Attached files
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EX-31.2 - EXHIBIT 31.2 - ALLOY STEEL INTERNATIONAL INC | ex31_2.htm |
EX-32.1 - EXHIBIT 32.1 - ALLOY STEEL INTERNATIONAL INC | ex32_1.htm |
EX-31.1 - EXHIBIT 31.1 - ALLOY STEEL INTERNATIONAL INC | ex31_1.htm |
EX-32.2 - EXHIBIT 32.2 - ALLOY STEEL INTERNATIONAL INC | ex32_2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
S ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended September 30, 2009
¨ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ______ to ______
Commission
File Number 000-32875
ALLOY
STEEL INTERNATIONAL, INC.
(Name of
small business issuer in its charter)
Delaware
|
98-0233941 |
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
42
Mercantile Way
|
|
P.O.
Box 3087 Malaga D C 6945
|
|
Western
Australia
|
|
(Address
of principal executive offices)
|
|
Issuer’s
telephone number: +61 (8) 9248 3188
|
|
Securities
registered under Section 12(b) of the Exchange Act:
|
None
|
Securities
registered under Section 12(g) of the Exchange Act:
|
Common
stock, $0.01 par value
|
Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes: ¨ No: S
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes: ¨ No: S
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the preceding 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: S
No: ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes: ¨ No: ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K.
S
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer”, “non-accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller
reporting company S
|
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act).
Yes:
¨ No: S
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 31,
2009 was $1,440,166.
As of
December 23, 2009, the issuer had a total of 17,350,000 shares of common stock
outstanding.
2
PART
I
FORWARD-LOOKING
STATEMENTS
Information
included or incorporated by reference in this filing may contain forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and
describe our future plans, strategies and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of
these words or other variations on these words or comparable
terminology.
This
filing contains forward-looking statements, including statements regarding,
among other things, (a)
Alloy Steel’s projected sales and profitability, (b) Alloy Steel’s growth
strategies, (c) anticipated trends in Alloy Steel’s industry segment, (d) Alloy
Steel’s future financing plans and (e) Alloy Steel’s anticipated needs for
working capital. These statements may be found under “Management’s Discussion
and Analysis or Plan of Operation” and “Description of Business,” as well as in
this filing generally. Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors. In light of these risks and uncertainties, there can be no
assurance that the forward-looking statements contained in this filing will in
fact occur. In addition to the information expressly required to be
included in this filing, Alloy Steel will provide such further material
information, as may be necessary to make the required statements, in light of
the circumstances under which they are made, not
misleading.
Item
1.
|
Description
of Business.
|
Alloy
Steel International, Inc. was incorporated in Delaware in May
2000. Our principal executive office is located at 42 Mercantile Way,
Malaga, Western Australia 6945. Our telephone number is +61 (8) 9248
3188, our facsimile is +61 (8) 9248 3166. Our Email is
info@alloysteel.net and our Internet address is www.alloysteel.net. Our
registered office is at Level One, 252 Cambridge Street, Wembley, Western
Australia, 6014.
Overview
of Business
We
manufacture and distribute Arcoplate, a wear-resistant alloy overlay wear plate
produced through a patented process. We believe that wear is the
largest single factor leading to production losses in the mining,
mineral-processing, and steel manufacturing industries. Consequently, wear
solutions are indispensable for these businesses. The wearing of
metal parts is generally defined as a gradual decay or breakdown of the
metal. This wear of equipment may be due to many causes and
accordingly, the selection of wear plate solutions can be a complex
process.
In order
to minimize the effects of wear, businesses have traditionally employed such
wear-combating materials as rubber compounds, ceramics, alloy castings, welded
overlay plates, and quenched and tempered carbon steel plates. We
believe that each of these materials offer a limited solution to the problem of
wear. While tungsten carbide is generally recognized by the mining,
mineral-processing and steel manufacturing industries as the most wear-resistant
material suitable for industrial use, because of its high carbide content, we
believe that the high costs associated with tungsten carbide make it impractical
for most businesses. We believe that Arcoplate provides industry with
solutions to most wear-related problems at a cost which is competitive with
conventional welded overlay wear plates and substantially lower than that of
tungsten carbide.
Arcoplate
The
patented process by which we manufacture Arcoplate enables us to smoothly and
evenly apply an alloy 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. Because of the formulation and nature of
the alloy apart from wear reducing factors, Arcoplate has been proven to reduce
‘hang-up’ by more than 90%. ‘Hang up’ is where a residual load is
left attached to the bucket, blade or a chute side, therefore reducing the
effective load carried or material transported in the chute. We
believe that our Arcoplate product line will substantially lower down time and
the lost production resulting from this down time and generate higher profits by
the reduction of ‘hang-up’ allowing more complete loads to be
carried.
1
Conventional
welded wear plates have been used in the manufacturing, mining and construction
industries for more than half a century and they are characterized by several
functional limitations:
|
·
|
the
tendency to separate into chips or fragments when subjected to high
impact;
|
|
·
|
uneven
base metal dilution resulting in uneven alloy content;
and
|
|
·
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rough
surfaces which result in poor material
flow.
|
Independent
laboratory and field tests, have shown that Arcoplate provides a wear-resistant
barrier superior to that provided by conventional single or multiple-layer wear
plates. This is because of its higher carbide content and smoother
surface layer; Arcoplate wear plate sheets also can withstand rolling and
pressing, within specified fabrication guidelines.
The
claims with respect to the properties of Arcoplate, such as bond strength,
specific hardness, density, hardness, resonance and wear resistance, have been
subjected to studies and testing, by independent laboratories, universities and
other recognized testing facilities, including Aust-Amet Pty Ltd and Central
Power Research Institute of Bangalore India. Commercial fees were paid to
Aust-Amet Pty Ltd while no fees were paid to the Power Research Institute of
Bangalore and the National Research Council of Canada.
Arcoplate
is designed for installation and use where structures and machinery suffer
“wear” and “hangup” problems. Common situations are:
|
·
|
the
mining of iron, gold, nickel, coal, copper and other
ores;
|
|
·
|
brick
and cement works;
|
|
·
|
power
stations;
|
|
·
|
the
manufacture of ore feed bins, transfer chutes, dredging systems and
conveyor side skirts;
|
|
·
|
bulldozer
blades; and
|
|
·
|
truck
tray and bucket loader liners.
|
Arcoplate
is manufactured in a range of grades and thicknesses designed for specific
applications. Our products are designed for ease of handling and can
be fabricated to suit our customers’ specific requirements of shape, size and
weight. Sheets of Arcoplate can be welded together to cover large
surface areas. We also provide technical consultation services to
customers and their design engineers.
We
believe that our proprietary method of manufacturing Arcoplate results in a
product that has many technical advantages over conventional welded wear
plates. Conventional welded wear plates are generally characterized
by structural weaknesses and limited wear resistance resulting from inefficient
production methods. In order to achieve a wear-resistant, flat
surface, a conventional wear plate must be rolled and pressed after its layers
of hardfacing have been welded together. This post-production rolling
and pressing can result in a weakened surface structure that cannot withstand
high impact conditions. The Arcoplate process does not require
post-production rolling and pressing. During the Arcoplate process,
the plate is coated with the desired alloy thickness in one application,
resulting in a uniform and, therefore, structurally sound
surface. The Arcoplate process maintains a high carbide content in
the overlay, which makes the plate more wear resistant than conventional welded
wear plate.
Arcoplate
products are currently distributed to customers in the United States, South
America, India, Indonesia, Singapore, South Africa, Japan, China, Canada,
Malaysia and other countries as well as being very extensively used in the
mining industry in Australia.
New
Arcoplate Mill & “Super Alloy” thicker
Arcoplate
The new
Arcoplate machine was designed specifically for the production of the new “Super
Alloy” formulation and thicker sizes of wear plate (up to 20/11
thickness).
2
This mill
commenced commercial production late July 2009.
The new
mill is the only one in the world capable of producing a bi-metallic fused
“Super Alloy” wear plate in a thickness of application of up to 20mm (just over
¾ of an inch) in a single continuous casting operation.
The
conventional method used to produce a hard surface overlay is by a welding
method which can only achieve a weld surface which at best is ¼ inch or 6mm
thick in a single pass and is flawed with major quality technical
limitations.
The new
AYSI technology has overcome all the known technical difficulties and is capable
of fusing a 20mm layer of super wear resistant alloy onto a ½ inch or 12mm steel
backing plate.
This is a
significant technological breakthrough which will see this plate be specified
consistently in new mining projects and become the norm for replacements in
upgrades for existing mining operations.
Sales
and Marketing Strategy
The
company’s objective is to become an international market leader in
wear-resistant alloy steel products and solutions and to establish significant
market share and brand awareness for Arcoplate. We believe that we
can capitalize on our existing patented process for producing Arcoplate through
the direct manufacture and sale of Arcoplate-based products to original
equipment manufacturers and distributors worldwide. We are
establishing market presence by visiting international and domestic trade shows,
presenting technical papers at industry conferences, and appointing
international distributors who will be trained to introduce and promote
Arcoplate products as a solution for wear-related problems.
In the
year ended September 30, 2009, two customers accounted individually for at least
28.3% of our annual sales.
We
anticipate incurring increased expenditures in connection with our marketing
activities. Our marketing activities are also expected to include
substantial engineering support to assist in the development of products for
specific customer requirements and certain market segments.
We are
marketing Arcoplate products to consultant engineers both internationally and in
Australia in order that they may ultimately incorporate Arcoplate materials into
their equipment and plant designs. We will offer the services of our
own engineering department to assist these engineers with design planning to
optimize solutions for wear and material flow applications.
Intellectual
Property
We
believe that protection of our licensed proprietary technology and know-how is
critical to the development of our business. We have obtained patents
for the process in United States, Mexico, Brazil, Canada, Japan, Burma, South
Korea, Australia, France, Germany, Great Britain, Greece, Italy, Belgium,
Netherlands and Sweden. We cannot assure you that our existing patent
rights, or any other patent rights that may be granted, will be valid and
enforceable or provide us with meaningful protection from
competitors. We cannot assure you that any pending patent application
will issue as a patent, or that any claim thereof will provide protection
against infringement. If our present or future patent rights are
ineffective in protecting us against infringement, our marketing efforts and
future revenues could be materially and adversely affected. In
addition, if a competitor were to infringe our patent rights, the costs of
enforcing our patent rights may be substantial or even prohibitive.
Research
and Development
We are
continually engaged in the development of new products and improvements to our
existing products.
