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 THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
[ ] 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
There were 16,950,000 shares of Common Stock outstanding as of April 30,
2007.
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 Consolidated Balance Sheets
March 31, September 30,
2007 2006
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 109,981 $ 18,955
Accounts receivable, less allowance for doubtful accounts
of $43,196 at March 31 2007 and $nil September 30, 2006 1,180,131 519,894
Inventories 623,566 530,530
Prepaid expenses and other current assets 23,975 70,786
-----------------------------
TOTAL CURRENT ASSETS 1,937,653 1,140,165
-----------------------------
PROPERTY AND EQUIPMENT, net 2,060,486 1,888,228
-----------------------------
OTHER ASSETS
Intangibles 90,512 90,512
Deferred tax assets - 135,326
Other 10,856 10,034
-----------------------------
101,368 235,872
-----------------------------
TOTAL ASSETS $ 4,099,507 $ 3,264,265
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion 74,180 65,966
Notes payable, officers, current portion 56,545 51,958
Accrued officers' salaries 348,227 309,398
Royalties payable, related party 395,009 327,134
Current tax payable 36,690 -
Accounts payable and other current liabilities 734,684 539,495
-----------------------------
TOTAL CURRENT LIABILITIES 1,645,335 1,293,951
-----------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 226,086 216,759
Notes payable, officers, less current portion 71,584 96,799
Employee entitlement provisions 7,948 6,379
Loan payable, related party 72,764 147,674
Deferred tax liability 30,400 -
-----------------------------
TOTAL LONG-TERM LIABILITIES 408,782 467,611
-----------------------------
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 722,573 538,189
Accumulated deficit (620,065) (978,368)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 2,045,390 1,502,703
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,099,507 $ 3,264,265
=============================
See accompanying notes to condensed consolidated financial statements
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2007 2006 2007 2006
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
SALES $ 1,753,814 $ 681,569 $ 3,412,121 $ 1,662,029
COST OF SALES 1,047,900 449,811 1,786,463 1,148,766
------------------------------------------------------
GROSS PROFIT 705,914 231,758 1,625,658 513,263
OPERATING EXPENSES
Selling, general and administrative
Expenses 564,304 386,264 1,091,722 805,839
------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 141,610 (154,506) 533,936 (292,576)
------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 8,145 4,348 8,149 28,863
Interest expense (5,858) (5,933) (14,242) (10,432)
Insurance recovery 391 3,064 2,193 9,231
Other income 4,649 18 4,765 43
------------------------------------------------------
7,327 1,497 865 27,705
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INCOME (LOSS) BEFORE INCOME TAX (EXPENSE) BENEFIT 148,937 (153,009) 534,801 (264,871)
Income tax expense (benefit) (176,498) - (176,498) -
------------------------------------------------------
NET INCOME (LOSS) $ (27,561) $ (153,009) $ 358,303 $ (264,871)
======================================================
BASIC INCOME (LOSS) AND DILUTED INCOME (LOSS) PER COMMON SHARE $ (0.002) $ (0.009) $ 0.021 $ (0.016)
------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 16,950,000 16,950,000 16,950,000 16,950,000
======================================================
COMPREHENSIVE INCOME (LOSS)
NET INCOME (LOSS) $ (27,561) $ (153,009) $ 358,303 $ (264,871)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation
adjustment 58,035 (49,835) 184,384 (137,320)
------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 30,474 $ (202,844) $ 542,687 $ (402,191)
======================================================
See accompanying notes to condensed consolidated financial statements
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
SIX MONTHS ENDED
MARCH 31,
2007 2006
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 358,303 $ (264,871)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 83,607 83,901
Increase (decrease) in cash and cash equivalents attributable to changes in
operating assets and liabilities:
Accounts receivable (594,737) 75,606
Inventories (47,722) 303,217
Prepaid expenses and other current assets 4,369 57,897
Incomes taxes receivable 251,885 293,529
Accrued officers' salaries 38,829 43,577
Accounts payable and other current liabilities 217,695 (442,544)
--------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 312,229 150,312
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (72,681) (55,432)
Refund of deposit on equipment - 10,723
--------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (72,681) (44,709)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 41,387
Repayments and notes and loans payable (207,725) (180,513)
--------------------------
NET CASH USED IN FINANCING ACTIVITIES (207,725) (139,126)
