<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
---------------------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
- -----
For the transition period from to
-------------------- -------------------
Commission file number 0-22375
-------------------------
American Stone Industries, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3704099
- --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
8705 Quarry Rd., Amherst, Ohio 44001
----------------------------------------
(Address of principal executive officer)
(440) 986-4501
---------------------------
(Issuer's telephone number)
Not Applicable
----------------------------------------------------
(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. X YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
1,716,364
--------------------
<PAGE> 2
INDEX
AMERICAN STONE INDUSTRIES, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998........................................1
Consolidated Statements of Income
Three Months Ended September 30, 1999 and 1998..................................2
Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998...................................3
Notes to Consolidated Financial Statements...............................................4
Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................5 - 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................8
Signatures...............................................................................9
</TABLE>
<PAGE> 3
AMERICAN STONE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
Current Assets (Unaudited) (Audited)
- --------------
<S> <C> <C>
Cash $ 187,516 $ 196,942
Accounts receivable 785,847 820,271
Inventory 866,539 812,224
Prepaid expenses 80,691 30,414
----------- -----------
Total Current Assets 1,920,593 1,859,851
----------- -----------
Property. Plant and Equipment, Net - At Cost 2,978,256 2,652,704
- -------------------------------------------- ----------- -----------
Other Assets 201,125 200,855
- ------------ ----------- -----------
$ 5,099,974 $ 4,713,410
=========== ===========
LIABILITIES
-----------
Current Liabilities
Notes payable, bank line of credit $ 611,000 $ 450,000
Current portion of notes payable 240,902 228,813
Accounts payable 474,667 402,344
Accrued liabilities 217,798 190,891
----------- -----------
Total Current Liabilities 1,544,367 1,272,048
----------- -----------
Long Term Liabilities 724,319 411,959
- --------------------- ----------- -----------
SHAREHOLDERS' EQUITY
--------------------
CommonStock, $.001 par value, 20 million shares authorized
1,716,364 issued and outstanding at September 30, 1999
and December 31, 1998 1,716 1,716
Additional capital 3,849,958 3,849,958
Retained earnings (deficit) (1,020,386) (822,271)
----------- -----------
2,831,288 3,029,403
----------- -----------
$ 5,099,974 $ 4,713,410
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to consolidated financial statements
-1-
<PAGE> 4
AMERICAN STONE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 960,906 $ 872,286 $ 2,582,227 $ 2,198,360
- --------- -----------
Cost of Sales 885,208 628,573 2,038,193 1,505,110
- ------------- --------- --------- ----------- -----------
Gross Profit 75,698 243,713 544,034 693,250
- ------------ -----------
Selling, General and Administrative Expenses 264,546 194,197 668,939 563,793
- -------------------------------------------- --------- --------- ----------- -----------
Income (Loss) From Operations (188,848) 49,516 (124,905) 129,457
- ----------------------------- --------- --------- ----------- -----------
Other Income (Expense)
- ----------------------
Gain on sale of property -- 5,753 -- 5,753
Interest income -- 756 1,702 2,329
Interest expense (20,594) (26,489) (74,912) (58,492)
--------- --------- ----------- -----------
(20,594) (19,980) (73,210) (50,410)
--------- --------- ----------- -----------
Income (Loss) Before Income Taxes (209,442) 29,536 (198,115) 79,047
- ---------------------------------
Provision For Income Taxes -- -- -- --
- -------------------------- --------- --------- ----------- -----------
Net Income (Loss) $(209,442) $ 29,536 $ (198,115) $ 79,047
- ----------------- ========= ========= =========== ===========
Net Income Per Common Share
- ---------------------------
Basic $(.12) $.02 $(.12) $.05
========= ========= =========== ===========
Diluted $(.12) $.02 $(.12) $.05
========= ========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
AMERICAN STONE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flow From Operating Activities
Net Income (Loss) $(198,115) $ 79,047
--------- ---------
Noncash items included in income
Gain on sale of property -- (5,753)
Depreciation and amortization 181,080 140,946
Accounts receivable 34,424 (189,788)
Inventory (54,315) (22,855)
Prepaid expenses (50,277) 21,863
Accounts payable - trade 72,323 (24,848)
Accrued expenses 26,907 (65,325)
--------- ---------
Total Adjustments 210,142 (145,760)
--------- ---------
Net Cash Used In Operating Activities 12,027 (66,713)
- -------------------------------------
Cash Flows From Investing Activities (506,902) (552,947)
- -------------------------------------
Cash Flows From Financing Activities 485,449 828,529
- ------------------------------------- --------- ---------
Net Increase (Decrease) in Cash (9,426) 208,869
- -------------------------------
Cash - Beginning of Period 196,942 144,443
- -------------------------- --------- ---------
Cash - End of Period $ 187,516 $ 353,312
- -------------------- ========= =========
Supplemental Disclosure of Cash Flows Information
- -------------------------------------------------
Interest paid $ 75,000 $ 58,500
Income taxes paid $-0- $ -0-
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 6
AMERICAN STONE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the American Stone
Industries, Inc. annual report on Form 10-KSB for the year ended December 31,
1998.
