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 December 31, 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 (IRS Employer Identification No.)
of 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 February 14, 2001: 39,021,442
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Stelax Industries Ltd.
CONSOLIDATED BALANCE SHEETS
(Presented in United States dollars)
ASSETS
December 31, March 31,
2000 2000
unaudited
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CURRENT ASSETS:
Cash $ 1,643,425 $ 44,660
Note receivable 141,480 141,480
Inventory-Raw materials 9,290 10,283
Work in process 42,761 26,315
Finished goods 152,165 118,687
Accounts Receivable Trade (allowance for
doubtful accounts at Dec. 31 and March 31,
2000, $0 and $0, respectively 83,560 62,447
Prepaids and other current assets 47,519 81,529
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Total Current Assets 2,120,200 485,401
PROPERTY & EQUIPMENT-AT COST
Plant & Machinery 9,419,291 9,290,878
Building 848,843 848,843
Land 270,136 270,136
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10,538,270 10,409,857
Accumulated Depreciation (2,097,214) (1,753,567)
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Total Property & Equipment 8,441,056 8,656,290
INTANGIBLE ASSETS (accumulated amortization of
$256,816 and $218,343 at Dec. 31 and
March 31, 2000, respectively) 593,408 556,685
OTHER ASSETS 267,181 29,450
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TOTAL ASSETS $ 11,421,845 $ 9,727,826
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 797,746 $ 1,546,615
Payable to related parties 801,661 1,265,068
Note payable--short term 1,250,000 -
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Total Current Liabilities 2,849,407 2,811,683
NOTE PAYABLE--LONG TERM 3,254,166 -
STOCKHOLDERS' EQUITY:
Common Stock - 50,000,000 shares
Authorized, no stated par value ;
issued and outstanding 39,021,442 and
37,521,442 shares at Dec. 31 and
March 31, 2000, respectively 24,061,222 23,686,222
Cumulative translation adjustments 280,280 195,679
Accumulated deficit (19,023,230) ( 16,965,758)
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Total Stockholders' Equity 5,318,272 6,916,143
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 11,421,845 $ 9,727,826
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See notes to financial statements.
Stelax Industries Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Presented in United States dollars)
Unaudited
Three Months Ended Nine Months Ended
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December 31, December 31, December 31, December 31,
2000 1999 2000 1999
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Sales $ 39,029 $ (6,372) $ 228,022 $ 87,071
Cost of sales 300,199 149,740 652,002 (507,978)
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Gross loss (261,170) (156,112) (423,980) (420,907)
Selling general and administrative
Expenses (including depreciation and
amortization of $424,602 and $407,613
for the nine months ending
Dec. 31, 2000 and 1999, respectively) 536,603 339,747 1,352,979 1,055,765
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Loss from operations (797,773) (495,859) (1,776,959) (1,476,672)
Other income (expense):
Interest income 36,913 - 55,473 -
Interest expense (150,302) (17,699) (335,986) (45,325)
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Net loss $ (911,162) $ (513,558) $ (2,057,472) $ (1,521,997)
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Weighted average shares of common stock 37,798,616 36,115,404 37,614,169 36,039,981
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Net loss per share $ (0.02) $ (0.01) $ (0.06) $ (0.04)
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See notes to financial statements
Stelax Industries Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Presented in United States dollars)
Unaudited
Nine Months Ended
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December 31, December 31,
2000 1999
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OPERATING ACTIVITIES
Net loss $ (2,057,472) $ (1,521,997)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation & amortization 424,602 407,613
Foreign currency transaction gain (loss) 84,601 (2,574)
Changes in operating assets and liabilities:
Decrease (increase) in receivables (21,113) (11,013)
Decrease (increase) in inventory & other assets (295,134) 48,721
Increase (decrease) in accounts
payable & accrued interest (1,212,276) 678,832
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Net cash (used) provided by operating activities (3,076,792) (400,418)
INVESTING ACTIVITIES
Purchase of property, equipment & intangibles (203,609) (53,171)
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Net cash used by investing activities (203,609) (53,171)
FINANCING ACTIVITIES
Note payable issue/conversion 4,504,166 359,203
Common stock issue 375,000 64,392
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Net cash provided by financing activities 4,879,166 423,595
Increase (decrease) in cash and cash equivalents 1,598,765 (29,994)
Cash & cash equivalents at beginning of period 44,660 42,973
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Cash & cash equivalents at end of period $ 1,643,425 $ 12,979
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Interest paid $ 241,739 $ -
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Income taxes paid $ - $ -
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See notes to financial statements
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, 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
37,614,169 and 36,039,981 outstanding during the nine month period ended
December 31, 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 December 31, 2000, funds are owed by the Company totaling $607,885 to the
President of the Company and his affiliates. Of this amount, $379,348 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 $193,776
and $215,896 as of December 31, 2000 and March 31, 2000, respectively.
