UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2005
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Commission File Number: 000-25947
NorMexSteel Inc.
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(Name of Small Business issuer in its Charter)
Florida 65-0386286
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
478 East Altamont Dr., Ste. 108, Altamonte Springs, FL 32701
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(Address of Principal Executive Offices) (Zip
Code)
705-739-9092
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
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
1
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference or any amendment to this Form 10-QSB. [ ]
The issuer is a developmental stage company, and as such has yet
to generate any substantial revenues.
The aggregate market value of the voting stock held by non-
affiliates of the registrant based on the closing bid price
November 21, 2005 was approximately $724,000,000.
As of November 21, 2005 the issuer had approximately 280,941,000
shares of common stock outstanding.
Documents incorporated by reference: NONE
Transition Small Business Disclosure Format (check one):
YES [ ] NO [X]
2
NorMexSteel, Inc.
Form 10-QSB Index
Page
Part I: Financial Information
Item 1. Financial Statements
Condensed Balance Sheet - September 30, 2005 1
Condensed Statements of Operations -
Three months ended September 30, 2005 and 2004 2
Condensed Statements of Operations -
Nine months ended September 30, 2005 and 2004 3
Condensed Statements of Cash Flows -
Nine months ended September 30, 2005 and 2004 4
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Item 3. Control and Procedures 14
Part II: Other Information
Item 1. Legal Proceedings 14
Item 2. Change in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
NorMexSteel, Inc.
(A Development Stage Company)
Condensed Balance Sheet
(Unaudited)
September 30, 2005
Assets
------
Current assets:
Cash $ 10,462
-----------
Total current assets $ 10,462
Property and equipment, net 2,996
-----------
Total assets $ 13,458
===========
Liabilities and Stockholders' Deficiency
----------------------------------------
Current liabilities:
Accounts payable $ 184,828
Accrued liabilities (note 6) 1,116,522
Due to related parties (note 5) 269,554
Note payable - related party (note 8) 155,000
Notes payable (note 7) 226,466
-----------
Total current liabilities 1,952,370
Stockholders' deficiency:
Preferred stock (note 4) 42,470
Common stock (note 4) 4,673,783
Deferred compensation (433,333)
Accumulated deficit (6,221,832)
-----------
Total stockholders' deficiency (1,938,912)
Total liabilities and stockholders'
deficiency $ 13,458
============
See accompanying notes to the condensed financial statements
1
NorMexSteel, Inc.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
Three Three
Months Months
Ended Ended
September 30, September 30,
2005 2004
------------- -------------
Gross Revenues $ - $ -
Cost of Sales - -
---------- ----------
Net revenue - -
Operating Expenses 299,897 52,086
---------- ----------
Loss from Operations (299,897) (52,086)
Other Income (Expenses):
Other income 85 2,122
Interest expense (9,910) (8,846)
---------- ----------
Total other income (expense) (9,825) (6,724)
---------- ----------
Net loss $ (309,722) $ (58,810)
========== ==========
Loss Per Common Share:
Basic and diluted $ (0.00) $ (0.02)
========== ==========
Weighted Average Common Shares
Outstanding:
Basic and diluted 280,951,811 2,723,806
=========== =========
See accompanying notes to the condensed financial statements.
2
NorMexSteel, Inc.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
Cumulative for
Nine Nine the period from
Months Months March 23,1999
Ended Ended (inception) to
September 30, September 30, September 30,
2005 2004 2005
------------- ------------- ---------------
Gross Revenues $ - $ - $ 45,744
Cost of Sales - - 264
----------- ----------- -----------
Net revenue - - 45,480
Operating Expenses 707,512 275,136 5,457,457
----------- ----------- -----------
Loss from Operations (707,512) (275,136) (5,411,977)
Other Income (Expenses):
Other income 1,475 56,366 219,657
Interest expense (29,359) (123,074) (489,485)
Impairment of assets - - (315,027)
Provision for loss on non-cancelable
lease - - (225,000)
----------- ----------- -----------
Total other income (expense) (27,884) (66,708) (809,855)
----------- ----------- -----------
Net loss $ (735,396) $ (341,844) $(6,221,832)
=========== =========== ===========
Loss Per Common Share:
Basic and diluted $ (0.00) $ (0.09)
=========== ===========
Weighted Average Common Shares
Outstanding:
Basic and diluted 220,300,097 4,044,122
=========== =========
See accompanying notes to the condensed financial statements
3
NorMexSteel, Inc.
