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 December 31, 2006
[ ] 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 January 31,
2007.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I
PART 1
FINANICAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
December 31, September 30,
2006 2006
(unaudited)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 489,857 $ 18,955
Accounts receivable, less allowance for doubtful accounts
of $nil at December 31, 2006 and September 30, 2006 886,556 519,894
Inventories 551,152 530,530
Prepaid expenses and other current assets 82,993 70,786
-------------------------------
TOTAL CURRENT ASSETS 2,010,558 1,140,165
-------------------------------
PROPERTY AND EQUIPMENT, net 2,032,109 1,888,228
-------------------------------
OTHER ASSETS
Intangibles 90,512 90,512
Deferred tax assets 143,028 135,326
Other 10,605 10,034
-------------------------------
244,145 235,872
-------------------------------
TOTAL ASSETS $ 4,286,812 $ 3,264,265
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion 74,118 65,966
Notes payable, officers, current portion 55,099 51,958
Accrued officers' salaries 329,129 309,398
Royalties payable, related party 364,075 327,134
Accounts payable and other current liabilities 751,184 539,495
-------------------------------
TOTAL CURRENT LIABILITIES 1,573,605 1,293,951
-------------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 237,716 216,759
Notes payable, officers, less current portion 83,771 96,799
Employee entitlement provisions 7,600 6,379
Loan payable, related party 149,609 147,674
-------------------------------
TOTAL LONG-TERM LIABILITIES 478,696 467,611
-------------------------------
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 669,846 538,189
Accumulated deficit (378,217) (978,368)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,234,511 1,502,703
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,286,812 $ 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
DECEMBER 31,
2006 2005
(UNAUDITED) (UNAUDITED)
SALES $ 1,872,594 $ 980,460
COST OF SALES 738,563 698,955
--------------------------
GROSS PROFIT 1,134,031 281,505
OPERATING EXPENSES
Selling, general and administrative expenses 527,418 419,577
--------------------------
INCOME (LOSS) FROM OPERATIONS 606,613 (138,072)
--------------------------
OTHER INCOME (EXPENSE)
Interest income 4 24,515
Interest expense (8,384) (4,499)
Insurance recovery 1,802 6,167
Other income 116 25
--------------------------
(6,462) 26,208
--------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 600,151 (111,864)
Income tax expense (benefit) - -
--------------------------
NET INCOME (LOSS) $ 600,151 $ (111,864)
==========================
BASIC INCOME (LOSS) AND DILUTED INCOME (LOSS) PER
COMMON SHARE $ 0.035 $ (0.006)
--------------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 16,950,000 16,950,000
==========================
COMPREHENSIVE INCOME (LOSS)
NET INCOME (LOSS) $ 600,151 $ (111,864)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment 131,657 (87,485)
--------------------------
COMPREHENSIVE INCOME (LOSS) $ 731,808 $ (199,349)
==========================
See accompanying notes to condensed consolidated financial statements
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ALLOY STEEL INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
THREE MONTHS ENDED
DECEMBER 31,
2006 2005
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 600,151 $ (111,864)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 44,052 40,011
Increase (decrease) in cash and cash equivalents attributable to changes
in operating assets and liabilities:
Accounts receivable (328,926) (837)
Inventories 9,339 164,457
Prepaid expenses and other current assets (7,980) 35,436
Incomes taxes receivable - 249,067
Accrued officers' salaries 19,731 21,660
Accounts payable and other current liabilities 217,684 (320,781)
-------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 554,051 77,149
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (52,080) (7,931)
Refund of deposit on equipment - 10,756
-------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (52,080) 2,825
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments on notes and loans payable (64,370) (116,064)
-------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (64,370) (116,064)
-------------------------------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
33,301 42,267
-------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 470,902 6,177
-------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,955 127,920
-------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 489,857 $ 134,097
=====================================
Supplemental disclosure of cash flow information, cash paid for interest $ 8,384 $ 4,499
=====================================
Supplemental disclosure of non cash information, equipment acquired
under note payable $ 28,197 $ 210,999
=====================================
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 December 31, 2006 and for the
three month periods ended December 31, 2006 and 2005 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
three month period ended December 31, 2006 are not necessarily indicative of the
results that may occur for the year ending September 30, 2007.
At December 31, 2006, the Company has a working capital surplus of $436,953 and
an accumulated deficit of $378,217. 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 December 31, 2006 (unaudited) and September 30, 2006, inventories consisted
of the following:
Dec 31, 2006 Sept 30, 2006
Raw materials $ 324,914 $ 284,814
Work in progress 55,507 49,990
Finished goods 170,731 195,726
-----------------------------
$ 551,152 $ 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 used. 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 MONTHS ENDED DECEMBER 31, 2006 COMPARED WITH THE THREE MONTHS
ENDED DECEMBER 31, 2005
SALES
Alloy Steel had sales of $1,872,594 for the three months ended December 31,
2006, compared to $980,460 for the three months ended December 31, 2005. 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 $0.77022 for the three
months ended December 31, 2006 and $0.74439 for the three months ended December
31, 2005 representing the average foreign exchange rate for the respective
periods.
The sales increase is attributable to increased orders from new mining projects
in Australia.
GROSS PROFIT AND COST OF SALES
Alloy Steel had cost of sales of $738,563 for the three months ended December
31, 2006, compared to $698,955 for the three months ended December 31, 2005. The
gross profit amounted to $1,134,031 for the three months ended December 31,
2006, compared to $281,505 for the three months ended December 31, 2005. The
gross profit percentage increased from 28.7% to 60.6%. 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.
OPERATING EXPENSES
Alloy Steel had no material operating expenses other than selling, general and
administrative expenses for the three months ended December 31, 2006 and 2005.
Alloy Steel had selling, general and administrative expenses of $527,418 for the
three months ended December 31, 2006, compared to $424,076 for the three months
ended December 31, 2005.
Factors contributing to the increased expenditure for the three months period
ended December 31, 2006, included 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 $600,151 for the three
months ended December 31, 2006, compared to a loss of ($111,864) for the three
months ended December 31, 2005.
NET INCOME (LOSS)
Alloy Steel had a net income of $600,151, or $0.035 per share, for the three
months ended December 31, 2006, compared to a net loss of ($111,864), or
($0.002) per share, for the three months ended December 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended December 31, 2006, net cash provided by operating
activities was $554,051, consisting of net income of $600,151 adjusted for
depreciation of $44,052 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 $90,152, which consisted
primarily of a decrease in accounts receivable of $328,926 which was offset by
an increase in accounts payable and other current liabilities of $237,415.
- 5 -
At December 31, 2006, the Company had a working capital surplus of $436,953.
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
No significant change in the number of employees is anticipated 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 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: February 12, 2007 ALLOY STEEL INTNERATIONAL, INC.
By: /s/ Alan Winduss
---------------------------
Alan Winduss,
Chief Financial Officer
(Principal Financial Officer)
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