Manufacturing
and Supply
The raw
materials we employ are principally steel and a proprietary alloy
compound. We presently purchase steel plate and alloy materials from
various suppliers. Four of our suppliers, Metals & Powders
Trading AB, One Steel Wire Pty Ltd, LDL Australia Pty Ltd and Seven Steel
Distribution account for more than 60% of the raw material we
require. We also rely heavily on the use of fluxes, compounds
designed to remove impurities, during the manufacturing process. We
purchase our requirements for fluxes from various suppliers. We
cannot assure you that we will be able to continue to obtain desired quantities
of steel, alloy materials and fluxes on a timely basis at reasonable prices and
upon favorable terms. We monitor the quality of our products by
regular testing, material certification, and maintain a strict internal quality
control system to monitor the quality of production.
3
Government
Regulation
The
Arcoplate manufacturing plant is subject to many Australian laws and regulations
relating to the protection of the environment. These laws and
regulations impose requirements concerning, among other matters, the treatment,
acceptance, identification, storage, handling, transportation and disposal of
industrial by-products, hazardous and solid waste materials, waste water, air
emissions, noise emissions, soil contamination, electromagnetic radiation,
surface and groundwater pollution, employee health and safety, operating permit
standards, monitoring and spill containment requirements, zoning, and land
use. We frequently examine ways to minimize any impact on the
environment and to effect cost savings relating to environmental
compliance. Our management believes that we are in material
compliance with all applicable environmental laws and that our products and
processes do not present any unusual environmental concerns.
Our
operations are also governed by laws and regulations relating to workplace
safety and health, principally under the Australian Occupational Safety and Health
Act (WA) 1984, which, among other requirements, establish employee
training, supervision and general safety standards. Our management
believes that we are in material compliance with all applicable workplace safety
and health laws and that our products and processes do not present any unusual
safety concerns.
We
require, and must comply with, various authorizations, permits and licenses to
conduct our operations. Government agencies continually monitor our
compliance with authorization, permits and licenses and our facilities are
subject to periodic unannounced inspection by local, state and federal
authorities. Violations of any permit or license, if not remedied,
could result in our incurring substantial fines, or suspension of our
operations.
Competition
The wear
solutions industry is highly competitive. We compete and will
continue to compete in markets against larger multi-national companies, all of
which are well-established and may have substantially greater financial and
other resources than us. Competitive market conditions could
adversely affect our profit levels if we were required to reduce product prices
to remain competitive. We are, however, confident that the continuing
development of our alloys and subsequently our product range will allow us to
hold and increase our presence in the market place.
Employees
We
employed 38 persons on a full-time basis as of December 1, 2009, including two
executive directors, fourteen administrative personnel, three marketing
personnel and nineteen manufacturing personnel. We consider our
relationship with our employees to be good.
Item
1A.
|
Risk
Factors.
|
Alloy
Steel is subject to various risks that may materially harm our business,
financial condition and results of operations. You should carefully consider the
risks and uncertainties described below and the other information in this filing
before deciding to purchase our common stock. These are not the only
risks and uncertainties that we face. If any of these risks or
uncertainties actually occurs, our business, financial condition or operating
results could be materially harmed.
4
If
We Are Unable To Effectively Manage Our Plan of Expansion, We Will Not Achieve
Profitability.
We plan
to expand all aspects of our operations. As a result, we need to
expand our financial and management controls, reporting systems and
procedures. We will also have to expand, train and manage our work
force for marketing, sales, engineering and technical support, product
development, and manage multiple relationships with various customers, vendors,
strategic partners and other third parties. We will need to
continually expand and upgrade our technology and develop new
products. If we are unable to manage our growth effectively, we may
be unable to handle our operations, control costs or otherwise function in a
profitable manner, or at all.
If
We Are Unable To Protect Our Proprietary Technology, We Could Lose Our
Competitive Advantage.
We
currently have only limited patent protection for our technology, and may be
unable to obtain even limited protection for our proprietary technology in
certain foreign countries. Currently, we have patents in various
countries. We cannot assure you that any granted patent or pending
patent application will provide protection against infringement.
If
We Do Not Correctly Anticipate the Magnitude and Direction of Currency Exposure,
There Could Be A Material Adverse Impact On Our Prospects for
Profitability.
All of
our production will take place overseas, and many of the raw materials and
supplies for our products will be purchased in foreign currencies. In
addition, international sales will likely be denominated in local
currencies. These factors may combine to expose us to currency gains
and losses in addition to gains and losses from our basic
operations. The magnitude and direction of future currency exposure
cannot be predicted, nor can we assure you that we will be able to manage such
exposure to our benefit or to a neutral effect.
Our
Business Would Be Materially and Adversely Affected If We Were Unable To Receive
Materials At Prices and On Terms Presently Made Available To Us By Our Principal
Suppliers.
We
presently purchase our principal raw materials, steel and alloy compound
components, from a limited number of suppliers. There are no written
contracts between us and our suppliers, and requirements are purchased using
individual purchase orders, with customary terms regarding payment, quality and
delivery. Although we believe that alternatives are readily available
from other suppliers, we cannot assure you that we will be able to continue to
obtain desired quantities of materials on a timely basis at prices and on terms
deemed reasonable by us. Our business would be materially and
adversely affected if we are unable to continue to receive materials at prices
and on terms comparable to those presently made available to us by our principal
suppliers.
Since
We Depend Heavily Upon Electrical Power for Our Operations, Any Increase In
Prices Would Adversely Affect Our Business and Profitability.
We
consume a large amount of electrical power during production. The
amount of electrical power consumed during the Arcoplate process represents
approximately 3% of our overall production costs. There may be
fluctuations in the price of electricity due to changes in the regulation of
utility companies in Australia, and in other jurisdictions where we may engage
in production. We cannot assure you that we will be able to continue
to obtain our energy supplies at current prices, and any material increase in
prices of electricity would adversely affect our business and
profitability.
Our
Common Stock May Be Affected By Limited Trading Volume and May Fluctuate
Significantly.
There has
been a limited public market for our common stock and there can be no assurance
that an active trading market for our common stock will develop. As a
result, this could adversely affect our shareholders’ ability to sell our common
stock in short time periods, or possibly at all. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations, which could adversely affect the market price of our common
stock without regard to our operating performance. In addition, we
believe that factors such as quarterly fluctuations in our financial results and
changes in the overall economy or the condition of the financial markets could
cause the price of our common stock to fluctuate substantially.
5
We
May Need To Raise Additional Capital To Finance Operations or
Expansion.
We have
relied on significant external financing to fund our operations. Such
financing has historically come from a combination of borrowings from and sale
of common stock to third parties and funds provided by certain officers and
directors. We cannot assure you that financing whether from external
sources or related parties will be available if needed or on favorable
terms. The sale of our common stock to raise capital may cause
dilution to our existing shareholders. Our inability to obtain
adequate financing will result in the need to reduce or curtail our business
operations. Any of these events would be materially harmful to our
business and may result in a lower stock price.
We
Have A Limited Customer Base.
At
present, our customer base consists primarily of companies involved in the
mining and similar industries. Our ability to operate depends on
increasing our customer base and achieving sufficient gross profit
margins. We cannot assure you that we will be able to increase our
customer base or to operate profitably. If any of our major customers
stop or delay its purchases of our products, our revenue and profitability could
be adversely affected. For the year ended September 30, 2009, two
customers accounted for at least 28.3% of our annual sales. We
anticipate that sales of our products to relatively few customers will continue
to account for a significant portion of our revenue. If these
customers cancel or delay their purchase orders, our revenue may
decline. We cannot assure you that our current customers will
continue to place orders with us, that orders by existing customers will
continue at the levels of previous periods or that we will be able to obtain
orders from new customers. Although our financial performance depends
on large orders from key customers and resellers, we do not have binding
commitments from any of them.
Our
Common Stock Is Deemed To Be “Penny Stock”, Which May Make It More Difficult for
Shareholders To Sell Their Shares Due To Suitability Requirements.
Our
common stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:
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·
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With
a price of less than $5.00 per
share;
|
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·
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That
are not traded on a “recognized” national
exchange;
|
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·
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Whose
prices are not quoted on the Nasdaq automated quotation system (Nasdaq
listed stock must still have a price of not less than $5.00 per share);
or
|
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·
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In
issuers with net tangible assets less than $2.0 million (if the issuer has
been in continuous operation for at least three years) or $5.0 million (if
in continuous operation for less than three years), or with average
revenues of less than $6.0 million for the last three
years.
|
Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult
for our shareholders to resell shares to third parties or to otherwise dispose
of them. This could cause our stock price to decline.
We
Face Significant Competition Within Our Market.
We expect
competition to persist and intensify in the future as new products and
manufacturers enter the market. The wear plate solutions industry is highly
competitive.
Many of
our competitors are substantially larger than Alloy Steel and have significantly
greater financial, marketing, technical and manufacturing resources with more
established distribution channels. These competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and sale
of their products than we can. Furthermore, some of our competitors
may make strategic acquisitions or establish cooperative relationships to
increase their ability to rapidly gain market share by addressing the needs of
our prospective customers. These competitors may enter our existing
or future markets with solutions that may be less expensive, provide higher
performance or additional features or be introduced earlier than our
solutions. If any technology is more reliable, resistant, and less
expensive or has other advantages over our technology, then the demand for our
products and services would decrease, which would seriously harm our
business.
6
We expect
our competitors to continue to improve the performance of their current products
and introduce new products and technologies as industry standards and customer
requirements evolve. These new products and technologies could
supplant or provide lower cost alternatives to our products. To be
competitive, we must continue to invest resources in research and development,
sales and marketing, and customer support.
Increased
competition is likely to result in price reductions, reduced gross margins,
longer sales cycles, and loss of market share, any of which would seriously harm
our business and results of operations.
We
Have Limited Marketing and Sales Capability.
In order
to increase our revenues, we are in the process of further implementing
marketing and sales force with technical expertise and marketing
capability. There can be no assurance that we will be able
to:
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·
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Establish
and develop such a sales force;
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·
|
Gain
market acceptance for our products;
|
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·
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Obtain
and retain qualified sales personnel on acceptable terms;
and
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·
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Meet
our proposed marketing schedules or
plans.
|
To the
extent that we arrange with third parties to market our products, the success of
such marketing will depend on the efforts of these third parties.
Item
1B.
|
Unresolved
Staff Comments.
|
There are no unresolved comments
received by the company from Commission Staff.
