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 June 30, 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 Identification No.)
incorporation or organization)
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 June 30, 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
June 30, September 30,
2004 2003
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 169,445 $ 213,381
Accounts receivable, less allowance for doubtful accounts
of $25,748 and $25,260 in 2004 and 2003, respectively 454,305 203,500
Inventories 416,229 311,456
Prepaid expenses and other current assets 29,067 31,269
-------------------------
TOTAL CURRENT ASSETS 1,069,046 759,606
PROPERTY AND EQUIPMENT, net 1,553,175 1,501,169
OTHER ASSETS
Intangibles 90,512 90,512
-------------------------
TOTAL ASSETS $ 2,712,733 $2,351,287
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable, current portion $ 53,811 $ 43,664
Accounts payable and other current liabilities 995,214 706,258
-------------------------
TOTAL CURRENT LIABILITIES 1,049,025 749,922
-------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 88,490 90,494
Loan payable, related party 137,191 133,914
-------------------------
TOTAL LONG-TERM LIABILITIES 225,681 224,408
-------------------------
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;
16,950,000 issued and outstanding 169,500 169,500
Additional paid-in-capital 1,773,382 1,773,382
Accumulated other comprehensive income 400,057 373,352
Accumulated deficit (904,912) (939,277)
-------------------------
TOTAL STOCKHOLDERS' EQUITY 1,438,027 1,376,957
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,712,733 $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 Nine Months Ended
June 30, June 30,
2004 2003 2004 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Sales $ 532,932 $ 348,675 $ 1,857,776 $ 1,262,657
cost of sales 250,606 251,737 1,005,170 779,012
------------------------------------------------------
Gross Profit 282,326 96,938 852,606 483,645
Operating Expenses
Selling, general and administrative expenses 248,565 238,496 853,716 715,119
------------------------------------------------------
Income (Loss) From Operations 33,761 (141,558) (1,110) (231,474)
------------------------------------------------------
Other Income
Interest income 2,286 2,930 6,790 9,371
Insurance recovery (expense) (96) 89 1,415 2,450
Export grant received (1,306) 681 19,331 18,691
Unrealized foreign exchange gain 3,471 - 5,415 -
Profit (loss) on disposal of plant
equipment (171) 134 2,523 134
------------------------------------------------------
4,184 3,834 35,474 30,646
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Income (Loss) Before Income Taxes 37,945 (137,724) 34,364 (200,828)
Income tax expense (benefit) - (188,198) - (188,198)
------------------------------------------------------
Net income (Loss) $ 37,945 $ 50,474 $ 34,364 $ (12,630)
======================================================
Basic income (loss) and diluted income (loss) per Common Share $ 0.002 $ 0.003 $ 0.002 $ (0.001)
======================================================
Weighted Average Common Shares Outstanding 16,950,000 16,950,000 16,950,000 16,950,000
======================================================
Comprehensive Income (Loss)
Net income (Loss) $ 37,945 $ 50,474 $ 34,364 $ (12,630)
Other Comprehensive Income (Loss)
Foreign currency translation
adjustment (176,349) 168,232 26,705 306,824
------------------------------------------------------
Comprehensive Income (Loss) $ (138,404) $ 218,706 $ 61,069 $ 294,194
======================================================
See accompanying notes to consolidated financial statements.
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended
June 30,
2004 2003
(UNAUDITED) (UNAUDITED)
Cash Flows from Operating Activities
Net Income (Loss) $ 34,364 $ (12,630)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 84,764 66,958
Profit on sale of plant equipment (2,523) (134)
Increase (decrease) in cash attributable to changes in operating
assets and liabilities
Accounts receivable (256,147) (57,827)
Inventories (102,462) (58,301)
Prepaid expenses and other current assets 2,123 21,109
Accounts payable and other current liabilities 308,724 156,522
Income taxes payable (12,024) (175,878)
------------------------
Net Cash Provided by (used in) Operating Activities 56,819 (60,181)
------------------------
Cash Flows from Investing Activities
Purchase of property and equipment (69,715) (49,718)
Proceeds on disposal of plant equipment 3,158 358
------------------------
Net Cash Used in Investing Activities (66,557) (49,360)
Net Cash Used In Financing Activities
Repayment of borrowings (37,020) (26,982)
------------------------
Effect of foreign exchange rate on cash 2,822 49,554
------------------------
Net Increase (Decrease) in Cash and cash equivalents (43,936) (86,969)
Cash and cash equivalents at beginning of period 213,381 288,448
------------------------
Cash and cash equivalents at end of period $ 169,445 $ 201,479
========================
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 June 30, 2004 and for the nine-month and three-month periods ended June 30,
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
nine-month and three-month periods ended June 30, 2004 are not necessarily
indicative of the results that may occur for the year ending September 30, 2004.