And Subsidiary (A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
Cumulative for
Nine Nine the period from
Months Months March 23, 1999
Ended Ended (inception) to
September 30, September 30, September 30,
2005 2004 2005
----------- ----------- ------------
Cash flows from operating activities
Net loss $ (735,396) $ (341,844) $ (6,221,832)
Adjustments to reconcile net loss to net cash
used in operating activities
Forgiveness of related party note payable - - (59,088)
Depreciation and amortization 1,009 1,704 295,473
Loss on impairment of assets - - 315,027
Provision for loss on non-cancelable leases - - 225,000
Bad debt expense - - 42,000
Intrinsic value of stock options - - 500,000
Common stock issued for services 150,000 - 2,222,072
Amortization of deferred compensation - - -
Increase(decrease) in cash caused by changes in:
Other current assets 171 (171) -
Other assets - 80,000 -
Accounts payable (733) (8,644) 184,828
Accrued liabilities 351,904 150,980 1,119,078
Due to related parties 84,378 (48,866) 528,642
----------- ----------- ------------
Net cash used in operating activities (148,667) (166,841) (848,800)
----------- ----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment (2,200) (9,359) (279,199)
----------- ----------- ------------
Net cash used in investing activities (2,200) (9,359) (279,199)
Cash flows from financing activities
Repayment of note payable to related party - - (200,000)
Proceeds from issuance of preferred stock - - 49,000
Proceeds from issuance of capital stock - 160,174 1,056,348
Due to related parties - 2,247 (399,353)
Issuance of note receivable - - (42,000)
Payment for preferred stock - (32,000)
Repayment/proceeds of notes payable 155,000 - 706,466
----------- ----------- ------------
Net cash provided by financing activities 155,000 162,421 1,138,461
----------- ----------- ------------
Net increase (decrease) in cash $ 4,133 $ (13,779) $ 10,462
Cash at beginning of period 6,329 27,648 0
----------- ----------- ------------
Cash at end of period $ 10,462 $ 13,869 $ 10,462
=========== =========== ============
See accompanying notes to the condensed financial statements.
4
NorMexSteel, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
Cumulative for
Nine Nine the period from
Months Months March 23, 1999
Ended Ended (inception) to
September 30, September 30, September 30,
2005 2004 2005
----------- ----------- ------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ - $ - $ 33,495
=========== =========== ============
Non-Cash Activity:
Purchase of intangible assets from related party $ - $ - $ 399,353
Reduction of capital lease obligation upon =========== =========== ============
abandonment of assets $ - $ - $ 65,006
=========== =========== ============
Satisfaction of notes payable and accrued interest
by third party $ - $ - $ 487,500
=========== =========== ============
See accompanying notes to the condensed financial statements.
5
NorMexSteel, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
(1) Basis of Financial Statement Presentation and Going Concern
Basis of Financial Presentation
The accompanying unaudited condensed financial statements
of NorMexSteel, Inc. (the "Company") as of September 30,
2005 and for the cumulative period from March 23, 1999
(Inception) to September 30, 2005 have been prepared
in accordance with accounting principles generally
accepted in the United States of America for interim
financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission for
Form 10-QSB. Accordingly, the condensed financial
statements do not include all the information and notes to
the financial statements required by accounting principles
generally accepted in the United States of America for
complete financial statements. In the opinion of
management, the accompanying unaudited condensed financial
statements contain all adjustments (consisting of only
normal recurring adjustments) considered necessary for a
fair presentation of the financial position, results of
operations, and cash flows for the periods presented.
