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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 FORM 10-K 

 

 

 

    (Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
  For the Fiscal Year Ended December 31, 2011  
     
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT  

For the transition period from ________  to ______

 

ALLIED AMERICAN STEEL CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada 333-143969 20-8600068
(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation)   Identification Number)

  

600 Grant, Suite 660

Pittsburgh, PA 15219

(Address of principal executive offices)

 

(412) 223-2663

(Registrant’s Telephone Number)

 

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 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 x

 

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 x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 this Form 10-K or any amendment to this Form 10-K. ¨

 

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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

  Large Accelerated Filer ¨ Accelerated Filer  ¨
         
  Non-Accelerated Filer  ¨ Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2011 was $2,647,615 based upon the price ($0.72) at which the registrant’s common stock was last sold as of the last business day of the most recently completed second fiscal quarter.  

 

As of April 9, 2012, there were 101,668,351 shares of the registrant’s $0.001 par value common stock issued and outstanding.

 

Documents incorporated by reference: None

 

 
 

 

Table of Contents

 

  PART I 3
     
ITEM 1. BUSINESS 9
ITEM 1A. RISK FACTORS 9
ITEM 1B. UNRESOLVED STAFF COMMENTS 9
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. MINE SAFETY DISCLOSURES 10
     
  PART II 10
     
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED   STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 10
ITEM 6. SELECTED FINANCIAL DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 16
ITEM 9A. CONTROLS AND PROCEDURES. 16
ITEM 9B. OTHER INFORMATION. 18
     
  PART III 18
     
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS. 18
ITEM 11. EXECUTIVE COMPENSATION 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 23
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 24
     
  PART IV 26
     
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. 26

 

2
 

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted.

 

This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Except as otherwise indicated by the context, references in this report to “Company”, “AAST”, “we”, “us” and “our” are references to Allied American Steel Corporation. All references to “USD” or United States Dollars refer to the legal currency of the United States of America.

 

PART I

 

ITEM 1. BUSINESS

 

Formation

 

Allied American Steel Corporation (the “Company” or “we”) was incorporated in the State of Nevada on March 7, 2007 under the name Zion Nevada Corporation to acquire, develop and manage commercial and residential real estate properties. We were unsuccessful in this endeavor and never commenced material operations in this area. On May 21, 2009 we changed our name to Royal Union Holding Corporation. On April 28, 2011 we entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which we merged with our wholly owned subsidiary, Allied American Steel Corporation, a Nevada corporation with no material operations ("Merger Sub" and such merger transaction, the "Merger"). Upon the consummation of the Merger, the separate existence of Merger Sub ceased and our shareholders became shareholders of the surviving company named Allied American Steel Corporation. As permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the Merger was to effect a change of the Company's name. Upon the filing of Articles of Merger (the "Articles of Merger") with the Secretary of State of Nevada on April 28, 2011 to effect the Merger, our Articles of Incorporation were deemed amended to reflect the change in our corporate name. We changed our name to Allied American Steel Corporation to reflect a name which recognized our new business focused on the discovery and production of iron ore resources and titanium dioxide resources.

 

3
 

 

Forward Stock Split

 

On April 27, 2011, our Board of Directors declared an 18-for-1forward split of our common stock, in the form of a stock dividend (the “Stock Split”). In connection therewith, Company shareholders of record as of the close of business on May 19, 2011 received an additional 17 shares of our common stock for each share of our common stock held by them. All references to stock issuance throughout this Form 10-K give retroactive effect to the Stock Split.

 

Our Business

 

Assignment and Sale Agreement

 

On May 27, 2011 we entered into an Assignment and Sale Agreement (the “Assignment Agreement”) with North American Iron Ore, Inc., a Nevis corporation (“North American”) and Canamara Energy Corporation, a British Columbia, Canada corporation (“Canamara”). The Assignment Agreement provides us with the right to acquire up to a 60% undivided interest in certain mineral claims (the “Mineral Claims”, the “Property” or the “Lake Touladi Property”) located in Lyonne Township, Roberval County in the Province of Quebec, free and clear of all claims, liens, charges and encumbrances, save and except for those set forth in the Assignment Agreement, including a 2.5% royalty held by the underlying owner. The Mineral Claims presently represent 48 contiguous claims totaling approximately 2,741 hectares of iron and titanium dioxide resources. Several points of access currently exist for the Property and all infrastructure required for the development of a mine are located nearby. The property is within easy access of the St. Lawrence River.

