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, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from______ to _________
Commission file number 0-22375
American Stone Industries, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3704099
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
230 W. Main St., Amherst, Ohio 44001
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(Address of principal executive officer)
(440) 986-4501
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(Issuer's telephone number)
8705 Quarry Road, Amherst, OH 44001
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(Former name, former address and former fiscal year,
if changed since last report)
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. [X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
1,939,169
INDEX
AMERICAN STONE INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
March 31, 2004 and December 31, 2003.............................................................................. 1
Condensed Consolidated Statements of Income
Three Months Ended March 31, 2004 and 2003........................................................................ 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2004 and 2003........................................................................ 3
Notes to Condensed Consolidated Financial Statements.................................................................. 4
Management's Discussion and Analysis
of Financial Condition and Results of Operations.................................................................. 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .......................................................... 9
Item 6. Exhibits and Reports on Form 8-K ............................................................................. 9
Signatures ........................................................................................................... 10
AMERICAN STONE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2004 2003
----------- ------------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash $ 97,001 $ 284,238
Accounts receivable 355,677 160,303
Inventory 812,438 837,438
Prepaid expenses 9,600 2,700
----------- -----------
Total Current Assets 1,274,716 1,284,679
----------- -----------
Property, Plant and Equipment, Net - At Cost 3,183,265 3,243,693
----------- -----------
Other Assets 44,225 44,225
----------- -----------
$ 4,502,206 $ 4,572,597
=========== ===========
LIABILITIES
Current Liabilities
Current portion of notes payable 1,503,855 1,505,850
Accounts payable 490,789 516,345
Accrued liabilities 306,077 188,315
----------- -----------
Total Current Liabilities 2,300,721 2,210,510
----------- -----------
Long Term Liabilities 1,300,000 1,300,000
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value,
20 million shares authorized
1,939,169 issued and outstanding 1,939 1,939
Additional capital 4,829,708 4,829,708
Retained earnings (deficit) (3,930,162) (3,769,560)
----------- -----------
901,485 1,062,087
----------- -----------
$ 4,502,206 $ 4,572,597
=========== ===========
Note: The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
See notes to condensed consolidated financial statements.
-1-
AMERICAN STONE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
2004 2003
--------- ---------
(Unaudited) (Unaudited)
Net Sales $ 430,803 $ 321,535
Cost of Sales 366,935 674,382
--------- ---------
Gross Profit (Loss) 63,868 (352,847)
Selling, General and Administrative Expenses 185,876 221,818
--------- ---------
Loss From Operations (122,008) (574,665)
Other income (Expense)
Interest income -0- 32
Interest expense (48,564) (42,108)
Other income 9,970 5,693
Loss on sale of assets -0- (5,181)
--------- ---------
(38,594) (41,564)
--------- ---------
Loss Before Income Taxes (160,602) (616,229)
--------- ---------
Provision For Income Taxes -0- -0-
--------- ---------
Net Loss $(160,602) $(616,229)
========= =========
Net Loss Per Common Share
Basic $ (.08) $ (.32)
========= =========
Diluted $ (.08) $ (.32)
========= =========
See notes to condensed consolidated financial statements.
-2-
AMERICAN STONE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
2004 2003
--------- ---------
(Unaudited) (Unaudited)
Cash Flow From Operating Activities
Net loss $(160,602) $(616,229)
Noncash items included in income:
Depreciation and amortization 107,172 107,308
Loss on sale of fixed assets -0- 5,181
Changes in assets and liabilities:
Accounts receivable (195,374) 251,545
Inventory 25,000 83,347
Prepaid expenses (6,900) 30,129
Accounts payable - trade (25,556) 57,355
Accrued expenses 117,762 (76,780)
--------- ---------
Total Adjustments
Net Cash Used In Operating Activities (138,498) (158,144)
Cash Flows From Investing Activities (46,744) 10,000
Cash Flows From Financing Activities (1,995) 167,755
--------- ---------
Net (Decrease) Increase in Cash (187,237) 19,611
Cash - Beginning of Period 284,238 5,697
--------- ---------
Cash - End of Period $ 97,001 $ 25,308
========= =========
Supplemental Disclosure of Cash Flows
Information
Interest paid $ 42,000 $ 31,000
Income taxes paid $ -0- $ -0-
See notes to condensed consolidated financial statements.