These results have been determined on the basis of
accounting principles generally accepted in the United
States of America and applied consistently with those
used in the preparation of the Company's financial
statements.
The results of operations for the interim period ended
September 30, 2005 is not necessarily indicative of the
results to be expected for the full year. These interim
financial statements should be read in conjunction with
the December 31, 2004 financial statements and related
notes included in the Company's Annual Report on Form 10-
KSB for the year ended December 31, 2004.
Going Concern
The accompanying condensed financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities
in the normal course of business. Due to its past
financial difficulties, the Company has accumulated debt,
including judgments and accrued interest, of approximately
$ 1,950,000 relating to its current and former lines of
business and maintains these on its balance sheet as
current liabilities. Interest on these balances is accruing
at a rate of approximately $10,000 per quarter as of
September 30, 2005. The Company is continuing in its efforts
to resolve these obligations and others through settlements.
However, there is no assurance that the Company will be
able to settle in terms agreeable to the Company and if it
does not do so, this will raise substantial doubt as to its
ability to continue as a going concern. As shown in the
condensed financial statements, the Company has incurred
cumulative losses of approximately $ 6,200,000 during its
development stage.
The Company's continuation as a going concern is uncertain
and dependent upon obtaining additional sources of
financing and achieving future profitable operations, the
outcome of which cannot be predicted at this time.
As a result of the recent acquisition of Grupo Industrial
N.K.S.,S.A, de CV ("NKS"), as described in note 3, the
Company's primary focus is operating the steel foundry
business in Mexico and looking for other complementary
businesses in Mexico, in support of the steel foundry
operations.
The condensed financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts
and classification of liabilities that may result from the
possible inability of the Company to continue as a going
concern.
6
Basis of Consolidation
The Company does not consolidate the financial position or the
statement of operations of its NKS subsidiary per guidance
provided by FAS 94. FAS 94, paragraph 4, precludes companies
from consolidating any majority owned subsidiaries "where control
is likely to be temporary, or where it does not rest with the
majority owners (as, for instance, where the subsidiary is in
legal reorganization or in bankruptcy)". NKS is in default of
many financial obligations, including bank loans, governmental
bodies, vendors, former employees and labor unions. Principals
with the Company are working diligently with a potential partner
to provide funding to satisfy these obligations and provide
working capital necessary to restart the foundry. Until such
point as the funding is completed and the financial obligations
are satisfied, management of the Company is unable to take
possession of the assets. Given this position, the Company does
not yet have control of the subsidiary and, therefore, does not
consolidate the results of NKS into its financial statements.
7
NorMexSteel, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
(2)Summary of Significant Accounting Policies
The accounting policies of the Company are in accordance with
U.S. GAAP and their basis of application is consistent with
that of the previous year.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standard Board
("FASB") issued Statement of Accounting Standards ("SFAS")
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No.
123R"). SFAS No. 123R requires the Company to measure the
cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of
the award. The cost of the employee services is recognized as
compensation cost over the period that an employee provides
service in exchange for the award. SFAS No. 123R will be
effective January 1, 2006 for the Company and may be adopted
using a modified prospective method or a modified
retrospective method. The Company has not yet completed an
analysis to quantify the exact impact the new standard will
have on its future financial performance. Depending upon the
extent to which the Company implements share-based
compensation plans, adoption of this statement could have a
material impact on the Company's future financial position
or results of operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-Monetary Assets - an amendment of the Accounting
Principles Board (APB) Opinion No. 29" (Statement 153). This
statement amends Opinion 29 to eliminate the exception for
non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. A
non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly
as a result of the exchange. The adoption of this standard
is not expected to have a material impact on the Company's
results of operations or financial position.
