U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________ to ______________
Commission file number: 1-14219
Stelax Industries Ltd.
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(Exact name of small business issuer as specified in its charter)
British Columbia None
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4004 Beltline Road, Suite 107, Dallas TX 75244
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(Address of principal executive offices) (Zip Code)
(972) 233-6041
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(Registrant's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter 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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of November 1, 2000: 37,521,442
<PAGE>
Stelax Industries Ltd
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
Unaudited
CURRENT ASSETS: ----------- -----------
<S> <C> <C>
Cash $ 15,905 $ 44,660
Note Receivable 141,480 141,480
Inventory-Raw materials - 10,283
Work in process 8,858 26,315
Finished goods 110,412 118,687
Accounts Receivable-Trade, net (allowance for
doubtful accounts at June 30 and March 31,
2000, $0 and $0, respectively) 63,972 62,447
Prepaids and other current assets 91,683 81,529
---------- ----------
Total Current Assets 432,310 485,401
PROPERTY & EQUIPMENT-AT COST:
Plant & Machinery 9,261,987 9,290,878
Building 848,843 848,843
Land 270,136 270,136
---------- ----------
10,380,966 10,409,857
Accumulated Depreciation (1,845,345) (1,753,567)
----------
Total Property & Equipment 8,535,621 8,656,290
INTANGIBLE ASSETS (accumulated amortization of
$228,525 and $218,343 at June 30 and
March 31, 2000, respectively) 565,091 556,685
OTHER ASSETS 151,962 29,450
TOTAL ASSETS $ 9,684,984 $ 9,727,826
========== ==========
</TABLE>
(Continued)
See notes to financial statements.
<PAGE>
Stelax Industries Ltd
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, March31,
2000 2000
Unaudited
CURRENT LIABILITIES: ---------- ------------
<S> <C> <C>
Accounts payable $ 1,658,443 $ 1,546,615
Payable to related parties 1,505,308 1,265,068
---------- ----------
Total Current Liabilities 3,163,751 2,811,683
STOCKHOLDERS' EQUITY:
Common stock - 50,000,000 shares
authorized, no stated par value;
issued and outstanding 37,521,442 shares
at June 30 and March 31, 2000, respectively 23,686,222 23,686,222
Cumulative translation adjustments 269,765 195,679
Accumulated deficit (17,434,754) (16,965,758)
---------- ----------
Total Stockholders' Equity $ 6,521,233 $ 6,916,143
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,684,984 $ 9,727,826
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
Stelax Industries Ltd
CONSOLIDATED STATEMENTS OF OPERATIONS
(Presented in United States dollars)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
June 30, June 30,
2000 1999
----------- ----------
<S> <C> <C>
Sales $ 133,169 $ 43,589
Cost of sales 266,529 148,373
----------- ----------
Gross loss (133,360) (104,784)
Selling, general and administrative expenses
(including depreciation and amortization of
$126,858 and $132,540 for the period ended
June 30, 2000 and 1999, respectively) 313,639 347,856
----------- ----------
Loss from operations (446,999) (452,640)
Other income (expense):
Interest expense (21,997) (8,310)
----------- ----------
Net loss $ (468,996) $ (460,950)
=========== ==========
Weighted average shares of common stock 37,521,442 35,963,729
=========== ==========
Net loss per share $ (0.01) $ (0.01)
=========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
Stelax Industries Ltd
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Presented in United States dollars)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
June 30, June 30,
2000 1999
OPERATING ACTIVITIES ------------ -----------
<S> <C> <C>
Net loss $ (468,996) $ (460,950)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation & amortization 101,960 132,540
Foreign currency transaction gain 74,086 21,297
Changes in operating assets and
liabilities:
Decrease (increase) in receivables (1,525) (22,980)
Decrease (increase) in inventory & other assets (96,651) 121,809
Increase (decrease) in accounts
payable & accrued interest 352,068 210,967
---------- ----------
Net cash (used) provided by operating activities (39,058) 2,683
INVESTING ACTIVITIES
Disposal (purchase) of property, equipment &
intangibles 10,303 (36,010)
---------- ----------
Net cash used by investing activities 10,303 (36,010)
Increase (decrease) in cash and cash
equivalents (28,755) (33,327)
Cash & cash equivalents at beginning
of period 44,660 42,973
---------- ----------
Cash & cash equivalents at end of period $ 15,905 $ 9,646
========== ==========
Interest paid $ 2,112 $ 2,450
========== ==========
Income taxes paid $ - $ -
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
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, 2000 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, 2000.
(2) LOSS PER SHARE
Loss per share was based on the weighted average number of common shares of
37,521,442 and 35,963,729 outstanding during the three month period ended June
30, 2000 and 1999, 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, 2000, funds are owed by the Company totaling $1,187,285 to the
President of the Company and his affiliates. Of this amount, $892,684 represents
draws and accrued interest upon the line of credit established by the President
on behalf of the Company. As of March 31, 2000, the Company owed the President
of $1,049,172. The president and a director of the subsidiary are owed $318,023
and $215,896 as of June 30, 2000 and March 31, 2000, respectively.
(5) FINANCING
On June 30, 2000, the Company closed on a financing agreement with Bank of
America. The loan was funded in early July.
