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, 2005
[ ] 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 May 10,
2005.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
---------------------
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Balance Sheets
March 31, September 30,
2005 2004
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 216,170 $ 42,038
Accounts receivable, less allowance for doubtful
accounts of $14,007 at March 31, 2005. 498,151 818,864
Inventories 400,698 399,402
Prepaid expenses and other current assets 68,419 61,089
-----------------------------
TOTAL CURRENT ASSETS 1,183,438 1,321,393
-----------------------------
PROPERTY AND EQUIPMENT, net 1,766,058 1,616,357
-----------------------------
OTHER ASSETS
Intangibles 90,512 90,512
Other 9,349 3,226
Deferred tax assets 35,388 32,934
-----------------------------
135,249 126,672
-----------------------------
Total Assets $ 3,084,745 $ 3,064,422
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable, current portion $ 142,333 $ 107,630
Accounts payable and other current liabilities 920,251 1,065,987
-----------------------------
TOTAL CURRENT LIABILITIES 1,062,584 1,173,617
-----------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 232,476 262,006
Loan payable, related party 152,302 141,742
Deferred tax liabilities 14,112 13,134
-----------------------------
398,890 416,882
-----------------------------
TOTAL LIABILITIES 1,461,474 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 605,026 474,541
Accumulated deficit (924,637) (943,500)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 1,623,271 1,473,923
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,084,745 $ 3,064,422
=============================
See accompanying notes to condensed financial statements.
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Statements of Operations And Comprehensive Income (Loss)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2005 2004 2005 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
SALES $ 856,923 $ 660,312 $ 1,675,949 $ 1,324,844
COST OF SALES 513,658 437,640 1,055,099 754,564
------------------------------------------------------
GROSS PROFIT 343,265 222,672 620,850 570,280
OPERATING EXPENSES
Selling, general and administrative
expenses 307,269 344,451 613,943 605,151
------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 35,996 (121,779) 6,907 (34,871)
------------------------------------------------------
OTHER INCOME
Interest income 3,480 2,421 7,289 4,504
Insurance recovery 4,313 1,469 4,642 1,511
Export grant received - 1,314 - 20,637
Unrealized foreign exchange gain 2,494 15,418 - 1,944
Profit on disposal of plant equipment - 2,694 - 2,694
Commission received 25 - 25 -
------------------------------------------------------
10,312 23,316 11,956 31,290
------------------------------------------------------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE (BENEFIT) 46,308 (98,463) 18,863 (3,581)
Income tax expense (benefit) - - - -
------------------------------------------------------
NET INCOME (LOSS) $ 46,308 $ (98,463) $ 18,863 $ (3,581)
======================================================
BASIC INCOME (LOSS) AND DILUTED
INCOME (LOSS) PER COMMON SHARE $ 0.003 $ (0.006) $ 0.001 $ (0.000)
------------------------------------------------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 16,950,000 16,950,000 16,950,000 16,950,000
======================================================
COMPREHENSIVE INCOME (LOSS)
NET INCOME (LOSS) $ 46,308 $ (98,463) $ 18,863 $ (3,581)
OTHER COMPREHENSIVE INCOME
Foreign currency translation
adjustment 9,086 5,733 130,485 203,054
------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 55,394 $ (92,730) $ 149,348 $ 199,473
======================================================
See accompanying notes to condensed financial statements.
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Statements of Cash Flows
SIX MONTHS ENDED
MARCH 31,
2005 2004
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 18,863 $ (3,581)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 63,804 59,088
Profit on disposal of plant equipment - (2,694)
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Accounts receivable 380,620 (39,442)
Inventories 28,371 2,857
Prepaid expenses and other current assets 11,739 (4,121)
Accounts payable and other current liabilities (206,170) (61,809)
--------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 297,227 25,716
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (71,694) (34,114)
Payment for deposit for investment (5,865) -
Proceeds on disposal of plant equipment - 3,371
--------------------------
NET CASH USED IN INVESTING ACTIVITIES (77,559) (30,743)
NET CASH USED IN FINANCING ACTIVITIES,
repayment of borrowings (100,798) (25,524)
--------------------------
Effect of foreign exchange rate on cash 55,262 21,986
--------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 174,132 (8,565)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 42,038 213,381
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 216,170 $ 204,816
==========================
See accompanying notes to condensed financial statements.
ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Condensed Financial Statements
NOTE - 1 UNAUDITED STATEMENTS
The accompany condensed consolidated financial statements of the Company as of
March 31, 2005 and for the six month and three-month periods ended March 31,
2005 and 2004 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, 2004 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,
2005 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 March 31, 2005 (unaudited) and September 30, 2004 inventories consist of the
following:
Mar 31, 2005 Sept 30, 2004
Raw materials. $ 126,314 $ 119,098
Finished goods 274,384 280,304
-----------------------------
$ 400,698 $ 399,402
-----------------------------
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. 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
Pipefitting Cladder process has recommenced.
PLAN OF OPERATION
With additional production capacity now available (utilizing the 600MM wide
plate), our objectives for the forthcoming period are to expand our market
size.
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 and
stockists who will be trained to present and promote Arcoplate products as a
solution for wear-related problems.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2005 COMPARED WITH THE THREE
AND SIX MONTHS ENDED MARCH 31, 2004
SALES
Alloy Steel had sales of $856,923 for the three months ended March 31, 2005,
compared to $660,312 for the three months ended March 31, 2004. 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 $0.768 for the three
months ended March 31, 2005 and $0.764 for the three months ended March 31, 2004
representing the average foreign exchange rate for the respective periods.
Alloy Steel had sales of $1,675,949 and $1,324,844 for the six months ended
March 31, 2005 and six months ended March 31, 2004, respectively. These sales
consist solely of the sale of our Arcoplate product.
GROSS PROFIT AND COSTS OF SALES
Alloy Steel had cost of sales of $513,658 for the three months ended March 31,
2005, compared to $437,640 for the three months ended March 31, 2004. The gross
profit amounted to $343,265 for the three months ended March 31, 2005 compared
to $ 222,672 for the three months ended March 31, 2004. The gross profit
percentage increased from 34% to 40%. The increase in gross profit has been due
to the company's review of discounting procedures to give an increased margin on
the product.
Alloy Steel had cost of sales of $1,055,099 and $754,564 for the six months
ended March 31, 2005 and six months ended March 31, 2004, respectively. Alloy
Steel's gross profit was $620,850 or 37% of sales, and $570,280, or 43% of
sales, for the respective six month periods.
OPERATING EXPENSES
Alloy Steel had selling, general and administrative expenses of $307,269 for the
three months ended March 31, 2005, compared to $344,451 for the three months
ended March 31, 2004.
Alloy Steel had operating expenses of $613,943 and $605,151 for the six months
ended March 31, 2005 and six months ended March 31, 2004, respectively. Our
operating expenses consist primarily of management salaries, marketing expenses
and travel expenses.
INCOME BEFORE TAXES
Alloy Steel's net income before taxes was $46,308 for the three months ended
March 31, 2005, compared to a net loss before taxes of $98,463 for the three
months ended March 31, 2004.
Alloy Steel had net income before taxes of $18,863 and a net loss before taxes
of $3,581 for the six months ended March 31, 2005 and six months ended March 31,
2004, respectively.
NET INCOME
Alloy Steel had net income of $46,308 or $0.003 per share, for the three months
ended March 31, 2005, compared to a net loss of $98,463 or $(0.006) per share
for the three months ended March 31, 2004.
Alloy Steel had net income of $18,863 or $0.001 per share, and a net loss of
$3,581 or $0.000 per share, for the six months ended March 31, 2005 and six
months ended March 31, 2004, respectively.
LIQUIDITY
For the six months ended March 31, 2005, net cash provided by operating
activities was $297,227, consisting of net income of $18,863 depreciation and
amortization of $63,804 and a decrease in accounts receivable and other current
assets of $420,730 offset by a decrease in accounts payable and other current
liabilities of $206,170.
As of March 31, 2005, we had a working capital surplus of $120,854.
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 our needs to purchase 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 raising 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 completed and
operational. 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.
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 - 15(e) and 15d - 15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), were effective.
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.
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 16, 2005 ALLOY STEEL INTERNATIONAL, INC.
By: /s/ Alan Winduss
-------------------------------------
Alan Winduss, Chief Financial Officer
(Principal Financial Officer)