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 SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended MARCH 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _______ to _______.
Commission file number 0-32875
ALLOY STEEL INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0233941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ALLOY STEEL INTERNATIONAL, INC.
42 MERCANTILE WAY MALAGA
P.O. BOX 3087 MALAGA D C 6945
WESTERN AUSTRALIA
(Address of principal executive offices)
61 (8) 9248 3188
(Issuer's telephone number)
There were 16,950,000 shares of Common Stock outstanding as of May 14,
2004.
Transitional Small Disclosure Format (check one): Yes [ ] No [X]
PART I
ITEM 1. FINANCIAL STATEMENTS
---------------------
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, September 30,
2004 2003
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 204,816 $ 213,381
Accounts receivable, less allowance for doubtful 265,374 203,500
accounts $28,114 in 2004 and $25,260 in 2003
Inventories 343,832 311,456
Prepaid expenses and other current assets 66,781 31,269
-----------------------------
TOTAL CURRENT ASSETS 880,803 759,606
-----------------------------
PROPERTY AND EQUIPMENT, net 1,687,111 1,501,169
OTHER ASSETS
Intangibles 90,512 90,512
-----------------------------
TOTAL ASSETS $ 2,658,426 $ 2,351,287
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable, current portion $ 62,419 $ 43,664
Accounts payable and other current liabilities 762,991 706,258
-----------------------------
TOTAL CURRENT LIABILITIES 825,410 749,922
-----------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 107,543 90,494
Loan payable, related party 149,043 133,914
-----------------------------
256,586 224,408
-----------------------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock: $0.01 par value; authorized 3,000,000 shares; issued
and outstanding - none
Common stock: $0.01 par value; authorized 50,000,000 shares; 169,500 169,500
16,950,000 issued and outstanding
Additional paid-in-capital 1,773,382 1,773,382
Accumulated other comprehensive income 576,406 373,352
Accumulated deficit (942,858) (939,277)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 1,576,430 1,376,957
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,658,426 $ 2,351,287
=============================
See accompanying notes to consolidated financial statements.
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations and Comprehensive Income (Loss)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2004 2003 2004 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
SALES $ 660,312 $ 545,636 $ 1,324,844 $ 913,982
COST OF SALES 437,640 317,333 754,564 527,276
------------------------------------------------------
GROSS PROFIT 222,672 228,303 570,280 386,706
OPERATING EXPENSES
Selling, general and administrative
expenses 344,451 248,581 605,151 476,623
------------------------------------------------------
LOSS FROM OPERATIONS (121,779) (20,278) (34,871) (89,917)
------------------------------------------------------
OTHER INCOME
Interest income 2,421 3,295 4,504 6,442
Insurance recovery 1,469 - 1,511 2,361
Export grant received 1,314 - 20,637 18,010
Unrealized foreign exchange gain 15,418 1,830 1,944 -
Profit on disposal of plant equipment 2,694 - 2,694 -
------------------------------------------------------
23,316 5,125 31,290 26,813
------------------------------------------------------
LOSS BEFORE INCOME TAXES (98,463) (15,153) (3,581) (63,104)
Income taxes - - - -
------------------------------------------------------
NET LOSS $ (98,463) $ (15,153) $ (3,581) $ (63,104)
======================================================
BASIC LOSS AND DILUTED LOSS PER
COMMON SHARE $ (0.006) $ (0.001) $ (0.000) $ (0.004)
======================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 16,950,000 16,950,000 16,950,000 16,950,000
======================================================
COMPREHENSIVE INCOME (LOSS)
NET LOSS $ (98,463) $ (15,153) $ (3,581) $ (63,104)
OTHER COMPREHENSIVE INCOME
Foreign currency translation
adjustment 5,733 86,536 203,054 138,592
------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (92,730) $ 71,383 $ 199,473 $ 75,488
======================================================
See accompanying notes to consolidated financial statements.
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
SIX MONTHS ENDED
MARCH 31,
2004 2003
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,581) $ (63,104)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 59,088 43,273
Profit on disposal of plant equipment (2,694) -
Increase (decrease) in cash attributable to changes in operating
assets and liabilities:
Accounts receivable (39,442) 9,981
Inventories 2,857 (65,736)
Prepaid expenses and other current assets (4,121) (3,464)
Accounts payable and other current liabilities 37,709 89,428
Income taxes payable (24,100) 15,800
--------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,716 26,178
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (34,114) (27,033)
Proceeds on disposal of plant equipment 3,371 -
--------------------------
NET CASH USED IN INVESTING ACTIVITIES (30,743) (27,033)
NET CASH USED IN FINANCING ACTIVITIES,
Repayment of borrowings (25,524) (17,081)
--------------------------
Effect of foreign exchange rate on cash 21,986 19,622
--------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,565) 1,686
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 213,381 288,448
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 204,816 $ 290,134
==========================
See accompanying notes to consolidated financial statements.