On December 15, 2000, the President of the Company and an affiliate and the
president of the subsidiary converted part of the debt owed to each into common
stock of the Company. The conversion resulted in new shares of 1,500,000 and
debt reduction of $375,000.
(5) FINANCING
On June 30, 2000, the Company closed on a financing agreement with Bank of
America. The loan was funded in early July. As part of the financing
arrangement, Bank of America received 160,000 options on the Company's common
stock.
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 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%.
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.
Results of Operations
General
The Company's results of operations reflect the transition from dormant
operations to fulfilling a backlog of orders. Beginning in the fourth quarter of
the Company's current fiscal year, which ends March 31, 2001, the Company
anticipates that its sales will start to increase. Recognition of these revenues
can be subject to a variety of factors, particular since most of these sales
will be to those contracting for sales to governmental agencies. These sales are
subject to funding and the release of funds. Hence the timing of the release of
these funds for sales could cause significant variation in revenues from quarter
to quarter, with the variation of these revenues being sharper when the Company
is smaller. Further, these contracts are large with the Company having a few
large contracts rather than many small contracts. The effect of large contracts
and any delay or acceleration in the funding or delivery under these contracts
could result in significant variations in revenues from period to period.
Nine months ended December 31, 2000 compared to the nine months ended December
31, 1999
The Company incurred a net loss of $2,057,472 for the nine months ended December
31, 2000 compared to a net loss of $1,521,997 for the comparable earlier period.
The Company's gross loss was essentially unchanged between the periods with a
gross loss of $423,980 in 2000 and $420,907 in 1999. Sales increased to $228,022
in the first nine months of fiscal 2001 from $87,071 in the first nine months of
the last fiscal year. Cost of sales increased to $652,002 in fiscal 2001 from
$507,978 in the earlier period reflecting increased sales in fiscal 2001. Sales
of Nuovinox products principally occurred in the first three months of fiscal
2001 with sales of Nuovinox products in the second and third quarters being
delayed due to a change over from dowels to rebar, the timing of orders and some
inefficiencies in production.
Selling general and administrative costs increased by approximately $300,000, to
$1,352,979 for the nine months ended December 31, 2000 from $1,055,765 for the
nine months ended December 31, 1999. The Company had reduced the number of
administrative employees in the later period but the cost saving from this
reduction was more than offset from professional fees that were incurred in the
second and third quarters of the current fiscal year as well as some increased
staffing occurring in anticipation of increased business activity.
The Company incurred interest expense of $335,986 in the fist nine months of the
current fiscal year, principally reflecting the Bank of America financing.
Quarter ended December 31, 2000 compared to the quarter ended December 31,1999.
The Company incurred a net loss of $911,162 in the third quarter of fiscal
2001compared to a net loss of $513,558 for the same period in the previous
fiscal year. Sales were essentially unchanged, $39,029 in the later period
reflecting some revenue from the Nuovinox product compared to negative sales in
the earlier period due the to the planned conversion to the Nuovinox product and
the cessation of other production and sales activities. Sales were flat because
the Company changed its production in the second quarter from dowels to rebar.
Selling, general and administrative expenses were $536,603 for the three month
period ended December 31, 2000 and were $339,747 for the three month period
ended December 31, 1999, reflecting professional fees and some increased
staffing levels.
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.
PART - II
Item 6. Exhibits and Reports on Form 8-K
None
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: February 19, 2001 /s/ Harmon S. Hardy
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Harmon S. Hardy, President and
Principal Financial Officer