-3-
AMERICAN STONE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted for interim
financial information and with the instructions to Form 10-QSB and item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2004. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the American Stone Industries, Inc. Annual Report on Form
10-KSB for the year ended December 31, 2003.
NOTE B - FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY
The Company and its subsidiary operated predominantly in one industry,
the design, quarrying and cutting of sandstone primarily used in the
construction industry.
Following is the information regarding the Company's sales by
geographic location.
Three Months Ended March 31,
2004 2003
----------- ------------
Net sales, including geographic transfers
United States $ 426,928 $ 242,739
Canada 3,875 78,796
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$ 430,803 $ 321,535
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NOTE C - STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APBO No. 25), and related
interpretations, in accounting for its stock option because, as discussed below,
the alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), requires use of highly subjective assumptions in option valuation
models. Under APBO No. 25, because the exercise price of the Company's stock
option granted is not less than fair market price of the shares at the date of
grant, no compensation is recognized in the financial statements.
Pro forma information regarding net income and earnings per share,
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123, is required by that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for all options granted: a
risk free interest rate of 1.08% and 1.18% for 2004 and 2003, respectively, and
expected life of the options of five years, no expected dividend yield and a
volatility factor of 10%. Additionally, a marketability discount of 50% has been
assumed for the third quarter of 2004 and 2003.
-4-
AMERICAN STONE INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE C - STOCK OPTION PLANS (CONTINUED)
March 31,
2004 2003
---------- ----------
Net loss, as reported (160,602) (616,229)
Deduct: (Loss), Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of tax effects (23,235) (7,170)
---------- ----------
Pro forma net loss $ (183,837) $ (623,399)
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Earnings per share:
---------- ----------
Basic - as reported $ (.08) $ (.32)
========== ==========
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Basic - pro forma $ (.09) $ (.32)
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Diluted - as reported $ (.08) $ (.32)
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Diluted - pro forma $ (.09) $ (.32)
========== ==========
-5-
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Following is a discussion of the principal factors that affected the
Company's results of operations for the three months ended March 31, 2004 and
2003.
COMPANY OVERVIEW AND OUTLOOK
American Stone Industries, Inc. is a holding company that mines and sells
stone primarily for the building stone market through its wholly-owned
subsidiary, American Stone Corporation. American Stone Corporation owns and
operates the Cleveland Quarries in Amherst, Ohio. We produce dimensional stone
which is cut to size as specified in architectural designs and primarily used as
architectural accents to buildings. We also produce construction stone which is
primarily used for road base, back fill and erosion control.
In January 2001, we created Amherst Stone at Cleveland Quarries, Inc., a
wholly-owned subsidiary, to distribute our stone and other natural stone
products directly to northern Ohio builders and landscapers. In December 2002 we
decided to close Amherst Stone and consolidate the remaining activities into
American Stone Corporation.
Looking forward, our immediate challenge is to increase our geographic area
and continue to improve our operating efficiencies while controlling costs so we
can generate profitability and positive cash flow and strengthen our balance
sheet. Cash remains tight, but as a result of new credit disciplines we have
significantly reduced bad debt write-offs. 2004 started very slowly due to
weather, which prevented us from quarrying stone all winter. However, we have
ample saleable inventory on hand, more that we have had in several years going
into the season. We judiciously invested in new equipment for the quarry in 2003
that we expect will improve productivity and reduce operating costs. The market
continues to be soft, but we are cautiously optimistic. With our new
architectural brochure and dealer catalog, new outside representatives and our
sales team we are positioned to more actively pursue new business. If
architectural project opportunities materialize as anticipated, we believe we
can increase sales 25-30% over 2003 levels. We are confident we could handle
such an increase in volume without adding to staff, assuming the workflow is
reasonably spread out. At these higher volumes, we should be able to produce a
profit in 2004.