In March 2005, the FASB issued FASB Staff Position ("FSP")
No. 46(R)-5, "Implicit Variable Interests under FASB
Interpretation No. ("FIN") 46 (revised December 2003),
Consolidation of Variable Interest Entities" ("FSP FIN
46R-5"). FSP FIN 46R-5 provides guidance for a reporting
enterprise on whether it holds an implicit variable interest
in Variable Interest Entities ("VIEs") or potential VIEs when
specific conditions exist. This FSP is effective in the first
period beginning after March 3, 2005 in accordance with the
transition provisions of FIN 46 (Revised 2003),
"Consolidation of Variable Interest Entities - an
Interpretation of Accounting Research Bulletin No. 51" ("FIN
46R"). The adoption of this standard is not expected to have
a material impact on the Company's results of operations and
financial position.
8
NorMexSteel, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
(2)Summary of Significant Accounting Policies (cont'd)
In March 2005, the FASB issued Interpretation No. 47,
"Accounting for Conditional Asset Retirement Obligations"
("FIN 47"), which will result in (a) more consistent
recognition of liabilities relating to asset retirement
obligations, (b) more information about expected future cash
outflows associated with those obligations, and (c) more
information about investments in long-lived assets because
additional asset retirement costs will be recognized as part
of the carrying amounts of the assets. FIN 47 clarifies that
the term "conditional asset retirement obligation" as used in
SFAS 143, "Accounting for Asset Retirement Obligations,"
refers to a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within
the control of the entity. The obligation to perform the
asset retirement activity is unconditional even though
uncertainty exists about the timing and/or method of
settlement. Uncertainty about the timing and/or method of
settlement of a conditional asset retirement obligation
should be factored into the measurement of the liability when
sufficient information exists. FIN 47 also clarifies when an
entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. Retrospective application of
interim financial information is permitted but is not
required. Early adoption of this interpretation is
encouraged. The adoption of this standard is not expected to
have a material impact on the Company's results of operations
and financial position.
In May 2005, the FASB issued SFAS No. 154, "Accounting
Changes and Error Corrections" ("SFAS 154"), which replaces
Accounting Principles Board ("APB") Opinion No. 20,
"Accounting Changes", and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB
Opinion No. 28". SFAS No. 154 provides guidance on the
accounting for and reporting of changes in accounting
principles and error corrections. SFAS No. 154 requires
retrospective application to prior period financial
statements of voluntary changes in accounting principles and
changes required by new accounting standards when the
standard does not include specific transition provisions,
unless it is impracticable to do so. SFAS No. 154 also
requires certain disclosures for restatements due to
correction of an error. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005, and is required to
be adopted by the Company as of January 1, 2006. The impact
that the adoption of SFAS No. 154 will have on the Company's
results of operations and financial condition will depend on
the nature of future accounting changes adopted by the
Company and the nature of transitional guidance provided in
future accounting pronouncements.
9
NorMexSteel, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
(3) Acquisition of Grupo Industrial N.K.S., S.A., de CV
As of March 15, 2005, the Company has completed a transaction
resulting in the acquisition of 75% of all issued and
outstanding shares of NKS. The Company and stockholders of
NKS have mutually agreed that the Company will acquire 75% of
all the shares of NKS in exchange for 250,000,000 of the
Company's common restricted shares. NKS, a Mexican
corporation, is the owner of a steel mill foundry and other
assets in Lazaro Cardenas, Mexico. In addition, the Company
issued 30 million shares of common stock to an unrelated
party as a finder's fee. No value has been attributed to the
finder fee.
The Company does not consolidate the financial position or
the statement of operations of its NKS subsidiary, as
discussed in note 1.