--------------------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 59,203 77,362
--------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 91,026 43,839
--------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,955 127,920
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 109,981 $ 171,759
==========================
Supplemental disclosure of cash flow information, cash paid for interest $ 14,242 $ 10,432
==========================
Supplemental disclosure of non cash information, equipment acquired
under note payable $ 28,865 $ 230,040
==========================
See accompanying notes to condensed consolidated financial statements
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
NOTE 1 - UNAUDITED STATEMENTS AND LIQUIDITY
The accompanying condensed consolidated financial statements of Alloy Steel
International, Inc. ("us" or "the Company") as of March 31, 2007 and for the six
month and three month periods ended March 31, 2007 and 2006 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 audited consolidated financial statements included in the registrant's
annual reporting on Form 10-KSB for the year ended September 30, 2006. The
results of operations for the six month and three month periods ended March 31,
2007 are not necessarily indicative of the results that may occur for the year
ending September 30, 2007.
At March 31 2007, the Company has a working capital surplus of $292,318 and an
accumulated deficit of $620,065. The Company is reviewing options to raise
additional future capital through debt and/or equity financing, although it
currently has no commitments to do so. While management believes that its
current cash resources should be adequate to fund its operations, the Company's
long-term liquidity is dependent on its ability to continue to successfully
increase the present level of sales at a profitable margin.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements". This statement generally clarifies the manner in which an entity
is required to measure the fair value of its assets and liabilities, emphasizing
that fair value is a market-based measurement and not an entity-specific
measurement. This statement is effective for accounting changes made in the
fiscal years beginning after November 15, 2007. Adoption of the provisions of
the Statement is not expected to have a material effect on the operations or
financial position of the Company.
NOTE 3 - INVENTORIES
At March 31 2007, (unaudited) and September 30, 2006, inventories consisted of
the following:
Mar 31, 2007 Sept 30, 2006
Raw materials $ 359,782 $ 284,814
Work in progress 1,054 49,990
Finished goods 262,730 195,726
-----------------------------
$ 623,566 $ 530,530
=============================
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 other financial information contained
elsewhere in this filing.
OVERVIEW
We manufacture and distribute Arcoplate (TM), 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
and helps prevent material from adhering or binding to equipment (referred to as
"hangup"). 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 reduce wear and hangup, resulting in decreased
down time and increased productivity for our customers.
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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 mining and dredging use. Design work for this is at an advanced stage and we
expect to have prototype equipment completed within the next two years.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 COMPARED WITH THE THREE
AND SIX MONTHS ENDED MARCH 31, 2006
SALES
Alloy Steel had sales of $1,753,814 for the three months ended March 31 2007,
compared to $681,569 for the three months ended March 31, 2006. 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 $0.77805 for the three
months ended March 31, 2007 and $0.76781 for the three months ended March 31,
2006 representing the average foreign exchange rate for the respective periods.
Alloy Steel had sales of $3,412,121 and $1,622,029 for the six months ended
March 31, 2007 and the six months ended March 31, 2006 respectively. These
sales consist solely of our Arcoplate product.
The sales increase in both periods is attributable to increased orders from new
mining projects in Australia.
GROSS PROFIT AND COST OF SALES
Alloy Steel had cost of sales of $1,047,900 for the three months ended March 31,
2007, compared to $499,811 for the three months ended March 31, 2006. The gross
profit amounted to $705,914 for the three months ended March 31, 2007, compared
to $231,758 for the three months ended March 31, 2006. The gross profit
percentage increased from 34% to 40.3%. The increase in gross profit percentage
is attributable to negotiating better raw material costs with suppliers and
being able to achieve higher margins on our products sold within Australia. The
gross profit percentage decreased from the previous quarter due to some raw
materials being required at short notice and therefore purchased at a premium
price for early delivery.
