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 DECEMBER 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)
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 [ ]
There were 16,950,000 shares of Common Stock outstanding as of February 14,
2005.
Transitional Small Disclosure Format (check one): Yes [ ] No [X]
PART I
ITEM 1. FINANCIAL STATEMENTS
--------------------
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
DECEMBER 31, SEPTEMBER 30,
2004 2004
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 368,900 $ 42,038
Accounts receivable, less allowance for doubtful
accounts of $25,260 332,780 818,864
Inventories 403,903 399,402
Prepaid expenses and other current assets 55,923 61,089
--------------------------------
TOTAL CURRENT ASSETS 1,161,506 1,321,393
--------------------------------
PROPERTY AND EQUIPMENT, net 1,768,051 1,616,357
--------------------------------
OTHER ASSETS
Intangibles 90,512 90,512
Other 7,933 3,226
Deferred tax assets 35,842 32,934
--------------------------------
134,287 126,672
--------------------------------
$ 3,063,844 $ 3,064,422
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable, current portion $ 119,163 $ 107,630
Accounts payable and other current liabilities 921,184 1,065,987
--------------------------------
TOTAL CURRENT LIABILITIES 1,040,347 1,173,617
--------------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 254,282 262,006
Loan payable, related party 154,259 141,742
Deferred tax liabilities 14,294 13,134
--------------------------------
422,835 416,882
--------------------------------
1,463,182 1,590,499
--------------------------------
COMMITMENTS 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 628,725 474,541
Accumulated deficit (970,945) (943,500)
--------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,600,662 1,473,923
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,063,844 $ 3,064,422
================================
See accompanying notes to consolidated financial statements.
- 1 -
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations And Comprehensive Income
THREE MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31,
2004 2003
(UNAUDITED) (UNAUDITED)
SALES $ 819,026 $ 664,532
COST OF SALES 541,441 316,924
--------------------------------------------------------------------
GROSS PROFIT 277,585 347,608
OPERATING EXPENSES
Selling, general and administrative expenses
309,522 274,174
--------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (31,937) 73,434
--------------------------------------------------------------------
OTHER INCOME
Interest income 3,809 2,083
Insurance recovery 329 42
Export grant received - 19,323
Management Fees 354 -
--------------------------------------------------------------------
4,492 21,448
--------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE (BENEFIT) (27,445) 94,882
Income tax expense (benefit) - -
--------------------------------------------------------------------
NET INCOME (LOSS)
$ (27,445) $ 94,882
--------------------------------------------------------------------
BASIC INCOME (LOSS) AND DILUTED
INCOME (LOSS) PER COMMON SHARE $ (0.002) $ 0.006
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 16,950,000 16,950,000
====================================================================
COMPREHENSIVE INCOME
NET INCOME (LOSS) $ (27,445) $ 94,882
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment 154,184 197,321
--------------------------------------------------------------------
Comprehensive Income $ 126,739 $ 292,203
====================================================================
See accompanying notes to consolidated financial statements.
- 2 -
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (27,445) $ 94,882
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation 31,516 27,361
Accounts receivable 542,507 (154,306)
Inventories 29,890 (63,121)
Prepaid expenses and other current assets 10,259 (10,560)
Accounts payable and other current liabilities (195,261) 55,215
Income taxes payable - (23,623)
------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 391,466 (74,152)
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES,
Purchases of property and equipment (40,215) (17,996)
Payment for deposit for investment (4,296) -
------------------------------
NET CASH USED IN INVESTING ACTIVITIES (44,511) (17,996)
------------------------------
NET CASH USED IN FINANCING ACTIVITIES,
repayment of borrowings (62,881) (11,102)
------------------------------
Effect of foreign exchange rate on cash 42,788 67,961
------------------------------
326,862 (35,289)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 42,038 213,381
------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 368,900 $ 178,092
==============================
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 consolidated financial statements of the Company as of December
31, 2004 and for the three-month periods ended December 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 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 consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
September 30, 2004 audited financial statements included in the registrant's
annual report on Form 10-KSB. The results of operations for the three-month
period ended December 31, 2004 are not necessarily indicative of the results
that may occur for the year ending September 30, 2005.