Item
2.
|
Description
of Property.
|
Our
business is conducted from leased premises located at 42 Mercantile Way Malaga
Western Australia.
This
lease is due for renegotiation prior to the end of June 2010. The
lessor has indicated that a renewal will be granted on favorable
terms.
In
addition, the Company holds the right to use an area of 20 hectares of land in
Mongolia, defined by reference to cadastral maps, for a period expiring on June
3, 2023.
Item
3.
|
Legal
Proceedings.
|
There are
no material legal proceedings pending or, to our best knowledge, threatened
against us.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
We held
our Annual Meeting of Stockholders on August 31, 2009 at which the following
resolutions were put and carried unanimously:
To
appoint Mr Gene Kostecki and Mr Alan Winduss as directors of the Company for the
ensuing year.
To
confirm continuing appointment of UHY Haines Norton as the Company’s auditors
for the ensuing year.
7
PART
II
Item
5.
|
Market
for Common Equity and Related Stockholders Matters and Issuer Purchases of
Equity Securities
|
Our
common stock is traded on the Over the Counter Bulletin Board. The following
table sets forth the range of high and low bid quotations for our common stock
for each calendar quarter within the last two years.
Bid
Price Per Share
|
||||||||
Year
ended September 30, 2009
|
High
|
Low
|
||||||
October 1
– December 31, 2008
|
$ | 1.36 | $ | 0.35 | ||||
January 1
– March 31, 2009
|
$ | 0.52 | $ | 0.26 | ||||
April 1
– June 30, 2009
|
$ | 0.48 | $ | 0.23 | ||||
July 1
– September 30, 2009
|
$ | 2.85 | $ | 0.32 | ||||
Year
ended September 30, 2008
|
High
|
Low
|
||||||
October 1
– December 31, 2007
|
$ | 0.72 | $ | 0.49 | ||||
January 1
– March 31, 2008
|
$ | 1.97 | $ | 1.22 | ||||
April 1
– June 30, 2008
|
$ | 2.50 | $ | 1.25 | ||||
July 1
– September 30, 2008
|
$ | 2.76 | $ | 1.35 |
The above
prices were obtained from Nasdaq, Inc. The quotations represent
inter-dealer quotations, without retail mark-up, markdown or commission, and may
not necessarily represent actual transactions.
As of
December 3, 2009, there were approximately 130 holders of record of our common
stock.
Our Board
of Directors may from time to time declare, and we may pay, dividends on our
outstanding shares in the manner and upon the terms and conditions provided by
law. To date, we have not declared or paid any dividend.
8
Equity
Compensation Plans
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
(a)
|
(b)
|
(c)
|
|
Equity
compensation plans approved by security holders (1)
|
None
|
None
|
2,000,000
|
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
Total
|
None
|
None
|
2,000,000
|
(1)
Includes our 2000 Stock Option Plan.
Item
6.
|
Selected
Financial Data
|
Not applicable
Item
7.
|
Management's
Discussion and Analysis or Plan of
Operation
|
You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our financial statements, the notes to
our financial statements and the other financial information contained elsewhere
in this filing.
Overview
We
manufacture and distribute Arcoplate, a wear-resistant alloy overlay wear plate,
through a patented production process. This patented process by which
we manufacture Arcoplate enables us to smoothly and evenly apply an alloy
overlay to a sheet of mild steel, creating a metallurgical bond between the
alloy and the steel backing plate that is resistant to wear caused by impact
and/or abrasion. We believe that in the mining processing industries,
wear is the primary cause of down time, the period of time where machinery is
not in operation because of the necessity of repairs or
refurbishment. We believe that our Arcoplate product line will
substantially lower down time and the resulting lost production.
Plan
of Operation
We
intend to achieve market penetration through a multi-step process. In
Australia, we intend to combine targeted marketing with advertising in trade
journals and magazines. At the international level, we intend to
establish market presence by visiting international trade shows, presenting
technical papers at industry conferences, and appointing distributors who will
be trained to introduce and promote Arcoplate products as a solution for
wear-related problems. Where appropriate, we will commence our own
operations or enter into joint ventures with suitable parties in order to
achieve market presence in certain geographical locations. We are
presently looking at the feasibility of manufacturing Arcoplate in certain
overseas locations.
9
Results
of Operations
Sales
Alloy
Steel had sales of $8,819,217 for the year ended September 30, 2009, compared to
sales of $13,511,458 for the year ended September 30, 2008. These
sales consist solely of the sale of our Arcoplate
product. Substantially all of our sales during the periods were
denominated in US dollars. Sales denominated in Australian dollars
were converted into U.S. dollars at the conversion rate of $0.73309 and
$0.90762, representing the average foreign exchange rate for the years ended
September 30, 2009 and 2008 respectively. The decrease in sales is a
direct effect of the global financial recession, whereby mining companies
dramatically reduced operational expenditure on refurbishment and
expansion. We have in the last quarter of this fiscal year seen a
turnaround in the market and consequently an increase in orders both in
Australia and internationally.
Cost
of Sales
Alloy
Steel had cost of sales of $5,747,172 for the year ended September 30, 2009,
compared to cost of sales of $6,541,427 for the year ended September 30,
2008. The gross profit amounted to $3,072,045 compared to $6,970,031
for the year ended September 30, 2008. The gross profit percentage
decreased to 34.8% in 2009 from 51.6% in 2008 due to the adoption of more
favorable pricing policies for larger orders and tenders during the year, this
was caused by all the companies in the industry chasing limited orders and
purchasers shopping on price not necessarily quality. The gross
profit and subsequent operating profit has been affected by the expensing as
required under US GAAP of the materials consumed in the testing and tuning of
the new mill. This would amount approximately to
$900,000.
In the
last quarter of the year, we saw the beginnings of an upturn in the market place
and as previously announced, secured a Strategic Supply Agreement with BHP
Billiton.
Selling,
General and Administrative Expenses
Alloy
Steel had selling, general and administrative expenses of $3,056,352 for the
year ended September 30, 2009, compared to $3,359,311 in the year ended
September 30, 2008. The decrease was primarily due to the reduced marketing and
promotional activity of the company during the year ending September 30, 2009 in
line with current economic conditions.
Income
(Loss) Before Income Tax Expense (Benefit)
Our
income before tax expense was $60,652 for the year ended September 30, 2009,
compared to $3,734,710 for the year ended September 30, 2008. The
gross profit and subsequent operating profit has been affected by the reduction
in sales experienced as a result of the global financial crisis, a reduction in
margins on sales of product in order to win contracts for supply of our product
in preference to competitors, and the expensing as required under US GAAP of the
materials consumed in the testing and tuning of the new mill.
Income
Tax Expense (Benefit)
Alloy
Steel had income tax expense of $138,509 for the year ended September 30, 2009
compared to $1,164,368 for the year ended September 30, 2008. The
current year’s income tax expense relates to taxes payable in
Australia.
Net
Income (Loss)
We had a
net loss of ($72,255) or ($0.004) per share, for the year ended September 30,
2009, compared to $2,572,479 or $0.15 per share for the year ended September 30,
2008.
10
Liquidity
For the
year ended September 30, 2009, net cash provided by operating activities was
$195,074. The net income may be reconciled to this amount by an
adjustment for depreciation and amortization of $187,877, income received in
forms other than cash of $5,129, non-controlling shareholders interests in
subsidiary loss of $5,602 and an increase in cash and cash equivalents
attributable to changes in operating assets and liabilities of $90,183, which
consisted primarily of an increase in accounts payable and other current
liabilities of $1,918,607 and an increase in tax receivable of $833,490, which
was offset by decreases in inventory of $147,633 and in accounts receivable and
other current assets of $1,142,567.
Future
cash flows from sales are anticipated to be sufficient to sustain the Company’s
operations. The Company is also reviewing available options to raise
capital in alternative markets, although it currently has no commitments to do
so.
As of
September 30, 2009, we had a working capital surplus of $2,478,451.
The
Company is obligated under various contractual commitments over the next five
years. The following is a summary of the five-year commitments of the
Company as of September 30, 2009:
Less
Than
|
After
|
|||||||||||||||||||
Total
|
1
Year
|
1-3
Years
|
4-5
Years
|
5
Years
|
||||||||||||||||
Contractual
Obligations
|
||||||||||||||||||||
Long
term debt
|
239,711 | 93,868 | 145,843 | - | - | |||||||||||||||
Operating
leases
|
187,132 | 187,132 | - | - | ||||||||||||||||
Total
contractual obligations
|
$ | 426,843 | $ | 281,000 | $ | 145,843 | - | - |
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 the purchase of 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 capital. The sale of additional equity or
convertible debt securities could result in dilution to our
stockholders. There can be no assurance that financing will be
available in amounts or on terms acceptable to us, if at all.
Significant
Changes in Numbers of Employees
We
anticipate hiring 3 additional manufacturing employees in the next 12
months.
Critical
Accounting Policies
We have
prepared our financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of
America. This has required us to make estimates, judgments, and
assumptions that affected the amounts we reported. Note 1 of the notes to
consolidated financial statements contains the significant principles that we
used to prepare our consolidated financial statements.
We have
identified several critical accounting policies that require us to make
assumptions that were uncertain at the time of our estimates. Had we used
different estimates and assumptions, the amounts we recorded could have been
significantly different. Additionally, actual results that would have material
effect on our financial condition or results of operation could be based on
different assumptions or conditions. The critical accounting policies
that were affected by the estimates, assumptions, and judgments used in the
preparation of financial statements are listed below.
FASB
Codification Discussion
We follow
accounting standards set by the Financial Accounting Standards Board, commonly
referred to as the “FASB.” The FASB sets generally accepted accounting
principles (GAAP) that we follow to ensure we consistently report our financial
condition, results of operations, and cash flows. Over the years, the FASB and
other designated GAAP-setting bodies, have issued standards in the form of FASB
Statements, Interpretations, FASB Staff Positions, EITF consensuses, AICPA
Statements of Position, etc.
11
The FASB
recognized the complexity of its standard-setting process and embarked on a
revised process in 2004 that culminated in the release on July 1, 2009, of the
FASB Accounting Standards
Codification ™, sometimes referred to as the Codification or ASC. To the
Company, this means instead of following the rules, for example, in Statement
109 “Accounting for Income
Taxes”, we will follow the guidance in Topic 740, Income Taxes. The
Codification does not change how the Company accounts for its transactions or
the nature of related disclosures made. However, when referring to guidance
issued by the FASB, the Company refers to topics in the ASC rather than
Statement 109, etc. The above change was made effective by the FASB for periods
ending on or after September 15, 2009. We have updated references to GAAP in
this Annual Report on Form 10-K to reflect the guidance in the
Codification.