-3-
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
NOTE - 1 UNAUDITED STATEMENTS
The accompanying condensed consolidated financial statements of the Company as
of March 31, 2004 and for the six-month and three-month periods ended March 31,
2004 and 2003 are unaudited and reflect all adjustments of a normal and
recurring nature to present fairly the financial position, results of operations
and cash flows for the interim periods. These unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to instructions
to Form 10-QSB. Pursuant to such instructions, certain financial information
and footnote disclosures normally included in such financial statements have
been omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's September 30, 2003 audited financial
statements included in the registrant's annual report on form 10-KSB. The
results of operations for the six-month and three-month periods ended March 31,
2004 are not necessarily indicative of the results that may occur for the year
ending September 30, 2004.
NOTE - 2 NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133. The Statement is generally effective for contracts entered
into or modified after June 30, 2003 and for hedging relationships designated
after June 30, 2003 and should be applied prospectively. The implementation of
this standard did not have a material impact on the Company's financial
position, results of operations or cash flows. In May 2003, the FASB issued SFAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity. SFAS No. 150 requires certain freestanding
financial instruments, such as mandatory redeemable preferred stock, to be
measured at fair value and classified as liabilities. The provisions of SFAS No.
150 are effective beginning July 1, 2003. The implementation of this standard
did not have a material effect on the Company's financial position, results of
operations or cash flows.
NOTE - 3 INVENTORIES
At March 31, 2004 (unaudited) and September 30, 2003 inventories consist of the
following:
Mar. 31, 2004 Sept. 30, 2003
Raw materials $ 40,380 $ 60,998
Finished goods 303,452 250,458
------------------------------
$ 343,832 $ 311,456
------------------------------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our financial statements, the
notes to our financial statements and the other financial information contained
elsewhere in this filing.
OVERVIEW
We manufacture and distribute Arcoplate; a wear-resistant alloy overlay wear
plate, through a patented production process. The patented process by which we
manufacture Arcoplate enables us to smoothly and evenly apply overlay to a sheet
of steel, creating a metallurgical bond between the alloy and the steel backing
plate that is resistant to wear caused by impact and/or abrasion. We believe
that, in the mining and mineral processing industries, wear is the primary cause
of down time, the period when machinery is not in operation due to wear or
malfunction. We believe that use of our Arcoplate product line will
substantially lower down time and the resulting lost production of our
customers.
We also intend to commercially develop the 3-D Pipefitting Cladder process; a
computer driven and software based mechanical system for depositing a profiled
layer of wear-resistant alloy onto interior surfaces of pipefittings, targeted
for industrial use. Due to their angled and/or curved structures, material does
not flow uniformly through pipefittings, meaning pipefittings generally have
higher wear, resulting in a much shorter working life, than ordinary straight
pipe. The 3-D Pipefitting Cladder process will enable a wear resistant alloy
coating to be applied to interior surfaces of bends, elbow joints, "T" sections
and "Y" sections of pipefittings, the areas where wear is most likely to occur.
We have suspended development of the 3-D Pipefitting Cladder process until we
resolve the problems with the alloy feeder in our new Arcoplate production
machine.
PLAN OF OPERATION
Our objective during the next 12 months is to expand our capacity to produce
Arcoplate with the completion of additional equipment. The additional machinery
will supplement our existing production equipment and will incorporate a
redesigned alloy feeder, which has delayed completion of this additional
machinery. We expect to commence trial production on the new machinery during
the final quarter of 2004.
We intend to achieve market penetration through a multi-step process. At the
local level, we intend to combine targeted marketing with advertising in trade
journals, newspapers and magazines. At the international level, we intend to
establish market presence by visiting international trade shows, presenting
technical papers at industry conferences, and appointing distributors who will
be trained to present and promote Arcoplate products as a solution for
wear-related problems.
-5-
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2004 COMPARED WITH THE THREE
AND SIX MONTHS ENDED MARCH 31, 2003
Sales
Alloy Steel had sales of $660,312 for the three months ended March 31, 2004,
compared to $545,636 for the three months ended March 31, 2003. These sales
consist solely of the sale of our Arcoplate product. Substantially all of our
sales during the periods were denominated in Australian dollars. Sales were
converted into U.S. dollars at the conversion rate of $0.764 for the three
months ended March 31, 2004 and $0.575 for the three months ended March 31, 2003
representing the average foreign exchange rate for respective periods . Sales
have increased compared with the three months ended March 31, 2003 primarily due
to the appreciation of the Australian dollar against the U.S. dollar. Sales in
Australian dollars have decreased due to the March 31, 2003 year reflecting the
initial inventory supply purchased by our U.S. distributor.
Alloy Steel had sales of $1,324,844 and $913,982 for the six months ended March
31, 2004 and six months ended March 31, 2003, respectively. The increase in
sales is due to the appreciation of the Australian dollar and the increase of
sales to Australian domestic customers. These sales consist solely of the sale
of our Arcoplate product.