<PAGE>
Forward-Looking Information
The Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of the Form 10-Q contain forward-looking
information. The forward-looking information involves risks and uncertainties
that are based on current expectations, estimates, and projections about the
Company's business, management's beliefs and assumptions made by management.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", and variations of such words and similar expressions are intended
to identify such forward-looking information. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking information due to numerous factors, including, but not limited
to, availability of financing for operations, successful performance of internal
operations, impact of competition and other risks detailed below as well as
those discussed elsewhere in this Form 10-QSB and from time to time in the
Company's Securities and Exchange Commission filings and reports. In addition,
general economic and market conditions and growth rates could affect such
statements.
Liquidity and Capital Resources
Since fiscal 1998 the Company has had to fund substantial losses as the Company
determined to cease sale of stainless steel and develop the market for its
Nuovinox products. In fiscal 1999 the Company incurred a loss of $3,150,498 and
in fiscal 2000 incurred a loss of $2,279,926. Because the Company incurs a
substantial amount of depreciation and amortization, $506,050 in fiscal 1999 and
$538,673 in fiscal 2000, the cash losses for fiscal 1999 and 2000 were
approximately $2,640,000 and $1,740,000, respectively.
In fiscal 1999 the cash loss of approximately $2,640,000 was principally funded
through the liquidation of current assets. Between March 31, 1998, and March 31,
1999, the Company's cash position decreased from $852,892 to $42,973,
receivables decreased from $597,426 to $19,505 and inventories decreased from
$948,093 to $195,663, a reduction in current assets of $2,140,271. The amount of
the cash loss that was not funded through the liquidation of current assets as
well as some increases in property were funded through sales of common stock
that netted $726,670.
In fiscal 2000 the cash loss of approximately $1,740,000 was funded through
financing activities. A related party loaned the Company approximately
$1,000,000 and the Company issued common stock, the sale of which resulted in
net proceeds to the Company of approximately $800,000.
Total equity at the end of fiscal 1999 was $8,402,251 and at the end of fiscal
2000 was $6,916,143. At the end of both fiscal 1999 and 2000, the Company had no
long-term debt.
In fiscal 1999 and 2000 the Company developed the market for its Nuovinox
product, much of which involved extensive testing for United States federal and
state transportation authorities to demonstrate the utility of the Nuovinox
product in bridges and highways. By the end of fiscal 2000, this process was
sufficiently complete to begin sales. With the Company's plant facilities
unencumbered, in July 2000 the Company's United States subsidiary entered into a
Loan and Security Agreement with Banc of America Commercial Finance Corporation
(the "Loan Agreement") whereby the Company obtained a Term Loan as well as
Revolving Credit and Credit Accommodations. The maximum amount that can be
borrowed under the Loan Agreement is $5,750,000.
The Term Loan limits the amount that can be borrowed pursuant thereto to the
lesser of $5,000,000 or 80% of the auction sales value of certain equipment, as
defined, at the Company's Aberneath, South Wales, UK facility.
The Revolving Credit and Credit Accommodation provides, subject to certain
provisions, that the Company may borrow up to 50% of the value, as defined, of
the Company's inventory as well as 50% of the amount of certain receivables, as
defined. Borrowing for inventory cannot exceed $750,000 and borrowing against
receivables cannot exceed $500,000.
The term loan is repaid monthly and is amortized over a 48 month period, bearing
interest at prime rate plus 2.25%. The inventory and accounts loan mature 36
months after the date of the agreement and bear interest, payable monthly, at
prime rate plus 2.25%.
<PAGE>
In connection with the Loan Agreement the Company granted a warrant to Bank of
America Commercial Finance Corporation to purchase up to 160,000 shares of
common stock.
The proceeds from the term loan will be used to fund operational losses to
extent necessary to cover the start up period for Nuovinox sales and to finance
inventory and receivables to the extent that the Company will need funds in
excess of borrowing under the Term Loan for inventory and receivables.
Quarter ended June 30, 2000 compared to the quarter ended June 30, 1999
The Company incurred a net loss of $468,996 in the first quarter of fiscal
2001compared to a loss of $460,950 for the same period in the previous fiscal
year. Sales increased to $133,169 in the later period from $43,589 in the
earlier period because of sales of Nuovinox dowels, sales that did not occur in
the earlier period. The gross loss in the fiscal 2001 period was $133,360 and
was $104,784 in the earlier period. Gross margins for both periods were
essentially the same for both periods, but fixed costs of production,
particularly increases in power, repairs and maintenance, resulted in the
increased gross loss in the later period. Selling, general and administrative
expenses decreased in the later period principally because of reduced staffing
costs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not engage in any hedging activities. In particular, the
Company does not hedge its sales for currency fluctuations, and, accordingly,
does not acquire market risk sensitive instruments. Over the last two fiscal
years, market risks have been negligible because of the small amount of
operations in which the Company has engaged.
The Company's primary market risk is anticipated to be a currency exchange rate
risk and the Company does not, at the present time, anticipate engaging in
management of that risk. For the next fiscal year, the Company's operations will
be principally conducted in the United Kingdom with sales anticipated in the
United States and Canada. In addition to currency market risk resulting from
trade accounts receivable, the Company's loan with Bank of America is
denominated in U.S. Dollars. The amounts available to the Company under the Bank
of America loan agreement are principally based upon assets located in the
United Kingdom, and a large increase in the value of the Dollar relative to the
Pound could diminish the amounts that could be available under that loan
agreement. A significant increase in the Pound relative to Dollar would make
United States trade receivables worth less in the United Kingdom, decreasing
profit margins for products produced in the United Kingdom and sold in the
United States.
<PAGE>
PART - II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
undersigned.
Stelax Industries, Ltd.
Dated: November __, 2000 /s/ Harmon S. Hardy
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Harmon S. Hardy, President and
Principal Financial Officer