Allowance
for Doubtful Accounts
We do not
believe there is a need for a provision for doubtful accounts as of September
30, 2009. The directors have reached this conclusion notwithstanding
the current economic climate by having regard to the company’s credit criteria
and quality of clients.
Inventories
Our
inventories are recorded at the lower of cost or net realizable market, with
cost based on a first-in, first-out basis. We periodically assess
this inventory for obsolescence and potential excess by reducing the difference
between our cost and the estimated market value of the inventory based on
assumptions about future demand and historical sales patterns. Our inventories
consist of materials and products that are subject to technological obsolescence
and competitive market conditions. If market conditions or future
demand are less favorable than our current expectations, additional inventory
write downs or reserves may be required, and that could have an adverse effect
on our reported results in the period the adjustments are made.
Long-Lived
Assets
We review
our long-lived assets for potential impairment based on a review of projected
undiscounted cash flows associated with these assets. Long-lived
assets are included in impairment evaluations when events and circumstances
exist that indicate the carrying amount of these assets may not be
recoverable. Measurement of impairment losses for long-lived assets
that we expect to hold and use is based on the estimated fair value of the
assets. We have recorded asset impairment charges when the carrying
value of certain assets was in excess of their fair value. Should
market conditions or the assumptions used by us in determining the fair value of
these assets change, or management change plans for usage of certain assets,
additional charges to operations may be required in the period in which such
conditions occur.
New
Accounting Pronouncements
In
October 2009, the FASB issued authoritative guidance for revenue recognition for
multiple-deliverable arrangements. This authoritative guidance impacts the
determination of when the individual deliverables included in a
multiple-deliverable arrangement may be treated as separate units of accounting.
Additionally, this guidance modifies the manner in which the transaction
consideration is allocated across the separately identified deliverables by no
longer permitting the residual method of allocating arrangement consideration.
The new guidance is effective for transactions entered into or modified in
fiscal years beginning after June 15, 2010, which for the Company will be the
first quarter of fiscal 2011. The Company is currently evaluating the potential
impact of this authoritative guidance on the Company’s financial position and
results of operations.
In June
2009, the FASB issued authoritative guidance on variable interest entities,
which becomes effective the first annual reporting period beginning after
November 15, 2009 and will be effective for the Company in fiscal 2011.
This authoritative guidance requires revised evaluations of whether entities
represent variable interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. The Company is
currently evaluating the potential impact of this authoritative guidance on the
Company’s financial position and results of operations.
In April
2009 and December 2007, the FASB issued authoritative guidance on accounting for
business combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for assets acquired and liabilities that arise
from acquired contingencies, the recognition of capitalized in-process research
and development, the accounting for acquisition-related restructuring cost
accruals, the treatment of acquisition-related transaction costs, and the
recognition of changes in the acquirer’s income tax valuation allowance. This
authoritative guidance will be effective for the Company in fiscal 2010, with
early adoption prohibited. The Company expects that this authoritative guidance
will have an impact on its consolidated financial statements, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of
the acquisitions it consummates after the effective date.
In
December 2007, the FASB issued authoritative guidance on noncontrolling
interests, which changes the accounting for noncontrolling (minority) interests
in consolidated financial statements, including the requirements to classify
noncontrolling interests as a component of consolidated stockholders’ equity,
and the elimination of “minority interest” accounting in results of operations
with earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally, this authoritative guidance revises the
accounting for both increases and decreases in a parent’s controlling ownership
interest. This authoritative guidance will be effective for the Company in
fiscal 2010, with early adoption prohibited. The Company is evaluating the
potential impact of the implementation of this authoritative guidance on its
financial position or results of operations.
In
September 2006, the FASB issued authoritative guidance for fair value
measurements, which defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. In February 2008, the FASB
issued authoritative guidance on the effective date of fair value measurements,
which delays the effective date for the Company for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until the beginning of the Company’s first quarter of fiscal 2010. The
measurement and disclosure requirements related to financial assets and
financial liabilities were effective for the Company in fiscal
2009.
Item
7B.
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
Not
applicable.
Item
8.
|
Financial
Statements.
|
Our
audited consolidated financial statements for the year ended September 30, 2009
appear following Item 14 of this report and are incorporated herein by
reference.
Item
9.
|
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
None.
Item
9A(T). Controls and
Procedures
(a)
|
Evaluation
of disclosure controls and
procedures
|
Management
is responsible for establishing and maintaining adequate internal control over
the financial reporting function of the company.
12
Based on
their evaluation of our disclosure controls and procedures (as defined in Rule
13a-15 (e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), our
principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Annual
Report on Form 10-K such disclosure controls and procedures are effective to
ensure that information required to be disclosed in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.
(b)
|
Changes
in internal control over financial
reporting.
|
During
the last quarter of the year under report, there was no change in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B.
|
Other
Information
|
None.
13
PART
III
Item
10.
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act
|
Our
present directors and executive officers are as follows:
Name
|
Age
|
Position
|
||
Gene
Kostecki
|
64
|
President,
Chief Executive Officer and a Director
|
||
Alan
C. Winduss
|
68
|
Chief
Financial Officer, Secretary and a
Director
|
The
following is a brief summary of the background of each executive officer and
director:
Gene Kostecki has served as a
director and as our President and Chief Executive Officer since June
2000. From July 1995 to July 1997, Mr. Kostecki served as Managing
Director of the Collier Unit Trust, an engineering business and distributor
based in Western Australia. He acts as our President and Chief
Executive Officer on a full-time basis.
Alan C. Winduss has served as
a director and as our Chief Financial Officer and Secretary since June
2000. From July 1979 to the present, Mr. Winduss has served as
director of Winduss & Associates Pty Ltd, an accounting firm in Western
Australia, which specializes in commercial accounting, corporate finance and
management. He devotes approximately 80% of his time to his duties as
one of our executive officers.
Board
Composition
Our Board
of Directors currently consists of two directors. At each annual
meeting of our stockholders, all of our directors are elected to serve from the
time of election and qualification until the next annual meeting following
election. In addition, our bylaws provide that the maximum authorized
number of directors may be changed by resolution of the stockholders or by
resolution of the board of directors.
Each
officer is elected by, and serves at the discretion of, our board of
directors. There are no family relationships among any of our
directors or officers or key employees with the exception of our General Manager
(Production), Mr. Steven Kostecki, who is the son of Mr. Gene Kostecki
(CEO).
Control
by Officers and Directors
Our
directors and executive officers own approximately 70% of the outstanding shares
of our common stock. Accordingly, these stockholders possess
substantial control over our operations. This control may allow them
to amend corporate filings, elect all of our board of directors, and
substantially control all matters requiring approval by our stockholders,
including approval of significant corporate transactions.
Compliance
With Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our directors and executive officers, and persons who beneficially own
more than ten percent of a registered class of our equity securities, to file
with the Securities and Exchange Commission (the “Commission”) initial reports
of ownership and reports of changes in ownership of our common stock and other
equity securities. Officers, directors, and persons who beneficially
own more than ten percent of a registered class of our equity securities are
required by the regulations of the Commission to furnish us with copies of all
Section 16(a) forms they file. To our knowledge, based solely on
review of the copies of such reports furnished to us, during the fiscal year
ended September 30, 2009, our officers, directors, and greater than ten percent
beneficial owners complied with all Sections 16(a) filing requirements
applicable to them.
14
Item
11.
|
Executive
Compensation.
|
The
following table sets forth the annual cash compensation for services rendered by
our Chief Executive Officer for the fiscal year ended September 30, 2009. No
other executive officer earned or secured more than $100,000 in salary and bonus
for services rendered during the fiscal year ended September 30,
2008:
SUMMARY
COMPENSATION TABLE
|
||||||||||||||||||
Annual
Compensation
|
||||||||||||||||||
Name
and Position
|
Year
|
Salary
|
Bonus
|
Long-Term
Compensation
|
All
Other Compensation
|
|||||||||||||
Gene
Kostecki
|
2009
|
$ | 91,636 | $ | 0 | — | — | |||||||||||
President
and Chief
|
2008
|
$ | 113,453 | $ | 0 | — | — | |||||||||||
Executive
Officer
|
2007
|
$ | 121,301 | $ | 0 | — | — |
Stock
Option Plan
In May
2000, we adopted the 2000 Stock Option Plan. The purpose of the plan
is to enable us to attract, retain and motivate key employees, directors, and
consultants, by providing them with stock options. Options granted
under the plan may be either incentive stock options, as defined in Section 422A
of the Internal Revenue Code of 1986, or non-qualified stock
options. We have reserved 2,000,000 shares of common stock for
issuance under the plan. As of December 3 2009, no options had been
granted pursuant to the plan.
Our Board
of Directors will administer the plan. Our Board has the power to
determine the terms of any options granted under the plan, including the
exercise price, the number of shares subject to the option, and conditions of
exercise. Options granted under the plan are generally not
transferable, and each option is generally exercisable during the lifetime of
the holder only by the holder. The exercise price of all incentive
stock options granted under the plan must be at least equal to the fair market
value of the shares of common stock on the date of the grant. With
respect to any participant who owns stock possessing more than 10% of the voting
power of all classes of our stock, the exercise price of any incentive stock
option granted must be equal to at least 110% of the fair market value on the
grant date. Our Board of Directors approves the terms of each
option. These terms are reflected in a written stock option
agreement.
Employment
Agreements
There are
current employment agreements in place with Mr. Gene Kostecki, our President and
Chief Executive Officer, and Mr. Alan Winduss, our Chief Financial Officer and
Secretary.
Limitations
of Liability and Indemnification of Directors and Officers
Our
certificate of incorporation and bylaws limit the liability of directors and
officers to the maximum extent permitted by Delaware law. We will
indemnify any person who was or is a party, or is threatened to be made a party
to, an action, suit or proceeding, whether civil, criminal, administrative or
investigative, if that person is or was a director, officer, employee or agent
of ours or serves or served any other enterprise at our request.
In
addition, our certificate of incorporation provides that, generally, a director
shall not be personally liable to us or our stockholders for monetary damages
for breach of the director’s fiduciary duty. However, in accordance
with Delaware law, a director will not be indemnified for a breach of its duty
of loyalty, acts or omissions not in good faith or involving intentional
misconduct or a knowing violation or any transaction from which the director
derived improper personal benefit.
