued 125,713 shares of
stock.
5
<PAGE> 8
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 three months ended
June 30, 1999 ($43,589) as compared to the comparable period in 1998 ($423,879).
The reduction in revenues is a result of the Company's decision in 1998 to cease
production of stainless steel products. The Company maintained its selling,
general and administrative expenses level during the comparable periods. The
Company's net loss increased slightly in the three 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 June 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 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: October 20, 1999 /s/ Harmon Hardy
---------------------------------------
Harmon Hardy
President/Chief Financial Officer
8
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<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-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 183
<ALLOWANCES> 0
<INVENTORY> 116
<CURRENT-ASSETS> 318
<PP&E> 10,368
<DEPRECIATION> 1,394
<TOTAL-ASSETS> 9,837
<CURRENT-LIABILITIES> 1,874
<BONDS> 0
0
0
<COMMON> 22,885
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,837
<SALES> 44
<TOTAL-REVENUES> 44
<CGS> 148
<TOTAL-COSTS> 148
<OTHER-EXPENSES> 347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (460)
<INCOME-TAX> 0
<INCOME-CONTINUING> (460)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (460)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