NOTE B - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY
The Company and its subsidiaries operate predominantly in one industry,
the design, quarrying and cutting of sandstone primarily used in the
construction industry.
Following is the information regarding the Company=s continuing operations
by geographic location. Transfers between geographic areas are accounted for on
a cost plus profit margin basis.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales, including geographic transfers
United States $ 2,168,586 $ 1,673,913
Canada 438,946 597,969
Geographic transfers (25,305) (73,522)
----------- -----------
$ 2,582,227 $ 2,198,360
=========== ===========
Income (loss) from operations:
United States $ (107,280) $ 85,902
Canada (17,625) 43,555
----------- -----------
Income (loss) from operations: (124,905) 129,457
Gain on sale of property -- 5,753
Interest expense (74,912) (58,492)
Interest income 1,702 2,329
----------- -----------
Income (loss) from operations before income taxes $ (198,115) $ 79,047
=========== ===========
Identifiable assets:
United States $ 4,912,951 $ 4,388,953
Canada 187,023 189,739
----------- -----------
$ 5,099,974 $ 4,578,692
=========== ===========
</TABLE>
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<PAGE> 7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the third quarter of 1999 were $960,906, up 10% compared
with $872,286 for the third quarter of 1998. For the nine months ended September
30, 1999, net sales were $2,582,227, up 17% when compared to the same period in
1998. The sales increase was due to increased shipments for several larger
commercial projects and other backlog orders.
Gross profit percentage for the third quarter of 1999 decreased to 8%
compared with 28% in the same period a year ago. The gross profit percentage for
the first nine months ended September 30, 1999, was 21%, compared with 32% for
the same period for the prior year. Production costs for the period increased
more dramatically than sales for the same period due to problems with the
integration of new stone cutting equipment and other production issues.
Selling, general and administrative expenses, for the third quarter of
1999 as a percentage of net sales, were 28% compared with 22% for the third
quarter of 1998. This is due to increased salary and consulting costs. For the
nine months ended September 30, 1999, selling, general and administrative
expenses as a percentage of net sales remained at 26% compared with the same
period in 1998.
Net other expense for the third quarter of 1999 was $20,594 compared with
$19,980 for the third quarter of 1998. For the nine months ended September 30,
1999, net other expenses were $73,210, compared with $50,410 for the same period
in 1998. The increase was due to higher interest expense associated with
borrowings for the purchase of three new saws and for working capital.
Net (loss) for the third quarter of 1999 was $(209,442) compared with net
income of $29,536 for the third quarter of 1998. For the nine months ended
September 30, 1999, the net (loss) was $(198,115), compared to net income of
$70,047 for the same period of 1998. The loss for the third quarter of 1999 was
a result of higher production costs and selling, general and administrative
expenses caused by problems with the integration of new stone-cutting equipment
and other production issues.
LIQUIDITY AND SOURCES OF CAPITAL
The Company=s primary source of liquidity is the Company=s line of credit
under an agreement between the Company and FirstMerit Bank, N.A. (the ACredit
Agreement@). The Credit Agreement provides for maximum borrowings of $750,000,
with interest payable monthly at a rate equivalent to the prime lending rate.
Borrowings under the Credit Agreement are secured by substantially all real
estate, inventory and equipment of the Company. The outstanding balance at
September 30, 1999 and December 31, 1998 was $611,000 and $450,000 respectively.
Additionally, in September 1999, the Company received a $150,000 working capital
loan from Roulston Venture Limited Partnership, a major shareholder of the
Company.
Management believes that the Company does not currently have, and is not
expected to have within the next twelve (12) calendar months, any cash flow or
liquidity problems. Management believes that the Company is not in default with
respect to any note, loan, lease or other indebtedness or financing agreement.
The Company is not subject to any unsatisfied judgments, liens or settlement
obligations.
-5-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FORWARD-LOOKING STATEMENTS
The Company is making this statement in order to satisfy the Asafe harbor@
provisions contained in the Private Securities Litigation Reform Act of 1995.