(4)Capital Stock
(a) Common Stock
Authorized
1,000,000,000 shares September 30, 2005
Issued and outstanding ------------------
280,941,000 shares of common stock $ 4,673,783
------------------
During 2004 , the Company entered into an agreement with the
CFO whereby 200,000 common shares were granted for consulting
services at the inception of the agreement. The CFO is
entitled to a further 100,000 common shares at the end of the
second year of the term of the agreement and a further
100,000 common shares at the end of the third year of the
term of the agreement. For the three and nine months ended
September 30, 2005, $50,000 and $150,000 has been charged
as compensation expense included in Operating Expenses in the
accompanying condensed statements of operations.
On September 29, 2005 the Company's Board approved a 1:500
forward split after completing a 500:1 reverse stock split on
September 9, 2005 as approved by the majority of the
shareholders.
10
NorMexSteel, Inc.
And Subsidiary
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
(4) Capital Stock (cont'd)
(b) Preferred Stock
Authorized
150,000,000 September 30, 2005
Issued and outstanding ------------------
Series 2001 - 22,100 shares of preferred stock $ 42,470
Series 2001A -27,488,000 shares of preferred stock -
Series 2001B -30,000,000 shares of preferred stock -
-----------
Total 57,510,100 shares of preferred stock $ 42,470
-----------
(5)Related Party Transactions
The president, current and former principal stockholders, and
certain employees from time to time made advances or loans to
the Company. The advances and loans have been made for
financing and working capital purposes. At September 30,
2005, the total of such advances and loans, including accrued
interest, was $269,554.
The Company entered into an unsecured funding agreement with
Tropical Ventures/Cazador Enterprises, a shareholder of the
Company, whereby Tropical will lend the Company funds under
the following terms: interest on outstanding amounts of 10%
per annum payable to Cazador Enterprises, a 10% funding fee
paid to Tropical Ventures on any drawdown, and no fixed
repayment terms. As of September 30, 2005, the Company had
borrowed $155,000 less fees of $20,000 provided through this
agreement.
(6)Accrued Liabilities
Accrued expenses at September 30, 2005 consisted of the
following:
2005
----
Accrued lease obligations $ 395,996
Accrued interest 144,608
Accrued professional fees 235,918
Accrued salaries 340,000
--------------
$ 1,116,522
==============
(7) Notes Payable
The notes payable bear interest at rates that range between 9
and 12 percent per annum and are due on demand.
11
NorMexSteel, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
(8) Notes Payable - Related Party
The related party notes payable bears an interest rate of
10 percent per annum and has no fixed terms of repayment.
(9) Stock Options
During 2004, the Company established a stock option plan
under which options to purchase shares of common stock may be
granted to employees, directors, officers, agents,
consultants and independent contractors.
During November 2004, the Company granted 1,000,000 stock
options to the Company's Chief Financial Officer. The
options have an exercise price of $1.00, vest immediately,
and have a term of three years. At the grant date, these
options had an intrinsic value of $500,000. These options
remain outstanding at September 30, 2005, are fully
exercisable, and have a remaining term of 26 months.
(10) Income Taxes
The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes". SFAS No. 109
prescribes the use of the liability method whereby deferred
tax asset and liability account balances are determined based
on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates. The effects of future changes in tax laws or rates are
not anticipated.
Under SFAS No. 109 income taxes are recognized for the
following: a) amount of tax payable for the current year, and
b) deferred tax liabilities and assets for future tax
consequences of events that have been recognized differently
in the financial statements than for tax purposes.
For the nine month period ended September 30, 2005, the
Company had approximately $5,700,000 net operating loss carry
forwards for income tax reporting purposes, which can be
utilized to decrease the current year's income taxes. No tax
benefit was reported in the current period because the
Company believed that there was a 50% or greater chance the
carryforwards would expire unused. Accordingly, the
potential benefit of the loss carryforwards were offset by a
valuation allowance.
11) Commitments and Contingencies
Several creditors have taken legal action against the Company
due to defaulted debt and lease obligations. The judgments
total approximately $378,000. These amounts are included in
accrued liabilities as at September 30, 2005.