Note - 2 Income (loss) per Common Share
The Company complies with SFAS No. 128, "Earnings per Share" which requires dual
presentation of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average common shares outstanding for the year.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Since the Company has no securities or other
contracts to issue common stock, basic and diluted net income (loss) per common
share for the periods ended June 30, 2004 and 2003 were the same.
Note - 3 Inventories
At June 30, 2004 (unaudited) and September 30, 2003 inventories consist of the
following:
June 30, 2004 Sept. 30, 2003
Raw materials $ 53,841 $ 60,998
Finished goods 362,388 250,458
-------------------------------
$ 416,229 $ 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
and accordingly return a higher profit margin to the operation.
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. With the increased demand for Arcoplate, management has
taken the decision to concentrate all available resources to increase the
production capacity of Arcoplate before continuing with the 3-D Pipe Cladder
process.
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. Trial production on the new machinery is scheduled to commence during
the final quarter of 2004.
Market penetration is being achieved through a multi-step process. At the local
level, we are combining targeted marketing with advertising in trade journals,
newspapers and magazines. At the international level, we are visiting
international trade shows, presenting technical papers at industry conferences,
and appointing distributors who are trained to present and promote Arcoplate
products as a solution for wear-related problems.
-5-
Results of Operations
For the Three and Nine Months Ended June 30, 2004 Compared With the Three and
Nine Months Ended June 30, 2003
Sales
Alloy Steel had sales of $532,932 for the three months ended June 30, 2004,
compared to $348,675 for the three months ended June 30, 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 $0.7162 for the three
months ended June 30, 2004 and $0.5910 for the three months ended June 30, 2003
representing the average foreign exchange rate for respective periods . Sales
have increased compared with the three months ended June 30, 2003 primarily due
to the appreciation of the Australian dollar against the U.S. dollar.
Alloy Steel had sales of $1,857,776 and $1,262,657 for the nine months ended
June 30, 2004 and nine months ended June 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 $250,606 for the three months ended June 30,
2004, compared to $ 251,737 for the three months ended June 30, 2003. The gross
profit amounted to $282,326 for the three months ended June 30, 2004 compared to
$ 96,938 for the three months ended June 30, 2003. The gross profit percentage
increased from 28% to 53%. We attribute the increase primarily due to an
increase in the pricing policy of the goods sold.
Alloy Steel had cost of sales of $1,005,170 and $779,012 for the nine months
ended June 30, 2004 and nine months ended June 30, 2003, respectively. Alloy
Steel's gross profit was $852,606 or 46% of sales, and $483,645, or 38% of
sales, for the respective periods.
Operating Expenses
Alloy Steel had selling, general and administrative expenses of $248,565 for the
three months ended June 30, 2004, compared to $238,496 for the three months
ended June 30, 2003.
Alloy Steel had operating expenses of $853,716 and $ 715,119 for the nine months
ended June 30, 2004 and nine months ended June 30, 2003, respectively. The
increase was primarily due to the increase in the value of the Australian dollar
and the employment of additional marketing personnel. Our operating expenses
consist primarily of management salaries, marketing and travel expenses.
Income (Loss) Before Income Taxes
Alloy Steel's income before taxes was $37,945 for the three months ended June
30, 2004, compared to a loss of $137,724 for the three months ended June 30,
2003.
Alloy Steel had a net income before income taxes of $34,364 and net loss of
$200,828 for the nine months ended June 30, 2004 and nine months ended June 30,
2003, respectively.
Net Income (Loss)
Alloy Steel had a net income of $37,945 or $0.002 per share, for the three
months ended June 30, 2004, compared to a net income of $50,474 or $0.003 per
share for the three months ended June 30, 2003.
Alloy Steel had a net income of $ 34,364 or $0.002 per share, and a net loss of
$ 12,630 or $ 0.001 per share, for the nine months ended June 30, 2004 and nine
months ended June 30, 2003, respectively.
-6-
Liquidity
For the nine months ended June 30, 2004, the total cash provided by operating
activities was $56,819, consisting primarily of a net income of $34,364,
depreciation and amortization of $84,764 and an increase in accounts payable and
other current liabilities of $308,724, offset by an increase in accounts
receivable of $256,147 and an increase in inventories of $102,462.
As of the nine months ended June 30, 2004, we had a working capital surplus of
$20,021.
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 and the new
equipment is scheduled to begin production trials in the last quarter of 2004.
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: July 30, 2004 ALLOY STEEL INTERNATIONAL, INC.
By: /s/ Alan Winduss
--------------------------------------
Alan Winduss, Chief Financial Officer
(Principal Financial Officer)
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