Gross Profit and Costs of Sales
Alloy Steel had cost of sales of $437,640 for the three months ended March 31,
2004, compared to $ 317,333 for the three months ended March 31, 2003. The gross
profit amounted to $222,672 for the three months ended March 31, 2004 compared
to $ 228,303 for the three months ended March 31, 2003. The gross profit
percentage decreased from 42% to 34%. We attribute the increase in cost of sales
and decrease in gross profit primarily due to material and subcontractor cost
increases and the appreciation in the Australian dollar.
Alloy Steel had cost of sales of $754,564 and $527,276 for the six months ended
March 31, 2004 and six months ended March 31, 2003, respectively. Alloy Steel's
gross profit was $570,280 or 43% of sales, and $386,706, or 42% of sales, for
the respective periods.
Operating Expenses
Alloy Steel had selling, general and administrative expenses of $344,451
for the three months ended March 31, 2004, compared to $248,581 for the three
months ended March 31, 2003. The increase was primarily due the increase of
employees involved in marketing of product in Australia and the effect of
translation of the subsidiary results into U.S. dollars for reporting purposes.
Alloy Steel had operating expenses of $605,151 and $ 476,623 for the six
months ended March 31, 2004 and six months ended March 31, 2003, respectively.
The increase was primarily due to the increase in the value of the Australian
dollar. Our operating expenses consist primarily of management salaries,
marketing expenses and travel expenses.
Loss Before Income Taxes
Alloy Steel's loss before taxes was $98,463 for the three months ended
March 31, 2004, compared to a loss of $15,153 for the three months ended March
31, 2003.
Alloy Steel had a net loss before income taxes of $3,581 and net loss of $
63,104 for the six months ended March 31, 2004 and six months ended March 31,
2003, respectively.
-6-
Net Loss
Alloy Steel had a net loss of $98,463 or $0.006 per share, for the three
months ended March 31, 2004, compared to a net loss of $15,153 or $0.001 per
share for the three months ended March 31, 2003.
Alloy Steel had a net loss of $ 3,581 or $0.000 per share, and a net loss
of $ 63,104 or $ 0.004 per share, for the six months ended March 31, 2004 and
six months ended March 31, 2003, respectively.
LIQUIDITY
For the six months ended March 31, 2004, the total cash provided by
operating activities was $25,716, consisting primarily of a net loss of $3,581,
depreciation and amortization of $59,088 and a decrease in accounts payable and
other current liabilities of $37,709, offset by an increase in accounts
receivable of $39,442 and an increase in income taxes payable of $24,100.
As of the six months ended March 31, 2004, we had a working capital surplus
of $55,393.
We anticipate that the funding of our working capital needs will come
primarily from the cash generated from our operations. To the extent that the
cash generated from our operations is insufficient to meet our working capital
needs or the purchase of machinery or equipment, then we will need to raise
capital from the sale of securities in private offerings or loans. We have no
commitments for capital. The sale of additional equity or convertible debt
securities could result in dilution to our stockholders. There can be no
assurance that financing will be available in amounts or on terms acceptable to
us, if at all.
SIGNIFICANT CHANGES IN NUMBERS OF EMPLOYEES
No significant change in the number of employees is anticipated in the next 3
months.
PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT
The machinery to expand our capacity to produce Arcoplate is currently being
modified to rectify engineering problems in the alloy feeder. We have no
material commitments for the additional financing for the addition of the
machinery to expand our capacity to produce Arcoplate or the machinery for the
3-D Pipefitting Cladder process.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133. The Statement is generally effective for contracts entered
into or modified after June 30, 2003 and for hedging relationships designated
after June 30, 2003 and should be applied prospectively. The implementation of
this standard did not have a material impact on the Company's financial
position, results of operations or cash flows. In May 2003, the FASB issued SFAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity. SFAS No. 150 requires certain freestanding
financial instruments, such as mandatory redeemable preferred stock, to be
measured at fair value and classified as liabilities. The provisions of SFAS No.
150 are effective beginning July 1, 2003. The implementation of this standard
did not have a material effect on the Company's financial position, results of
operations or cash flows.
ITEM 3. CONTROLS AND PROCEDURES
-------------------------
Based on their evaluation as of the end of the period covered by this Quarterly
Report on Form 10-QSB, our management, including our Chief Executive Officer and
Chief Financial Officer, concluded that our disclosure controls and procedures,
as defined in Rules 13a - 15(e) and 15d - 15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), were effective.
-7-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of the Chief Executive Officer required by Rule 13a - 14(a) or Rule 15d
- 14(a).
31.2 Certification of the Chief Financial Officer required by Rule 13a - 14(a) or Rule 15d
- 14(a).
32.2 Certification of the Chief Executive Officer required by Rule 13a - 14(b) or Rule 15d
- 14(b) and 18 U.S.C. 1350.
32.2 Certification of the Chief Financial Officer required by Rule 13a - 14(b) or Rule 15d
- 14(b) and 18 U.S.C. 1350.
(b) Reports on Form 8-K.
None.
-8-
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.
Date: May 14, 2004 ALLOY STEEL INTERNATIONAL, INC.
By: /s/ Alan Winduss
-------------------------------------
Alan Winduss, Chief Financial Officer
(Principal Financial Officer)
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