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.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, "Inventory Costs, an Amendment of
Accounting Research Bulletin (ARB) No. 43, Chapter 4", in November 2004. This
statement amends the guidance in ARB No. 43 Chapter 4 "Inventory Pricing" to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material. SFAS No. 151 requires that those items be
recognized as current period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this statement will be
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company is currently evaluating the impact that this statement
will have on its financial statements.
NOTE 3 INVENTORIES
At December 31, 2004 (unaudited) and September 30, 2004 inventories consist of
the following:
Dec 31, 2004 Sept 30, 2004
Raw materials $ 167,741 $ 119,098
Finished goods 236,162 280,304
---------------- -----------------
$ 403,903 $ 399,402
---------------- -----------------
- 4 -
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 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. As the additional plant for the production of Arcoplate has
been completed and is now in operation, engineering and design work for the 3-D
Pipe Cladder process has recommenced.
PLAN OF OPERATION
Now that additional production capacity is available with the completion of the
new plant, our objective for the forthcoming period is to expand our market
size.
We intend to achieve this 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 MONTHS ENDED DECEMBER 31, 2004 COMPARED WITH THE THREE MONTHS
ENDED DECEMBER 31, 2003
SALES
Alloy Steel had sales of $819,026 for the three months ended December 31, 2004,
compared to $664,532 for the three months ended December 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 $ 0.75778 and $0.71953,
representing the average foreign exchange rate for the three months ended
December 31, 2004 and 2003, respectively.
GROSS PROFIT AND COSTS OF SALES
Alloy Steel had cost of sales of $ 541,441 for the three months ended December
31, 2004, compared to $316,924 for the three months ended December 31, 2003. The
gross profit amounted to $ 277,585 for the three months ended December 31, 2004
compared to $ 347,608 for the three months ended December 31, 2003. The gross
profit percentage decreased to 34% from 52%, due to a higher level of low
margin sales in the Australian market place. Margins have now been increased on
all lines by raising the selling price on all contracts and reducing discounts.
OPERATING EXPENSES
Alloy Steel had selling, general and administrative expenses of $309,522 for the
three months ended December 31, 2004, compared to $ 274,174 for the three months
ended December 31, 2003. The increase in marketing and engineering labor costs
were the major reason for the increase.
INCOME BEFORE TAXES
Alloy Steel's loss before taxes was $ (27,445) for the three months ended
December 31, 2004 compared to a profit of $ 94,882 for the three months ended
December 31, 2003.
NET PROFIT
Alloy Steel had a net loss of $ (27,445) or ($ 0.002) per share, for the three
months ended December 31, 2004, compared to a net profit of $ 94,882 or $0.006
per share, for the three months ended December 31, 2003.
LIQUIDITY
For the three months ended December 31, 2004, the total cash provided by
operating activities was $391,466 consisting of a net loss of $27,445, a
decrease in accounts payable and other current liabilities of $195,261, a
decrease in inventories of $29,890, a decrease in accounts receivable of
$542,507, a decrease in other assets of $10,259 and on a depreciation charge of
$31,516.
As of December 31, 2004, we had a working capital surplus of $ 121,159.
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 by loan funds. 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.
- 6 -
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 additional machinery to expand our capacity to produce Arcoplate is now
producing product. We have no material commitments for additional financing and
plan to continue with the development of 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.
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, "Inventory Costs, an Amendment of
Accounting Research Bulletin (ARB) No. 43, Chapter 4", in November 2004. This
statement amends the guidance in ARB No. 43 Chapter 4 "Inventory Pricing" to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material. SFAS No. 151 requires that those items be
recognized as current period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this statement will be
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company is currently evaluating the impact that this statement
will have on its financial statements.
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 - 15a(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: February 14, 2005 ALLOY STEEL INTERNATIONAL, INC.
By: /s/ Alan Winduss
-----------------------------------
Alan Winduss, Chief Financial Officer
(Principal Financial Officer)
- 9 -