12
NorMexSteel, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
(12) Subsequent Transactions
The Company has signed a letter of intent with Global Steel
Holdings Ltd. ("GSH"), an Indian company with globally
diverse steel interests. The Company is still negotiating
with GSH to finalize the letter of intent.
GSH intends to purchase 50% of NorMexSteel's shares in NKS
and in turn provide a line of credit totaling $30 million to
settle debt and provide working capital for the facility.
On September 5, 2005, the Company signed a letter of intent
with Jamieson Enterprises Inc. ("JEI"), a builder of arenas
in North America to acquire 25% of each of ten facilities.
The Company is concluding its due diligence in support of the
acquisition and to consummate the transaction for which JEI
is to provide all the financing and selling of up to 75% of
the equity in each of the facilities for consideration of 100
million shares of the Company's common stock.
13
Item 2. Management Discussion and Analysis and Plan of Operation
-----------------------------------------------------------------
All statements contained herein that are not historical facts,
including but not limited to, statements regarding the
anticipated future capital requirements and future development
plans are based on current expectations. These statements are
forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the
factors that could cause actual results to differ materially are
the following: amount of revenues earned by the Company's
operations; the availability of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company;
general business and economic conditions; and other risk factors
described in the Company's reports filed from time to time with
the Commission. The Company wishes to caution readers not to
place undue reliance on any such forward looking
statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
Results of Operations
---------------------
Three Months Ended September 30, 2005 versus Three Months Ended
September 30, 2004.
We had no revenues for the three months ended September 30, 2005
and 2004. There is no assurance that we will any have revenues in
fiscal 2005. As we had no sales in this quarter, we had no cost
of sales for the quarters.
Operating expenses for the three months ended September 30, 2005
were $ 299,897 compared to $ 52,086 for the three months ended
September 30, 2004. Other income for the three months ended
September 30, 2005 was $ 85 as compared to other income of $
2,122 for three months ended September 30, 2004. Interest
expense was $ 9,910 for three months ended September 30, 2005
versus $ 8,846 for the three months ended September 30, 2004.
The Company's net loss for the three months ended September 30,
2005 was $ 309,722 as compared to a loss of $ 58,810 for the
three months ended September 30, 2004.
Nine Months Ended September 30, 2005 versus Nine Months Ended
September 30, 2004.
We had no revenues for the six months ended September 30, 2005
and 2004. There is no assurance that we will any have revenues in
fiscal 2005. As we had no sales in this period, we had no cost
of sales for this period.
Operating expenses for the nine months ended September 30, 2005
were $ 707,512 compared to $ 275,136 for the nine months ended
September 30, 2004. Other income for the nine months ended
September 30, 2005 was $ 1,475 as compared to other income of $
56,366 for the nine months ended September 30, 2004. Interest
expense was $ 29,359 for nine months ended September 30, 2005
versus $123,074 for the six months ended September 30, 2004.
The Company's net loss for the nine months ended September 30,
2005 was $ 735,396 as compared to a loss of $ 341,844 for the
nine months ended September 30, 2004.
14
Liquidity and Capital Resources
-------------------------------
On September 30, 2005, the Company had a working capital deficit
of approximately $ 1,950,000. Since its inception, the Company
has continued to sustain losses. The Company's operations since
inception have been funded by the sale of common and preferred
stock, and proceeds from both secured and unsecured loans. These
funds have been used for working capital and capital expenditures
and other corporate purchases. The Company has had losses of
approximately $ 6,200,000 since inception. The Company is seeking
financing through equity financing. There can be no assurance
that the Company will be able to obtain funding at terms
acceptable to the Company. These factors indicate that the
Company may not be able to continue as a going concern.
Recent Accounting Pronouncements
--------------------------------
In December 2004, the Financial Accounting Standard Board
("FASB") issued Statement of Accounting Standards ("SFAS")
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No.