Alloy Steel had a cost of sales of $1,786,463 and $1,148,766 for the six months
ended March 31, 2007 and the six months ended March 31, 2006 respectively.
Alloy Steel's gross profit was $1,625,658 or 47.6% of sales, and $513,263 or 31%
of sales, for the respective six months periods.
OPERATING EXPENSES
Alloy Steel had no material operating expenses other than selling, general and
administrative expenses for the three and six months ended March 31, 2007 and
2006.
Alloy Steel had selling, general and administrative expenses of $564,304 for the
three months ended March 31, 2007, compared to $386,264 for the three months
ended March 31, 2006.
Alloy Steel has operating expenses of $1,091,722 and $805,839 for the six months
ended March 31, 2007 and six months ended March 31, 2006 respectively.
Our operating expenses consist primarily of management salaries, marketing
expenses and travel expenses.
Factors contributing to the increased expenditure for both the three month and
six month periods ending March 31, 2007, include the additional staff employed,
increased travel expenditure to assist marketing and depreciation of the
completed manufacturing equipment.
INCOME (LOSS) BEFORE TAXES
Alloy Steel's income before income tax (benefit) was $148,937 for the three
months ended March 31, 2007, compared to a loss of ($153,009) for the three
months ended March 31, 2006.
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Alloy Steel had a net income before income taxes of $534,801 and a net loss of
$(264,871) for the six months ended March 31, 2007 and six months ended March
31, 2006 respectively.
NET INCOME (LOSS)
Alloy Steel had a net loss of $(27,561) or $0.002 per share, for the three
months ended March 31, 2007, compared to a net loss of $(153,009), or ($0.009)
per share, for the three months ended March 31, 2006.
An adjustment to recognize the use of prior year tax losses of Alloy Steel's
Australian subsidiary has been made during this quarter as it is highly likely
that the subsidiary will recoup all prior year tax losses.
Alloy Steel had a net income of $358,303 or $0.021 per share, and a net loss of
$(264,871) or $(0.016) per share for the six months ended March 31, 2007 and six
months ended March 31, 2006 respectively.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2007, net cash provided by operating
activities was $312,229 consisting of net income of $358,303 adjusted for
depreciation of $83,607 to reconcile net income to net cash provided by
operating activities and a decrease in cash and cash equivalents attributable to
changes in operating assets and liabilities of $129,681, which consisted
primarily of a decrease in accounts receivable of $594,737 and a decrease in
inventories which was offset by an increase in income tax payable of $251,885
and an increase in accounts payable and other current liabilities of $256,524.
At March 31, 2007, the Company had a working capital surplus of $292,318.
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.
The Company is reviewing options to raise additional future capital through debt
and/or equity financing, although it currently has no commitments to do so.
While management believes that its current cash resources should be adequate to
fund its operations, the Company's long-term liquidity is dependent on its
ability to continue to successfully increase the present level of sales at a
profitable margin.
SIGNIFICANT CHANGES IN NUMBER OF EMPLOYEES
It is expected an additional five (5) production employees will be employed in
the next three months.
PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT
We have no material commitments for financing to purchase or construct machinery
to expand our capacity to produce Arcoplate or for the 3-D Pipefitting Cladder
process.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements". This statement generally clarifies the manner in which an entity
is required to measure the fair value of its assets and liabilities, emphasizing
that fair value is a market-based measurement and not an entity-specific
measurement. This statement is effective for accounting changes made in the
fiscal years beginning after November 15, 2007. Adoption of the provisions of
the Statement is not expected to have a material effect on the operations or
financial position of the Company.
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 Office and
Chief Financial Officer, concluded that our disclosure
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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.
During the quarter under report, there was no change in our internal control
over financial report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 6. 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).
32.1 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.
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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, 2007 ALLOY STEEL INTNERATIONAL, INC.
By: /s/ Alan Winduss
------------------------------------
Alan Winduss, Chief Financial Officer
(Principal Financial Officer)
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