15
Item
12.
|
Security
Ownership of Certain Beneficial Owners and
Management.
|
The
following table sets forth, as of December 3 2009, the number and percentage of
outstanding shares of common stock beneficially owned by:
|
·
|
each
person who we know beneficially owns more than 5% of the outstanding
shares of our common stock;
|
|
·
|
each
of our executive officers and directors;
and
|
|
·
|
all
of our officers and directors as a
group.
|
Except as
otherwise noted, the persons named in this table, based upon information
provided by these persons, have sole voting and investment power with respect to
all shares of common stock owned by them. The number of shares of
common stock outstanding used in calculating the percentage for each listed
person includes the shares of common stock underlying options or warrants held
by such person that are exercisable within 60 days of December 3, 2009, but
excludes shares of common stock underlying options or warrants held by any other
person. Unless otherwise indicated, the address of each beneficial
owner is c/o Alloy Steel, 42 Mercantile Way Malaga, P.O. Box 3087 Malaga D C
6945, Western Australia.
Name
of Beneficial Owner
|
Number
of Shares
|
Percentage
of Common Stock Beneficially Owned
|
||||||
Gene
Kostecki
|
10,313,300 | 59.4 | % | |||||
Alan
C. Winduss
|
1,893,250 | 10.9 | % | |||||
All
officers and directors as a group (two persons)
|
12,206,550 | 70.4 | % |
Details
of our Equity Compensation Plans are outlined in Item 5 of this
Form. No Equity Instruments have been issued under the
plans.
Item
13.
|
Certain
Relationships and Related
Transactions.
|
Messrs.
Gene Kostecki and Alan Winduss are both directors of Alloy Steel International,
Inc. and its subsidiary, Alloy Steel Australia (Int) Pty Ltd.
Mr. Alan
Winduss is a director of a public accounting firm Winduss & Associates Pty
Ltd, which provides accounting and secretarial services to Alloy Steel’s
subsidiary, Alloy Steel Australia (Int.) Pty Ltd. These services are
provided at normal commercial rates and conditions.
Alloy
Steel Australia (Int.) Pty Ltd paid rent of $177,019, for commercial premises it
occupied during the year, to Raglan Securities Pty Ltd, a company controlled by
Mr. Gene Kostecki. The rent is at commercial rates.
The
license granted to use the Alloy process provides for royalty payments to
Kenside Investments, Ltd, in an amount equal to 2% of our net sales of Arcoplate
products. Our Chief Executive Officer, director and principal
shareholder, Mr. Gene Kostecki controls Kenside Investments, Ltd.
Item
14.
|
Principal
Accountant Fees and Services.
|
The Board
of Directors reviewed all services performed for the company by UHY Haines
Norton, our independent registered public accounting firm, for the fiscal years
ended September 30, 2009 and 2008, within and outside the scope of their
quarterly and annual auditing function.
16
2009
|
2008
|
|||||||
Audit
Fees
|
52,793 | 51,744 | ||||||
Audit-Related
Fees
|
- | - | ||||||
Tax
Fees
|
- | - | ||||||
All
Other Fees
|
- | - |
The fees
labeled Audit-Related Fees above principally involved the auditing of the annual
financial statements of the company and the economic entity and review of the
audit of the overseas operating entity, together with the review of quarterly
financial statements as lodged with regulatory authorities.
17
PART
IV
Item
15.
|
Exhibits
|
Exhibit
No.
|
Description
|
|
3.1
|
Certificate
of Incorporation*
|
|
3.2
|
By-laws*
|
|
4.1
|
Specimen
Certificate*
|
|
10.1
|
2000
Stock Option Plan*
|
|
10.2
|
License
Agreement, dated May 4, 2000, between Alloy Steel and Kenside Investments,
Ltd.*
|
|
10.3
|
Employment
Agreement, dated October 2, 2000, between Alloy Steel and Gene
Kostecki*
|
|
10.4
|
Employment
Agreement, dated October 2, 2000, between Alloy Steel and Alan
Winduss*
|
|
10.5
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Berryhill
Investments, Ltd.*
|
|
10.6
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Chartreuse
Nominees Pty. Ltd.*
|
|
10.7
|
Amended
and Restated Consulting Agreement, dated October 2, 2000, between Alloy
Steel and Persia Consulting Group, Inc.*
|
|
10.8
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Ragstar
Investments, Ltd.*
|
|
10.9
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss
Pty. Ltd.*
|
|
10.10
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Ames Nominees
Pty. Ltd.*
|
|
10.11
|
Lease
Agreement, dated July 1, 2000, between Alloy Steel and Raglan Securities
Pty. Ltd.*
|
|
10.12
|
Asset
Purchase Agreement, dated October 2, 2000 between Alloy Steel and Collier
Unit Trust*
|
|
10.13
|
Equipment
Purchase Agreement, dated October 2, 2000, between Alloy Steel and Collier
Unit Trust*
|
|
10.14
|
Asset
Purchase Agreement, dated October 2, 2000, by and among Alloy Steel and
Gene Kostecki and Alan Winduss*
|
|
10.15
|
Amendment
dated July 1, 2004, to Employment Agreement between Alloy Steel and Gene
Kostecki*
|
|
10.16
|
Amendment
dated July 1, 2004, to Employment Agreement between Alloy Steel and Alan
Winduss*
|
|
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**
|
*
|
Previously filed. See Exhibit Index.
|
|
**
|
Filed herewith.
|
18
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated:
December 23, 2009
|
ALLOY
STEEL INTERNATIONAL, INC.
|
|||
(Registrant)
|
||||
By:
|
/s/ Gene Kostecki | |||
Gene
Kostecki
|
||||
President
and Chief Executive Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Gene Kosetcki
|
Director
and
|
|||
Gene
Kostecki
|
President
and Chief Executive Officer (Principal Executive Officer)
|
December 23,
2009
|
||
/s/ Alan Winduss
|
Director
and
|
|||
Alan
C. Winduss
|
Chief
Financial Officer and Secretary (Principal Financial and Accounting
Officer)
|
December 23,
2009
|
19
Alloy
Steel International, Inc.
Annual
Report on Form 10-K for the
Year
Ended September 30, 2009
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
|
3.1
|
Certificate
of Incorporation [Incorporated by reference to Exhibit 3.1 to our
Registration Statement on Form SB-2, SEC File No. 333-49146, filed on
November 2, 2000, as amended (the “Registration
Statement”).]
|
|
3.2
|
By-laws
[Incorporated by reference to Exhibit 3.2 to the Registration
Statement.]
|
|
4.1
|
Specimen
Certificate [Incorporated by reference to Exhibit 4.1 to the Registration
Statement.]
|
|
10.1
|
2000
Stock Option Plan [Incorporated by reference to Exhibit 10.1 to the
Registration Statement.]
|
|
10.2
|
License
Agreement, dated May 4, 2000, between Alloy Steel and Kenside Investments,
Ltd. [Incorporated by reference to Exhibit 10.2 to the Registration
Statement.]
|
|
10.3
|
Employment
Agreement, dated October 2, 2000, between Alloy Steel and Gene Kostecki
[Incorporated by reference to Exhibit 10.3 to the Registration
Statement.]
|
|
10.4
|
Employment
Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss
[Incorporated by reference to Exhibit 10.4 to the Registration
Statement.]
|
|
10.5
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Berryhill
Investments, Ltd. [Incorporated by reference to Exhibit 10.5 to the
Registration Statement.]
|
|
10.6
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Chartreuse
Nominees Pty. Ltd. [Incorporated by reference to Exhibit 10.6 to the
Registration Statement.]
|
|
10.7
|
Amended
and Restated Consulting Agreement, dated October 2, 2000, between Alloy
Steel and Persia Consulting Group, Inc. [Incorporated by reference to
Exhibit 10.7 to the Registration Statement.]
|
|
10.8
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Ragstar
Investments, Ltd. [Incorporated by reference to Exhibit 10.8 to the
Registration Statement.]
|
|
10.9
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss
Pty. Ltd. [Incorporated by reference to Exhibit 10.9 to the Registration
Statement.]
|
|
10.10
|
Consulting
Agreement, dated October 2, 2000, between Alloy Steel and Ames Nominees
Pty. Ltd. [Incorporated by reference to Exhibit 10.10 to the Registration
Statement.]
|
|
10.11
|
Lease
Agreement, dated July 1, 2000, between Alloy Steel and Raglan Securities
Pty. Ltd. [Incorporated by reference to Exhibit 10.11 to the Registration
Statement.]
|
|
10.12
|
Asset
Purchase Agreement, dated October 2, 2000 between Alloy Steel and Collier
Unit Trust [Incorporated by reference to Exhibit 10.12 to the Registration
Statement.]
|
|
10.13
|
Equipment
Purchase Agreement, dated October 2, 2000, between Alloy Steel and Collier
Unit Trust [Incorporated by reference to Exhibit 10.13 to the Registration
Statement.]
|
|
10.14
|
Asset
Purchase Agreement, dated October 2, 2000, by and among Alloy Steel and
Gene Kostecki and Alan Winduss [Incorporated by reference to Exhibit 10.14
to the Registration Statement.]
|
|
10.15
|
Amendment
dated July 1, 2004, to Employment Agreement between Alloy Steel and Gene
Kostecki.
|
|
10.16
|
Amendment
dated July 1, 2004, to Employment Agreement between Alloy Steel and Alan
Winduss.
|
|
Certification
of the Chief Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a)
|
||
Certification
of the Chief Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a)
|
||
Certification
of the Chief Executive Officer required by Rule 13a-14(b) or Rule
15d-14(b) and 18 U.S.C. 1350
|
||
Certification
of the Chief Financial Officer required by Rule 13a-14(b) or Rule
15d-14(b) and 18 U.S.C. 1350
|
20
ALLOY
STEEL INTERNATIONAL, INC.