123R"). SFAS No. 123R requires the Company to measure the
cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of
the award. The cost of the employee services is recognized as
compensation cost over the period that an employee provides
service in exchange for the award. SFAS No. 123R will be
effective January 1, 2006 for the Company and may be adopted
using a modified prospective method or a modified
retrospective method. The Company has not yet completed an
analysis to quantify the exact impact the new standard will
have on its future financial performance. Depending upon the
extent to which the Company implements share-based
compensation plans, adoption of this statement could have a
material impact on the Company's future financial position
or results of operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-Monetary Assets - an amendment of the Accounting
Principles Board (APB) Opinion No. 29" (Statement 153). This
statement amends Opinion 29 to eliminate the exception for
non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. A
non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly
as a result of the exchange. The adoption of this standard
is not expected to have a material impact on the Company's
results of operations or financial position.
In March 2005, the FASB issued FASB Staff Position ("FSP")
No. 46(R)-5, "Implicit Variable Interests under FASB
Interpretation No. ("FIN") 46 (revised December 2003),
Consolidation of Variable Interest Entities" ("FSP FIN
46R-5"). FSP FIN 46R-5 provides guidance for a reporting
enterprise on whether it holds an implicit variable interest
in Variable Interest Entities ("VIEs") or potential VIEs when
specific conditions exist. This FSP is effective in the first
period beginning after March 3, 2005 in accordance with the
transition provisions of FIN 46 (Revised 2003),
"Consolidation of Variable Interest Entities - an
Interpretation of Accounting Research Bulletin No. 51" ("FIN
46R"). The adoption of this standard is not expected to have
a material impact on the Company's results of operations and
financial position.
In March 2005, the FASB issued Interpretation No. 47,
"Accounting for Conditional Asset Retirement Obligations"
("FIN 47"), which will result in (a) more consistent
recognition of liabilities relating to asset retirement
obligations, (b) more information about expected future cash
outflows associated with those obligations, and (c) more
information about investments in long-lived assets because
additional asset retirement costs will be recognized as part
of the carrying amounts of the assets. FIN 47 clarifies that
the term "conditional asset retirement obligation" as used in
SFAS 143, "Accounting for Asset Retirement Obligations,"
refers to a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within
the control of the entity. The obligation to perform the
asset retirement activity is unconditional even though
uncertainty exists about the timing and/or method of
settlement. Uncertainty about the timing and/or method of
settlement of a conditional asset retirement obligation
should be factored into the measurement of the liability when
sufficient information exists. FIN 47 also clarifies when an
entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. Retrospective application of
interim financial information is permitted but is not
required. Early adoption of this interpretation is
encouraged. The adoption of this standard is not expected to
have a material impact on the Company's results of operations
and financial position.
In May 2005, the FASB issued SFAS No. 154, "Accounting
Changes and Error Corrections" ("SFAS 154"), which replaces
Accounting Principles Board ("APB") Opinion No. 20,
"Accounting Changes", and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB
Opinion No. 28". SFAS No. 154 provides guidance on the
accounting for and reporting of changes in accounting
principles and error corrections. SFAS No. 154 requires
retrospective application to prior period financial
statements of voluntary changes in accounting principles and
changes required by new accounting standards when the
standard does not include specific transition provisions,
unless it is impracticable to do so. SFAS No. 154 also
requires certain disclosures for restatements due to
correction of an error. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005, and is required to
be adopted by the Company as of January 1, 2006. The impact
that the adoption of SFAS No. 154 will have on the Company's
results of operations and financial condition will depend on
the nature of future accounting changes adopted by the
Company and the nature of transitional guidance provided in
future accounting pronouncements.
Off-Balance Sheet Arrangements
------------------------------
The Company does not maintain off-balance sheet arrangements nor
does it participate in non-exchange traded contracts requiring
fair value accounting treatment.