2004 COMPARED TO 2003
Sales increased $109,268, or 34%, from 2003 due to the closure of the
Amherst Stone distribution business. Unusually cold weather in early 2004
adversely impacted our ability to pull stone from the quarry for the first
quarter of 2004. Being more selective in choosing jobs with higher profit
potential and focusing on selling products that we produced from our own raw
materials increased our opportunity for profitablility.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
2004 COMPARED TO 2003 (CONTINUED)
Gross profit, as a percentage of sales, increased to 15% in 2004 compared
to a negative 110% in the first quarter of 2003 due to choosing jobs with higher
profit potential combined with cost reduction and productivity improvement
programs.
Selling and administrative expenses decreased $35,942 or 16% in 2004 from
2003, primarily due to cost reduction actions and the elimination of non-value
added activities.
Interest expense increased $6,456 or 15% in 2004 compared to 2003 due
primarily to increased average borrowing levels in 2004.
We did not record a benefit for income taxes in 2004. We have $6,500,000 of
unused net operating loss carryforwards that may be applied against future
taxable income. These carryforwards expire in various amount from 2007 through
2023. Our ability to use the carryforwards will depend upon generating taxable
income in the future. There are no assurances that we will be profitable in the
future, and as a result we did not reflect a tax benefit in 2003 from the net
loss.
The net loss in 2004 of $160,602 was significantly less than the net loss
in 2003 of $616,229. The main drivers were significantly improved gross profit
margins combined with significantly lower selling and administrative expenses,
as previously discussed.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates, judgments and assumptions in certain circumstances that affect
amounts reported in the accompanying consolidated financial statements. We
evaluate the accounting policies and estimates we use to prepare financial
statements, which we believe to be reasonable under the relevant circumstances.
In preparing these financial statements, we have made our best estimates and
judgments of certain amounts included in the financial statements related to the
accounting policies and estimates described in the text that follows. The
application of these critical accounting policies involves the exercise of
judgment and the use of assumptions as to future uncertainties, and as a result,
actual results could differ from these estimates. For additional information
regarding our accounting policies, see Note 1 to the consolidated financial
statements included in the annual report on Form 10-KSB for the fiscal year
ended December 31, 2003.
CONTINGENCIES
We are subject to various investigations, claims, and legal and
administrative proceedings covering a wide range of matters that arise in the
ordinary course of business activities. Any liability that may result from these
proceedings, and any liability that is judged to be probable and estimable, has
been accrued. Any potential liability not accrued is not currently expected to
have a material effect on our future financial position, results of operation or
cash flows.
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CASH FLOWS
(ALL "CASH FLOWS" AMOUNTS IN THOUSANDS)
Three Months Ended
March 31,
--------------------
2003 2002
------- -------
Operating activities $ (138) $ (158)
Investing activities (47) 10
Financing activities (2) 168
Cash used by operating activities in 2004 was $138. The net loss of $160
included depreciation and amortization of $107. Major uses of cash were a $195
increase in accounts receivable and $25 decrease in accounts payable. Major
sources of cash were a $117 increase in accrued expenses and a $25 decrease in
inventory.
Cash used by operating activities in 2003 was $158. The net loss of $616
included depreciation and amortization of $107. Major sources of cash were a $25
decrease in accounts receivable, a $83 decrease in inventory, a $30 decrease in
prepaid expenses and a $57 increase in payables. Major uses of cash was a $77
decrease in accrued expenses.
Cash used by investing activities in 2004 was $47 to purchase equipment
primarily to improve productivity.
Cash used by investing activities in 2003 was $158 to purchase equipment to
improve productivity.
Cash used in financing activities in 2004 was $2. Cash was used to repay
long term debt.
Cash provided by financing activities in 2003 was $10. Borrowings were from
an unsecured note payable to Roulston Venture Capital L.P., a significant
shareholder.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2004 we had cash totaling $97,001. During 2003 we had a
line of credit with maximum borrowings of $500. This line of credit was paid off
and closed before December 31, 2003.