AND
CONTROLLED ENTITIES
CONSOLIDATED
FINANCIAL STATEMENTS
AND
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SEPTEMBER
30, 2009 and 2008
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEM
7)
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Financial Statements
|
|
Consolidated
Balance Sheet September
30, 2009 and 2008
|
F-3
|
Consolidated
Statements of Operations Years
ended September 30, 2009 and 2008
|
F-4
|
Consolidated
Statements of Stockholders' Equity Years
ended September 30, 2009 and 2008
|
F-5
|
Consolidated
Statements of Cash Flows Years
ended September 30, 2009 and 2008
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
– 16
|
F-1
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Stockholders
of Alloy
Steel International Inc
We have
audited the accompanying consolidated balance sheets of Alloy Steel
International Inc and Controlled Entities (the “Company) as of September 30 2009
and 2008, and the related consolidated statements of operations, stockholders
equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis of designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Alloy Steel International
Inc and Controlled Entities as of September 30 2009 and 2008, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
/s/
UHY Haines Norton
|
|
Chartered
Accountants
|
Perth,
Australia
December
23, 2009
F-2
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
CONSOLIDATED
BALANCE SHEETS
September
30, 2009 and 2008
Sep-09
|
Sep-08
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 424,090 | $ | 664,054 | ||||
Accounts
receivable
|
3,104,393 | 2,290,147 | ||||||
Inventories
|
2,247,759 | 2,365,049 | ||||||
Prepaid
expenses and other current assets
|
82,948 | 70,161 | ||||||
Total
current assets
|
5,859,190 | 5,389,411 | ||||||
Property and equipment,
net
|
3,350,600 | 2,976,290 | ||||||
Other
assets
|
||||||||
Investments
|
222,702 | 173,422 | ||||||
Other
assets
|
17,863 | 17,863 | ||||||
Total
other assets
|
240,565 | 191,285 | ||||||
$ | 9,450,355 | $ | 8,556,986 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Notes
payable, current portion
|
$ | 93,868 | $ | 75,739 | ||||
Accrued
officers' salaries
|
11,745 | 14,998 | ||||||
Royalties
payable, related party
|
936,829 | 763,176 | ||||||
Current
tax payable
|
- | 1,100,129 | ||||||
Accounts
payable and other current liabilities
|
2,338,297 | 1,026,329 | ||||||
Total
current liabilities
|
3,380,739 | 2,980,371 | ||||||
Long-term
liabilities
|
||||||||
Notes
payable, less current portion
|
145,843 | 225,728 | ||||||
Notes
payable, officers, less current portion
|
255 | - | ||||||
Employee
entitlement provisions
|
11,916 | 9,402 | ||||||
Deferred
tax liabilities
|
212,338 | 19,342 | ||||||
Total
long-term liabilities
|
370,352 | 254,472 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity
|
||||||||
Preferred
stock, $.01 par value, authorized 3,000,000 shares; issued and outstanding
- none
|
- | - | ||||||
Common
stock, $.01 par value, authorized 50,000,000 shares; issued and
outstanding 17,350,000 shares
|
173,500 | 173,500 | ||||||
Capital
in excess of par value
|
1,767,512 | 1,769,382 | ||||||
Accumulated
income
|
2,830,721 | 2,902,976 | ||||||
Accumulated
other comprehensive income
|
931,743 | 474,419 | ||||||
Non
Controlling Interest
|
(4,212 | ) | 1,866 | |||||
Total
stockholders' equity
|
5,699,264 | 5,322,143 | ||||||
$ | 9,450,355 | $ | 8,556,986 |
See
accompanying notes to consolidated financial statements.
F-3
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended September 30, 2009 and 2008
Sep-09
|
Sep-08
|
|||||||
Sales
|
$ | 8,819,217 | $ | 13,511,458 | ||||
Cost
of sales
|
5,747,172 | 6,541,427 | ||||||
Gross
profit
|
3,072,045 | 6,970,031 | ||||||
Selling,
general and administrative expenses
|
3,056,352 | 3,359,311 | ||||||
Profit
(Loss) from operations
|
15,693 | 3,610,720 | ||||||
Other
income (expense)
|
||||||||
Interest
income
|
26,306 | 64,424 | ||||||
Interest
expense
|
(39,363 | ) | (20,938 | ) | ||||
Dividend
income
|
6,785 | 6,387 | ||||||
Insurance
recovery
|
27,096 | 56,119 | ||||||
Sundry
Income
|
24,135 | 30,154 | ||||||
Writedown
for fair value adjustment
|
- | (12,195 | ) | |||||
Profit
on disposal of property and equipment
|
- | 39 | ||||||
Total
other income
|
44,959 | 123,990 | ||||||
Income
(loss) before income tax (expense) benefit
|
60,652 | 3,734,710 | ||||||
Income
tax (expense) benefit
|
(138,509 | ) | (1,164,368 | ) | ||||
Net
income (loss)
|
(77,857 | ) | 2,570,342 | |||||
Net
(income) loss attributable to non controlling interests
|
5,602 | 2,137 | ||||||
Net
income (loss) attributable to stockholders
|
$ | (72,255 | ) | $ | 2,572,479 | |||
Basic
and diluted income (loss) per common share
|
$ | (0.004 | ) | $ | 0.15 | |||
Weighted
average number of common shares used in computing basic and diluted income
(loss)per common share
|
17,350,000 | 17,350,000 |
See
accompanying notes to consolidated financial statements.
F-4
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
Years
Ended September 30, 2009 and 2008
Capital
in
|
|
|
Accumulated
Other
|
Non
|
Total
|
|||||||||||||||||||||||||||
Common
Stock
|
excess of |
Accumulated
|
Comprehensive
|
Comprehensive | controlling | Stockholders' | ||||||||||||||||||||||||||
Shares
|
Amount
|
par value | Income | Income | Income | Interests | Equity | |||||||||||||||||||||||||
Balances,
September 30, 2007
|
17,350,000
|
$
|
173,500
|
1,769,382
|
330,497
|
1,086,631
|
$
|
$
|
3,360,010
|
|||||||||||||||||||||||
Net
Loss
|
2,572,479
|
$
|
2,572,479
|
2,572,479
|
||||||||||||||||||||||||||||
Other comprehensive income, | ||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
(547,645
|
)
|
(547,645
|
)
|
(547,645
|
)
|
||||||||||||||||||||||||||
Fair
value adjustment for available for sale assets
|
(64,567
|
)
|
(64,567
|
)
|
(64,567
|
)
|
||||||||||||||||||||||||||
Total
comprehensive income - Year ended September 30, 2007
|
$
|
1,960,267
|
||||||||||||||||||||||||||||||
Non
controlling interest in subsidiary
|
||||||||||||||||||||||||||||||||
Issued
capital in subsidiary
|
4,000
|
|||||||||||||||||||||||||||||||
Accumulated
income (loss)
|
(2,137
|
)
|
||||||||||||||||||||||||||||||
Accumulated comprehensive
income
|
3
|
1,866
|
||||||||||||||||||||||||||||||
Balances,
September 30, 2008
|
17,350,000
|
173,500
|
1,769,382
|
2,902,976
|
474,419
|
1,866
|
5,322,143
|
|||||||||||||||||||||||||
Net
Income
|
(72,255
|
)
|
$
|
(72,255
|
)
|
(72,255
|
)
|
|||||||||||||||||||||||||
Other comprehensive income, | ||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
430,254
|
430,254
|
430,254
|
|||||||||||||||||||||||||||||
Fair
value adjustment for available for sale assets
|
27,070
|
27,070
|
27,070
|
|||||||||||||||||||||||||||||
Total
comprehensive income - Year ended September 30, 2009
|
$
|
385,069
|
||||||||||||||||||||||||||||||
Non
controlling interest in subsidiary
|
||||||||||||||||||||||||||||||||
Accumulated
income (loss)
|
(5,602
|
)
|
||||||||||||||||||||||||||||||
Current
year other comprehensive loss
|
(476
|
)
|
(6,078
|
)
|
||||||||||||||||||||||||||||
Reduction
in capital on incorporation of Subsidiaries
|
(1,870
|
)
|
(1,870
|
)
|
||||||||||||||||||||||||||||
Balances,
September 30, 2009
|
17,350,000
|
$
|
173,500
|
$
|
1,767,512
|
$
|
2,830,721
|
$
|
931,743
|
$
|
(4,212
|
)
|
$
|
5,699,264
|
See
accompanying notes to consolidated financial statements.
F-5
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
ended September 30, 2009 and 2008
Sep-09
|
Sep-08
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income (loss)
|
$ | (72,255 | ) | $ | 2,572,479 | |||
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
|
187,877 | 198,080 | ||||||
Write
down of intangible assets and other assets
|
- | 12,195 | ||||||
Profit
on disposal of property and equipment
|
- | (39 | ) | |||||
Dividends
reinvested directly to investments
|
(5,129 | ) | (3,066 | ) | ||||
Loss
attributable to non controlling interests
|
(5,602 | ) | (2,137 | ) | ||||
Increase
(decrease) in cash and cash equivalents attributable to changes in
operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(1,144,751 | ) | 14,844 | |||||
Inventories
|
147,633 | (1,878,924 | ) | |||||
Income
taxes receivable
|
(833,490 | ) | - | |||||
Prepaid
expenses and other current assets
|
2,184 | 66,266 | ||||||
Accrued
officer's salaries
|
(3,253 | ) | (315,080 | ) | ||||
Accounts
payable and other current liabilities
|
1,921,860 | 129,793 | ||||||
Income
taxes payable
|
- | 633,276 | ||||||
Net
cash provided by operating activities
|
195,074 | 1,427,687 | ||||||
Cash
flows from investing activities
|
||||||||
Purchase
of property and equipment
|
(345,400 | ) | (644,903 | ) | ||||
Acquisition
of interest in subsidiary
|
- | (17,863 | ) | |||||
Purchase
of investments
|
- | (253,197 | ) | |||||
Net
cash used in investing activities
|
(345,400 | ) | (915,963 | ) | ||||
Cash
flows from financing activities
|
||||||||
Repayment
on notes and loans payable
|
(67,586 | ) | (296,305 | ) | ||||
Proceeds
from capital issued to non controlling interests
|
- | 4,000 | ||||||
Net
cash used in financing activities
|
(67,586 | ) | (292,305 | ) | ||||
Effect
of foreign exchange rate changes on cash and cash
equivalents
|
(22,052 | ) | (39,660 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
(239,964 | ) | 179,759 | |||||
Cash and cash
equivalents, beginning of year
|
664,054 | 484,295 | ||||||
Cash and cash
equivalents, end of year
|
$ | 424,090 | $ | 664,054 | ||||
Supplemental disclosures of
cash flow information,
|
||||||||
cash
paid during the years for:
|
||||||||
Income
taxes
|
$ | 971,999 | $ | 531,093 | ||||
Interest
|
$ | 39,568 | $ | (22,849 | ) | |||
Supplemental
disclosures of non-cash investing and financing
activities,
|
||||||||
Equipment
acquired under notes payable
|
$ | - | $ | 142,369 |
See
accompanying notes to consolidated financial statements.