15
Item 3. Controls and Procedures
--------------------------------
In accordance with Exchange Act Rules 13a-15 and 15d-15, the
Company's management carried out an evaluation with the
participation of the Company's Chief Executive Officer and Chief
Financial Officer, its principal executive officer and principal
financial officer, respectively, of the effectiveness of the
Company's disclosure controls and procedures as of the end of the
period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded as
of the end of the period covered by this Form 10-QSB that the
Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the
Company required to be included in periodic reports filed under
the Securities Exchange Act of 1934, as amended. There were no
changes in the Company's internal controls over financial
reporting identified in connection with the evaluation by the
Chief Executive Officer and Chief Financial Officer that occurred
during the Company's fourth quarter that have materially affected
or are reasonably likely to materially affect the Company's
internal controls over financial reporting.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
--------------------------
Due to our financial difficulties, we defaulted on a number of
debt and lease obligations. We have several judgments totaling
approximately $378,000 that were entered against us. We are
currently trying to resolve these obligations through
settlements. However, there is no assurance that we will be able
to settle on terms favorable to us and if we are unable to do so,
this will have a material adverse affect on our ability to
operate properly in the future.
On May 3, 2004, we received a letter from Pedro Fenando Arizpe
Carreon, a shareholder of Grupo Industrial NKS, S.A. DE C.V.
("NKS"), addressed to Montague Securities International, Ltd.,
the escrow agent for the transaction by which we acquired 75% of
the outstanding shares of capital stock of NKS. Mr. Carreon
alleged that we had breached the Purchase Agreement. We have
denied any breach of the purchase agreement and have advised Mr.
Carreon in writing of this fact. On August 8, 2005, Normexsteel
filed a civil complaint, in Broward County, Florida, against Mr.
Carreon and Grupo Industrial NKS alleging breach of contract and
tortuous interference with a business relationship and requested
the court to order temporary and permanent injunctive relief,
declaratory judgment and monetary damages for the alleged
interferences.
16
Item 2. Change in Securities
-----------------------------
On September 10, 2004, the holders of a majority of the Company'
outstanding voting shares executed a written consent amending the
Company's Articles of incorporation to increase the total number
of authorized shares of the Company's Common Stock from
500,000,000 to 1,000,000,000.
As of March 15, 2005, the Company completed a transaction
resulting in the acquisition of 75% of all issued and outstanding
shares of Grupo Industrial N.K.S., S.A., de CV ("NKS") in
exchange for 250,000,000 of the Company's common restricted
shares. NKS, a Mexican corporation, is the owner of a steel mill
foundry and other assets in Lazaro Cardenas, Mexico.
On September 29, 2005 the Company's Board approved a 1:500
forward split after completing a 500:1 reverse stock split on
September 9, 2005 as approved by the majority of the
shareholders.
Item 3. Defaults Upon Senior Securities
----------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
Not applicable
Item 5. Subsequent Events
---------------------------
The Company has signed a letter of intent with Global Steel
Holdings ("GSH"), an Indian company with globally diverse steel
interests. The letter of intent has been extended to August 31,
2005, as noted in the most recent press release. As of November
17, 2005, the parties are still negotiating the agreement. GSH
intends to purchase 50% of NorMexSteel's shares in Grupo NKS and
in turn provide a line of credit totaling $60 million to settle
debt and provide working capital for the facility.
The Company executed an agreement with a principal shareholder to
change the payment terms of a consulting agreement from a monthly
fee to 10,000,000 shares of common stock. The effect of this
transaction will be to eliminate a liability of $340,000 as of
September 30, 2005 and to receive the services in the future with
no cash obligations on the Company's part.
17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Index of Exhibits
31. Rule 13a-14(a)/15d-14(a) Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32. Section 1350 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On September 28, 2005, the Company filed a current report
on Form 8-K in connection with the resignation of Tedder, James,
Worder & Associates, P.A. as the Registrant's Certifying
Accountants, effective August 31, 2005.
SIGNATURES
NorMexSteel Inc.
By /s/James Wolff
------------------------
James Wolff, President
Date: November 22, 2005
18