This Quarterly Report on Form 10-QSB includes forward-looking statements
relating to the business of the Company. Forward-looking statements contained
herein or in other statements made by the Company are made based on management=s
expectations and beliefs concerning future events impacting the Company and are
subject to uncertainties and factors relating to the Company=s operations and
business environment, all of which are difficult to predict and many of which
are beyond the control of the Company, that could cause actual results of the
Company to differ materially from those matters expressed in or implied by
forward-looking statements. The Company believes that the following factors,
among others, could affect its future performance and cause actual results of
the Company to differ materially from those expressed in or implied by
forward-looking statements made by or on behalf of the Company; (a) general
economic, business and market conditions; (b) competition; (c) the success of
advertising and promotional efforts; (d) trends within the building construction
industry; (e) the existence or absence of adverse publicity; (f) changes in
relationships with the Company=s major customers or in the financial condition
of those customers; and (g) the adequacy of the Company=s financial resources
and the availability and terms of any additional capital.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue C software, hardware or an embedded chip that does not
correctly process date information for years after 1999 C results from the
practice of storing date information with only the last two digits of the year.
The Year 2000 issue affects virtually all companies and organizations, including
government agencies, utilities and other basic service providers, which are
outside the Company=s control. Like most business enterprises, the Company is
taking steps to identify and address the potential effects of the Year 2000
issue.
The Company has initiated an internal review of Year 2000 issues, which
addresses (i) internal information technology (AIT@) systems such as any
hardware and software used to process daily operational data and information;
(ii) non-IT systems or embedded technology such as micro-controllers; and (iii)
the Year 2000 compliance of key service providers and customers.
The Company utilizes standard non-customized hardware and software in its
IT systems. To the extent such hardware of software is not Year 2000 compliant,
Management believes that the disruption to the operations of the Company and the
cost of replacement of the hardware or software would be minimal. In addition,
the Company has evaluated the impact of the Year 2000 issue on the Company=s
non-IT systems and believes the Company=s operations will not be materially
adversely impacted by non-compliant non-IT systems.
The Company has evaluated the impact of Year 2000 issues on key third
parties. The Company has received assurances from its electrical power supplier
and its largest customer that such parties are Year 2000 compliant. To the
extent such parties are not Year 2000 compliant, the Company=s operations or
business may be materially adversely impacted. Substantial interruption of
electrical power supplied to the Company=s operating quarries due to the
electrical power supplier=s failure to achieve Year 2000 compliance has been
identified as having the greatest potential adverse impact. In such an event,
the Company would need to seek alternative sources of electrical power to meet
the demands of the quarry operations. Management believes that to the extent
other service providers are not Year 2000 compliant, such services may be
obtained from other sources with minimal disruption to the operations of the
Company.
-6-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 READINESS DISCLOSURE (CONTINUED)
To date, the Company has spent approximately $5,000 in evaluating the
impact of Year 2000 on the operations of the Company and expects future costs to
be minimal.
Although the Company expects to be Year 2000 compliant, statements with
regard to such expectations are subject to various factors that may materially
affect the Company=s Year 2000 compliance efforts. These factors include the
ability to detect, locate and correct system codes and the failure of key third
parties to achieve Year 2000 compliance. The Company has taken actions that it
believes are appropriate and reasonable to determine the readiness of third
parties; however, it must in part rely on representations made by such third
parties.
-7-
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) Recent Sales of Unregistered Securities.
On September 23, 1999, the Company issued a convertible subordinated
note in the principal amount of $150,000 to Roulston Venture Limited
Partnership in exchange for cash in the amount of $150,000. Interest on
the note is payable quarterly at a rate of 8% per annum and payment of the
principal amount of the note is due in full three years from the date of
issuance. The note is convertible at any time into shares of Common Stock
of the Company at a conversion price of $5.50 (the closing price of the
Common Stock on the date of issuance) in principal amount for each share
of Common Stock. Exemption from registration is claimed under Section 4(2)
of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) There have been no reports on Form 8-K filed during the quarter for
which this report is filed.
-8-
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Stone Industries, Inc.
-------------------------------
(Registrant)
Date: November 10, 1999 /s/ James M. Rallo
------------------ ----------------------------------------
James M. Rallo, President
Date: November 10, 1999 /s/ Enzo Costantino
------------------ ----------------------------------------
Enzo Costantino, Chief Financial Officer
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 187,516
<SECURITIES> 0
<RECEIVABLES> 785,847
<ALLOWANCES> 0
<INVENTORY> 866,539
<CURRENT-ASSETS> 1,920,593
<PP&E> 3,248,120
<DEPRECIATION> 269,864
<TOTAL-ASSETS> 5,099,974
<CURRENT-LIABILITIES> 1,544,367
<BONDS> 0
1,716
0
<COMMON> 0
<OTHER-SE> 2,829,572
<TOTAL-LIABILITY-AND-EQUITY> 5,099,974
<SALES> 2,582,227
<TOTAL-REVENUES> 2,583,929
<CGS> 2,038,193
<TOTAL-COSTS> 668,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,912
<INCOME-PRETAX> (198,115)
<INCOME-TAX> 0
<INCOME-CONTINUING> (198,115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (198,115)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