F-6
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Nature
of operations
|
Alloy
Steel International, Inc. (ASII), its wholly-owned subsidiary, Alloy Steel
Australia (Int.) Pty Limited (ASAI), wholly owned subsidiary Alloy Steel North
America LLC (ASNA) and majority owned subsidiary Alloy Steel Mongolia LLC (ASM)
(collectively the "Company") manufacture and distribute Arcoplate, a
wear-resistant fused-alloy steel plate, to customers throughout the
world.
2.
|
Summary
of significant accounting policies
|
Basis
of Presentation
The
Company adheres to accounting standards set by the Financial Accounting
Standards Board (FASB). FASB sets generally accepted accounting
principles (GAAP) in the United States of America that we follow to ensure we
consistently report our financial condition, results of operations and cash
flows. References to GAAP issued by FASB in these notes are to FASB Accounting Standards
Codification TM,
sometimes referred to as the Codification or ASC. FASB finalized the
Codification effective for periods ending on or after September 15,
2009. Prior FASB standards are no longer being issued by the
FASB. For further discussion of the Codification see “FASB
Codification Discussion” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations (commonly referred to as MD&A) as
contained in the Company’s 10K as filed with these financial
statements.
The
Company's consolidated financial statements are denominated in United States
dollars.
Principles
of Consolidation
The
consolidated financial statements include the accounts of ASII, ASAI, ASNA and
ASM. All material intercompany balances and transactions have been
eliminated in consolidation.
Revenue
Recognition
The
Company recognizes revenues when products are shipped and title passes to
customers. Provisions are established, as appropriate, for returns
and allowances and warranties in connection with sales.
Cash
and Cash Equivalents
The
Company considers all highly-liquid debt instruments purchased with maturities
of three months or less to be cash equivalents.
Accounts
Receivable
The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts. On a periodic basis, the Company evaluates its receivables
and establishes an allowance for doubtful accounts, based on the history of past
write-offs and collections and current credit conditions. The Company
has reviewed its outstanding accounts and, given the company’s credit criteria
and quality of clients, notwithstanding the current economic climate, has
assessed that there is no need to raise an allowance for doubtful
debts. Accounts are written off as uncollectible once the Company has
exhausted its collection efforts.
Fair
Value of Financial Instruments
The fair
value of the Company's assets and liabilities which qualify as financial
instruments under Topic 825, “Financial Instruments,” approximates the carrying
amounts presented in the accompanying consolidated balance
sheet.
F-7
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of significant accounting policies
(continued)
|
Inventories
Inventories
are valued at the lower of cost or net realizable value. Cost is
determined principally on the first-in, first-out method.
Impairment
of Long-Lived Assets
The
Company periodically assesses the recoverability of the carrying amounts of
long-lived assets, including intangible assets. A loss is recognized
when expected undiscounted future cash flows are less than the carrying amount
of the asset. The impairment loss is the difference by which the
carrying amount of the asset exceeds its fair value.
Property
and Equipment
Property
and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using both the straight-line
and declining value method over the estimated useful lives of the assets as
follows:
Estimated
|
|
Asset
|
Useful
Lives
|
Plant
and equipment
|
5-20
years
|
Furniture
and fixtures
|
5-7
years
|
Vehicles
|
3-5
years
|
Office
and computer equipment
|
3-5
years
|
Maintenance
and repairs are charged to operations, while betterments and improvements are
capitalized.
Advertising
Advertising
costs are charged to operations as incurred and were approximately $12,000 and
$14,000 for the years ended September 30, 2009 and 2008,
respectively.
Income
Taxes
The
Company uses an asset and liability approach to financial reporting for income
taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts, based on
enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred income tax assets to the amount
expected to be realized.
The
Company provides reserves for potential payments of tax to various tax
authorities related to uncertain tax positions and other issues. Reserves are
recorded based on a determination of whether and how much of a tax benefit taken
in its tax filings or positions is more likely than not to be realized, assuming
that the matter in question will be raised by the tax authorities. Potential
interest and penalties associated with such uncertain tax positions are recorded
as a component of income tax expense. The Company has made a comprehensive
review of its uncertain tax positions. The Company believes
appropriate provisions for outstanding issues have been made.
F-8
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of significant accounting policies
(continued)
|
Income
(Loss) Per Common Share
Basic
income (loss) per share excludes dilution and is computed by dividing net income
(loss) available to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company. Diluted income (loss) per common share was the same as
basic income (loss) per common share since there were no common stock
equivalents outstanding for both years presented.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
New
Accounting Pronouncements
In
October 2009, the FASB issued authoritative guidance for revenue recognition for
multiple-deliverable arrangements. This authoritative guidance impacts the
determination of when the individual deliverables included in a
multiple-deliverable arrangement may be treated as separate units of accounting.
Additionally, this guidance modifies the manner in which the transaction
consideration is allocated across the separately identified deliverables by no
longer permitting the residual method of allocating arrangement consideration.
The new guidance is effective for transactions entered into or modified in
fiscal years beginning after June 15, 2010, which for the Company will be the
first quarter of fiscal 2011. The Company is currently evaluating the potential
impact of this authoritative guidance on the Company’s financial position and
results of operations.
In June
2009, the FASB issued authoritative guidance on variable interest entities,
which becomes effective the first annual reporting period beginning after
November 15, 2009 and will be effective for the Company in fiscal 2011.
This authoritative guidance requires revised evaluations of whether entities
represent variable interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. The Company is
currently evaluating the potential impact of this authoritative guidance on the
Company’s financial position and results of operations.
In April
2009 and December 2007, the FASB issued authoritative guidance on accounting for
business combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for assets acquired and liabilities that arise
from acquired contingencies, the recognition of capitalized in-process research
and development, the accounting for acquisition-related restructuring cost
accruals, the treatment of acquisition-related transaction costs, and the
recognition of changes in the acquirer’s income tax valuation allowance. This
authoritative guidance will be effective for the Company in fiscal 2010, with
early adoption prohibited. The Company expects that this authoritative guidance
will have an impact on its consolidated financial statements, but the nature and
magnitude of the specific effects will depend upon the nature, terms and size of
the acquisitions it consummates after the effective date.
F-9
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2.
|
Summary
of significant accounting policies
(continued)
|
In
December 2007, the FASB issued authoritative guidance on noncontrolling
interests, which changes the accounting for noncontrolling (minority) interests
in consolidated financial statements, including the requirements to classify
noncontrolling interests as a component of consolidated stockholders’ equity,
and the elimination of “minority interest” accounting in results of operations
with earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally, this authoritative guidance revises the
accounting for both increases and decreases in a parent’s controlling ownership
interest. This authoritative guidance will be effective for the Company in
fiscal 2010, with early adoption prohibited. The Company is evaluating the
potential impact of the implementation of this authoritative guidance on its
financial position or results of operations.
In
September 2006, the FASB issued authoritative guidance for fair value
measurements, which defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. In February 2008, the FASB
issued authoritative guidance on the effective date of fair value measurements,
which delays the effective date for the Company for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
until the beginning of the Companys first quarter of fiscal 2010. The
measurement and disclosure requirements related to financial assets and
financial liabilities were effective for the Company in fiscal
2009.
Foreign
Currency Translation
Assets
and liabilities of the Company’s wholly-owned subsidiary are translated into
U.S. dollars at year-end exchange rates, revenues and expenses and cash flows
are translated at average rates prevailing during the year. Resulting
translation adjustments are recorded as a component of accumulated other
comprehensive income.
Where the
Company’s wholly-owned subsidiaries undertake transactions in currencies other
than their functional currency, the resulting gain or loss is recorded as income
or expenditure as appropriate at the time the transaction is
settled. Unsettled accounts at year end are revalued at the spot
exchange rate as at that date and unrealized gains or losses are recorded in the
Company’s statement of operations.
3.
|
Inventories
|
Inventories
consist of the following at September 30, 2009 and 2008:
2009
|
2008
|
|||||||
Raw
materials
|
$ | 642,461 | $ | 1,564,030 | ||||
Work
in progress
|
124,343 | 35,573 | ||||||
Finished
goods
|
1,480,955 | 765,446 | ||||||
$ | 2,247,759 | $ | 2,365,049 |
F-10
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
4.
|
Prepaid
expenses and other current assets
|
Prepaid
expenses and other current assets consist of the following at September 30, 2009
and 2008:
2009
|
2008
|
|||||||
Prepaid
expenses
|
$ | 68,256 | $ | 63,992 | ||||
Deposit
paid to suppliers
|
14,692 | 2,660 | ||||||
Goods
and services tax receivable
|
- | 3,509 | ||||||
$ | 82,948 | $ | 70,161 |
5.
|
Property
and equipment
|
Property
and equipment consists of the following at September 30, 2009 and
2008:
2009
|
2008
|
|||||||
Leasehold
Land
|
$ | 23,123 | $ | 23,123 | ||||
Less
accumulated amortization
|
3,894 | 2,352 | ||||||
$ | 19,229 | 20,771 | ||||||
Plant
and equipment
|
$ | 4,212,274 | $ | 3,586,645 | ||||
Furniture
and fixtures
|
43,235 | 40,603 | ||||||
Vehicles
|
278,287 | 261,772 | ||||||
Leasehold
Improvements
|
33,466 | 31,480 | ||||||
Office
and computer equipment
|
168,203 | 147,085 | ||||||
4,735,465 | 4,067,585 | |||||||
Less
accumulated depreciation
|
1,404,094 | 1,112,066 | ||||||
$ | 3,331,371 | $ | 2,955,519 | |||||
$ | 3,350,600 | $ | 2,976,290 |
Depreciation
and amortization expense for the years ended September 30, 2009 and 2008 was
approximately $199,000 and $170,000, respectively. At September 30, 2009 and
2008, property and equipment included approximately $458,000 and $430,000 and
accumulated depreciation included approximately $173,000 and $100,000 related to
assets acquired under notes payable respectively.
6.
|
Investments
|
The
company holds investments in marketable securities as of September 30, 2009
and 2008 as follows:
2009
|
2008
|
|||||||
Non-current
assets
|
$ | 222,702 | $ | 173,422 |
Effective
October 1, 2008, the Company determines the fair value of assets and liabilities
using a fair value hierarchy with the highest priority being quoted prices in
active markets. Hierarchical levels, which are directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:
Level 1 —
Inputs were unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date.
F-11
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
6.
|
Investments
(continued)
|
Level 2 —
Inputs (other than quoted prices included in Level 1) were either directly or
indirectly observable for the asset or liability through correlation with market
data at the measurement date and for the duration of the instrument’s
anticipated life.