As of March 31, 2004 our current portion of long-term debt was $1,503,855,
which represents the principal portion of our debt that is due to be repaid by
March 31, 2005. These debt maturities will need to be extended or refinanced
during 2004, in order for us to be able to continue to fund operations and meet
our obligations. Profitable operations for the remainder of 2004 will be an
important factor in helping us to extend or refinance these obligations.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Capital spending for the rest of 2004 is currently estimated at between
$50,000 and $100,000 primarily for equipment needed to maintain operations.
At March 31, 2004 none of our borrowing arrangements contained financial
covenants, and we do not believe we were we subject to any unsatisfied
judgments, liens or settlement obligations.
We have experienced significant operating losses over the previous three
years. As a result, we have had cash flow and liquidity problems. We have taken
steps to reduce administrative overhead, employment levels and other expenses,
have instituted strict controls over granting credit to customers and have put
new sales policies and procedures into place. There can be no assurances that
these measures will enable us to become profitable or achieve positive cash flow
in the foreseeable future. We are also currently exploring additional long term
funding sources, including debt placement, stock issuance and other
alternatives.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
In this quarterly report, statements that do not report financial results
or other historical information are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements give current expectations or forecasts of future events and are not
guarantees of future performance. They are based on management's expectations
that involve a number of business risks and uncertainties, any of which could
cause actual results to differ materially from those expressed in or implied by
the forward-looking statements. You can identify these statements by the fact
that they do not relate strictly to historic or current facts. Words are used
such as "anticipate", "estimate", "project", "intend", "plan", "believe" and
other words and terms of similar meaning in connection with the discussion of
future operating of financial performance. In particular, these include
statements relating to future actions; prospective changes in manufacturing
costs, product pricing or product demand; future performance or results of
current and anticipated market conditions and market strategies; sales efforts;
expenses; the outcome of contingencies such as legal proceedings; and financial
results.
Factors that could cause actual results to differ materially include,
but are not limited to: (1) general economic, business and market conditions,
(2) actions by competitors, (3) the success of advertising or promotional
efforts, (4) trends within the building construction industry, (5) the existence
or absence of adverse publicity, (6) changes in relationships with the Company's
major customers or in the financial condition of those customers, (7) equipment
and operational problems, and (8) the adequacy of the Company's financial
resources and the availability and terms of any additional capital.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS (CONTINUED)
We cannot guarantee that any forward-looking statement will be
realized, although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risks, uncertainties and inaccurate
assumptions. Should known or unknown risks or uncertainties materialize, or
should underlying assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our Form 10-QSB, 8-K and 10-KSB reports to the Securities and
Exchange Commission. You should understand that it is not possible to predict or
identify all risk factors. Consequently, you should not consider any such list
to be a complete set of all potential risks or uncertainties.
-10-
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on April 21,
2004. At the Annual Meeting, the Company's stockholders elected the following
persons to serve as Directors of the Company for terms of one year or until
their successors are duly elected and qualified. Votes were cast as follows:
WITHHOLD
DIRECTOR NOMIEE FOR AUTHORITY ABSTAIN
---------------- --- --------- -------
Enzo Costantino 1,523,894 0 712
Glen Gasparini 1,523,894 0 712
John R. Male 1,252,394 0 212
Michael J. Meier 1,523,894 0 712
Timothy I. Panzica 1,524,394 0 212
Thomas H. Roulston II 1,523,894 0 712
Louis Stokes 1,523,994 0 612
No additional proposals were voted upon at the Annual Meeting.
For a description of the bases used in tabulating the above-references
votes, see the Company's definitive Proxy Statement used in connection with the
Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.1 Subordinated debenture issued to Independence Bank on
April 5, 2004
Exhibit 31 Certification of principal officer and principal
financial officer
Exhibit 32 Section 1350 Certification
(b) Reports on Form 8-K
None
-11-
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.
American Stone Industries, Inc.
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(Registrant)
Date: May 12, 2004 /s/ Russell Ciphers, Sr.
------------------------------------
Russell Ciphers, Sr., President and
Chief Executive Officer (Principal
Executive Officer and Principal
Financial Officer)
-12-