<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, 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
- ---------------- ----
(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 December 31,
1999: 36,089,442
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INDEX
<TABLE>
<CAPTION> Page
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<S> <C>
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 December
31, 1999, and December 31, 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
December 31, March 31,
1999 1999
Unaudited
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 12,979 $ 42,973
Note Receivable 141,480 141,480
Inventory-Raw materials 2,171 --
Work in process 6,865 55,278
Finished goods 154,883 140,385
Accounts Receivable-Trade, net (allowance for
doubtful accounts at Dec. 31 and March 31,
1999, $0 and $0, respectively) 30,518 19,505
Prepaids and other current assets 31,983 49,689
----------- -----------
Total Current Assets 380,879 449,310
PROPERTY & EQUIPMENT-AT COST:
Plant & Machinery 9,257,353 9,249,561
Building 848,843 848,843
Land 270,136 270,136
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10,376,332 10,368,540
Accumulated Depreciation (1,639,496) (1,276,183)
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Total Property & Equipment 8,736,836 9,092,357
INTANGIBLE ASSETS (accumulated amortization of
$201,354 and $157,054 at Dec. 31 and
March 31, 1999, respectively) 502,925 501,846
OTHER ASSETS 22,904 22,175
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TOTAL ASSETS $ 9,643,544 $10,065,688
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,244,605 $ 1,452,699
Convertible notes payable 359,203 --
Payable to related parties (Note 4) 1,097,670 210,738
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Total Current Liabilities 2,701,478 1,663,437
STOCKHOLDERS' EQUITY (Note 5):
Common stock - 50,000,000 shares
authorized, no stated par value;
issued and outstanding 36,089,442 and
35,963,729 shares at Dec. 31 and
March 31, 1999, respectively 22,949,611 22,885,219
Cumulative translation adjustments 200,290 202,864
Accumulated deficit (16,207,835) (14,685,832)
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Total Stockholders' Equity $ 6,942,066 $ 8,402,251
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,643,544 $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>
Nine Months Ended
----------------------------
December 31, December 31,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,521,997) $(2,089,283)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation & amortization 407,613 382,279
Allowance for doubtful accounts -- (43,808)
Foreign currency transaction gain (loss) (2,574) (7,343)
Changes in operating assets and
liabilities:
Decrease (increase) in receivables (11,013) 417,513
Decrease (increase) in inventory & other assets 48,721 811,199
Increase (decrease) in accounts
payable & accrued interest 678,832 (192,777)
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Net cash (used) provided by operating activities (400,418) (722,220)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (53,171) (112,607)
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Net cash used by investing activities (53,171) (112,607)
FINANCING ACTIVITIES
Note payable issue/conversion 359,203 (195,982)
Common stock issue 64,392 195,982
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Net cash provided by financing activities 423,595 --
Increase (decrease) in cash and cash
equivalents (29,994) (834,827)
Cash & cash equivalents at beginning
of period 42,973 852,892
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Cash & cash equivalents at end of period $ 12,979 $ 18,065
=========== ===========
Interest paid $ -- 13,442
=========== ===========
Income taxes paid $ -- --
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</TABLE>
See notes to financial statements.
3
<PAGE> 6
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,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales (Note 6) (6,372) (199,523) 87,071 241,275
Cost of sales 149,740 106,260 507,978 1,048,510
------------ ------------ ------------ ------------
Gross loss (156,112) (305,783) (420,907) (807,235)
Selling, general and administrative expenses
(including depreciation and amortization of
$407,613 and $382,279 for the nine months
ending Dec. 31, 1999 and 1998, respectively) 339,747 397,605 1,055,765 1,284,498
------------ ------------ ------------ ------------
Loss from operations (495,859) (703,388) (1,476,672) (2,091,733)
Other income (expense):
Interest income -- 1,134 -- 15,892
Interest expense (17,699) (1,296) (45,325) (13,442)
------------ ------------ ------------ ------------
Net loss $ (513,558) $ (703,550) $ (1,521,997) $ (2,089,283)
============ ============ ============ ============
Weighted average shares of common stock 36,115,404 31,971,419 36,039,981 31,903,453
============ ============ ============ ============
Net loss per share $ (0.01) $ (0.02) $ (0.04) $ (0.07)
============ ============ ============ ============
</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, 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
36,039,981 and 31,903,453 outstanding during the nine month period ended
December 31, 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 December 31, 1999, 1999, funds are owed by the Company totaling $901,266
to the President of the Company and his affiliates. Of this amount, $718,252
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 and a director of the subsidiary are owed
$196,404 and $75,095 as of December 31, 1999 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 $380,000 in convertible notes payable. The two year notes bear a 9%
interest rate.
(6) SALES:
Sales are negative due to minimal activity in the period and to a reduction in
pricing in a sales transaction reported in a previous period.
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 nine months ended
December 31, 1999 to $87,071.00 as compared to the comparable period in 1998 of
$241,275. 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 nine month period in 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 December 31, 1999. However, the Company has orders to
be delivered in the year 2000 that should permit the company to cease having
losses and to start showing profitable operations. 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
though debt, equity of 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
<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 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 there unto duly authorized.
STELAX INDUSTRIES LTD.
Date: February 14, 2000 /s/ Harmon Hardy
---------------------------------
Harmon Hardy
President/Chief Financial Officer
8
<PAGE> 11
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> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 30
<ALLOWANCES> 0
<INVENTORY> 163
<CURRENT-ASSETS> 380
<PP&E> 10,376
<DEPRECIATION> 1,639
<TOTAL-ASSETS> 9,643
<CURRENT-LIABILITIES> 2,701
<BONDS> 0
0
0
<COMMON> 22,949
<OTHER-SE> (16,207)
<TOTAL-LIABILITY-AND-EQUITY> 9,643
<SALES> 87
<TOTAL-REVENUES> 87
<CGS> 507
<TOTAL-COSTS> 1,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (45)
<INCOME-PRETAX> (1,521)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,521)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