Level 3 —
Inputs reflected management’s best estimate of what market participants would
use in pricing the asset or liability at the measurement date. Consideration was
given to the risk inherent in the valuation technique and the risk inherent in
the inputs to the model.
Determining
which hierarchical level an asset or liability falls within requires significant
judgment. The Company evaluates its hierarchy disclosures each quarter. The
following table summarizes the financial instruments measured at fair value in
the Consolidated Balance Sheet as of September 30, 2009:
Fair
Value Measurements
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Marketable
Securities Long term
|
$ | 222,702 | - | - | $ | 222,702 |
The
Company has corrected an error in the reporting of fair value adjustments in
relation to its investment in marketable securities. The Company
incorrectly applied the fair value adjustment of the investment held as
“available for sale” through the Statement of Operations whilst such adjustments
are required to be a component of comprehensive income shown on the Statement of
Stockholders Equity. As the Company first held investments during the
fiscal year ended September 30, 2008, the financial statements for the year then
ended, together with quarterly unaudited statements reported during the current
fiscal year are the only reports to contain the misstatement.
The
impact on net income for the fiscal year ended September 30, 2008 is to increase
the net income before taxes by $64,567 from $3,670,143 to $3,734,710. Net
income attributable to stockholders for the year is increased by the same amount
from $2,507,912 to $2,572,479. Basic and Diluted income per share
increased by $0.01 from $0.14 to $0.15.
Accumulated
income as stated on the Company’s Balance Sheet as at September 30, 2008,
increased by $64,567 from $2,838,409 to $2,902,976, and accumulated other
comprehensive income as at that date decreased by $64,567 from $538,986 to
$474,419.
The
Company’s Statement of Cash Flows is adjusted through the revised net income
attributable to stockholders being adjusted to $2,572,479 from $2,507,912, with
a corresponding adjustment to write down of intangible assets and other assets
decreasing from $76,762 to $12,195.
F-12
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
7.
|
Notes
Payable
|
Notes
payable at September 30, 2009 and 2008 consists of the following:
2009
|
2008
|
|||||||
Note
payable (a)
|
$ | 9,248 | $ | 12,377 | ||||
Note
payable (b)
|
93,924 | 130,472 | ||||||
Note
payable (c)
|
9,095 | 15,306 | ||||||
Note
payable (d)
|
35,358 | 42,672 | ||||||
Note
payable (e)
|
92,086 | 100,640 | ||||||
239,711 | 301,467 | |||||||
Less
current portion
|
93,868 | 75,739 | ||||||
$ | 145,843 | $ | 225,728 |
(a)
|
The
note is payable in monthly installments of $375 including interest at a
rate of 7.61% per annum, with a final payment in March 2010. The note is
collateralized by the underlying equipment and is guaranteed by the
officers of the Company.
|
(b)
|
The
note is payable in monthly installments of $4,420 including interest at a
rate of 7.25% per annum, with a final balloon payment in November 2010.
The note is collateralized by the underlying equipment and is guaranteed
by the officers of the Company.
|
(c)
|
The
note is payable in monthly installments of $681 including interest at a
rate of 7.61% per annum, with a final balloon payment in February
2010. The note is collateralized by the underlying equipment
and is guaranteed by the officers of the
Company.
|
(d)
|
The
note is payable in monthly installments of $962 including interest at a
rate of 9.22% per annum, with a final payment in March
2012. The note is collateralized by the underlying equipment
and is guaranteed by the officers of the
company.
|
(e)
|
The
note is payable in monthly installments of $2,226 including interest at a
rate of 9.65% per annum, with a final payment in June 2012. The
note is collateralized by the underlying equipment and is guaranteed by
the officers of the company.
|
As of
September 30, 2009, aggregate annual principal payments for each of the
following years are as follows:
Year
ending September 30,
|
||||
2010
|
93,868 | |||
2011
|
75,900 | |||
2012
|
69,943 | |||
$ | 239,711 |
F-13
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Income
taxes
|
Income
(loss) before income tax expense (benefit) for the years ended September 30,
2009 and 2008 were derived in the following jurisdictions:
2009
|
2008
|
|||||||
Australia
|
$ | 412,267 | $ | 3,929,921 | ||||
Mongolia
|
(8,404 | ) | (5,343 | ) | ||||
United
States
|
(337,609 | ) | (189,868 | ) | ||||
$ | 60,652 | $ | 3,734,710 |
The
components of income tax expense (benefit) are as follows for the years ended
September 30, 2009 and 2008:
2009
|
2008
|
|||||||
Current
|
||||||||
Foreign
|
$ | (14,692 | ) | $ | 1,100,129 | |||
Deferred
|
||||||||
Foreign
|
153,201 | 64,239 | ||||||
$ | 138,509 | $ | 1,164,368 |
As of
September 30, 2009, the Company had US net operating loss carry forwards of
approximately $2,098,000 expiring through 2025.
The
components of the deferred tax assets and liabilities consist of the following
at September 30, 2009 and 2008:
2009
|
2008
|
|||||||
Deferred
tax assets
|
||||||||
Net
operating loss carryforwards
|
$ | 794,496 | $ | 676,333 | ||||
Other
|
176,781 | 92,894 | ||||||
911,127 | 769,227 | |||||||
Less
valuation allowance
|
(794,496 | ) | (676,333 | ) | ||||
176,781 | 92,894 | |||||||
Deferred
tax liabilities
|
||||||||
Other
|
(389,119 | ) | (112,236 | ) | ||||
Deferred
tax assets (liabilities), net
|
$ | (212,338 | ) | $ | (19,342 | ) |
The
Company records a valuation allowance when it is more likely than not that some
portion or all of the deferred income tax asset will not be
realized. The change in the valuation allowance amounted to
approximately $118,000 and $66,000 for the years ended September 30, 2009 and
2008, respectively. The ultimate realization of this deferred income
tax asset depends on the Company's ability to generate sufficient taxable income
in future years
The
Company also has certain foreign tax credits available for future
use.
F-14
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Income
taxes (continued)
|
The
effective tax rate in 2009 and 2008 differs from the U.S. federal statutory rate
as follows:
2009
|
2008
|
|||||||
U.S.
federal statutory rate
|
35 | % | 35 | % | ||||
Change
in valuation allowance
|
195 | % | 2 | % | ||||
Benefit
of lower foreign effective tax rate/Other
|
(1 | %) | (5 | %) | ||||
Effective
tax rate
|
228 | % | 32 | % |
The
Company has considered its income tax positions, including any positions that
may be considered uncertain by the relevant tax authorities in the jurisdictions
in which the Company operates. As of September 30, 2009 and 2008, the
Company had no uncertain tax positions and no unrecognized tax benefits.
The Company has paid interest of $19,865 and nil during the years ended
September 30, 2009 and 2008 respectively in relation to an arrangement
negotiated by one of its subsidiaries to pay its income tax liability in
deferred installments. The Company has not incurred any penalties
relating to income taxes recognized in the consolidated financial statements as
of and for the years ended September 30, 2009 and 2008. The following
table summarizes tax years that remain subject to examination by major tax
jurisdictions:
Jurisdiction
|
Open
Years
|
|||
United
States
|
2004-2009 | |||
Australia
|
2006-2009 |
9.
|
Stock
options
|
During
2000, the Company's Board of Directors (the Committee) adopted, and the
stockholders approved, the 2000 stock option plan (the Plan) pursuant to which
2,000,000 shares of common stock were reserved for issuance upon the exercise of
options granted to key employees, members of the Committee and consultants of
the Company. Options under the Plan may be incentive stock options,
nonqualified stock options, or any combination thereof, and the Committee may
grant options at an exercise price which is not less than the fair market value
on the date such options are granted. The Plan further provides that
the maximum period in which stock options may be exercised will be determined by
the Committee, except that they may not be exercisable after ten years from the
date of grant or five years from the date of grant for any person owning more
than ten percent of the voting power of all classes of the Company's
stock. For the years ending September 30, 2009 and 2008, there were
no stock options granted or outstanding stock options.
10.
|
Commitments
and contingencies
|
Operating
Lease
The
Company leases its office and manufacturing space from a related party for
approximately $250,000 per annum plus certain expenses (as defined in the
agreement). The lease expires on June 30, 2010.
Rent
expense for the years ended September 30, 2009 and 2008 was approximately
$177,000 and $186,000 respectively.
F-15
ALLOY
STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
10.
|
Commitments
and contingencies (continued)
|
Royalty
Agreements
The
Company has a licensing agreement with a related party of which relates to the
sale of all products sold. Under the terms of the agreement, the
Company is required to pay royalties of 2% on the net sales of these products,
calculated at the end of each quarter. The agreement expires in 2025
and has three ten-year renewal options to extend unless written notice of
non-renewal is given by either party within 120 days prior to its
expiration. At September 30, 2009 and 2008, approximately $937,000
and $763,000 respectively, was payable under this agreement and is included in
accounts payable and other current liabilities.
Royalty
expense was approximately $174,000 and $260,000 for the years ended September
30, 2009 and 2008, respectively.
Employment
Agreements
The
Company has employment agreements with two of its executives, who are principal
stockholders, requiring the payment of a minimum annual base compensation of
approximately $175,000 and $145,000 adjusted semi-annually for increases
approved by the Board of Directors, but not less than the base year amount, plus
incentive compensation based on the executives’ performance and the Company's
success. Approximately $75,000 and $125,000 has been expensed under
these agreements in each of the years ended September 30, 2009 and 2008
respectively, and is included in selling, general and administrative
expenses.
10.
|
Major
customers, suppliers and geographic
information
|
The
Company had revenues from two customers for each of the years ended September
30, 2009 and 2008, of approximately $2,493,000 and $4,303,000
respectively. Accounts receivable due from the respective customers
were approximately $1,380,000 and $1,592,000 at September 30, 2009 and
2008.
2009
|
2008
|
|||||||
Customer
A
|
20.4 | % | 21.6 | % | ||||
Customer
B
|
7.9 | % | 10.2 | % |
For the
years ended September 30, 2009 and 2008, the Company purchased approximately 46%
and 41% of its inventories from two suppliers, respectively.
For the
years ended September 30, 2009 and 2008, revenues were derived from the
following:
2009
|
2008
|
|||||||
Australia
|
85 | % | 70 | % | ||||
Americas
|
5 | % | 13 | % | ||||
Other
|
10 | % | 17 | % | ||||
100 | % | 100 | % |
Revenue
is attributed to each country based on the location of the
customer.
F-16