 

Pursuant to the Assignment Agreement, we are the assignee of North American which had entered into an agreement with Canamara on May 7, 2010 under which North American had the option to acquire the Mineral Claims by making cash payment to Canamara or making expenditures on the Property as follows:

 

ŸCDN $150,000 (for Canamara) on May 7, 2010;

 

ŸCDN $250,000 (for Property expenditures) on or prior to November 7, 2010; and

 

ŸCDN $1,750,000 (for Property expenditures) on or prior to May 7, 2012.

 

As of the May 27, 2011 date of the Assignment Agreement, North American had paid Canamara or made expenditures with respect to the Mineral Claims in the aggregate amount of CDN $601,654 (approximately US$603,007 at the times of payment). In connection with the foregoing, expenditures means the sum of all monies spent in prospecting, exploring, geological, geophysical and geochemical surveying, sampling, examining, diamond and other types of drilling, developing, dewatering, assaying, testing, constructing, maintaining and operating roads, trails and bridges upon or across the Property, buildings, equipment, plant and supplies, salaries and wages (including fringe benefits) of employees and contractors directly engaged therein, insurance premiums, and all other expenses ordinarily incurred in prospecting, exploring and developing mining lands.

 

Pursuant to the Assignment Agreement, we issued to North American 15,075,175 shares of our restricted common stock which were valued, for the purpose of the Assignment Agreement, at a price of $0.04 per share or an aggregate of US$603,007.

 

4
 

 

To exercise the option assigned to us in the Assignment Agreement, we are required to incur expenditures on the Property in the amount of CDN $1,548,346 (approximately US$1,599,000 based on the conversion rate in effect as of June 1, 2011) on or before May 7, 2012. The Assignment Agreement represents the assignment and sale of an option only. Pending the results of our trenching program and subject to the availability of required financing, we will determine whether to exercise the option. We continue to look at other ventures involving the discovery and production of iron ore resources and the titanium dioxide resources often associated with iron deposits.

 

During the option period, we are required to maintain the Property in good standing by the doing and filing of applicable assessment work or the making of payments in lieu thereof, by the payment of taxes and rentals and the performance of all other actions which may be necessary in that regard and in order to keep the Property free and clear of all liens and other charges except those at the time contested in good faith by us.

 

During the term of the Assignment Agreement, we, together with our agents and independent contractors, have the sole and exclusive right to enter the Property, do such prospecting, exploration, development and/or other mining work thereon as we deem advisable, bring upon and erect upon the Property such buildings, plant, machinery, tools, appliances and/or equipment as we deem advisable and remove therefrom and dispose of reasonable quantities of ores, minerals and metals for the purpose of obtaining assays or making other tests.

 

The option terminates if we fail to make required expenditures on the Property when due or if we voluntarily terminate the option. In addition, Canamara may terminate the option if we are in breach of any of our representations and warranties. In such event, Canamara must first provide us with a notice of default following which we will have 30 days to cure.

 

Consulting Agreements

 

On June 1, 2011 we entered into Consulting Services Agreements with Richard Tschauder, Erik Ostensoe, and Michael Boily under which Messrs. Tschauder, Ostenoe and Boily are serving as our Senior Geologist, Senior Exploration Advisor and as a General Advisor, respectively. On June 22, 2011 we entered into Consulting Services Agreements with David Dunn and Stewart Jackson under which Messrs. Dunn and Jackson are serving as General Advisors. Each of Messrs. Tschauder, Ostenoe, Boily, Dunn and Jackson have extensive experience in the mining industry.

 

Exploration and Prospecting Program

 

During July 2011 we completed Phase I of our initial Prospecting Program at a cost of approximately $31,500 under which we located mineral outcrops on the Lake Touladi Property, estimated the size of mineralized zones, identified prospect targets and hired clearers to establish access to the Property.

 

During August, 2011 we completed Part A of Phase II of our Exploration Program at a cost of approximately $30,400 and under which we cleared outcrops, prepared preliminary access to outcrops and conducted limited channel sampling

 

In August 2011 we retained Multi-Resources Boreal, a Quebec corporation (“MRB”) providing mineral exploration services, to verify the presence of iron bearing rock on the Lake Touladi Property. A total of 43 one meter channel samples were taken at 18 separate outcrops and the samples were assayed at AGAT Laboratories in Mississauga, Ontario.

 

5
 

 

On October 21, 2011 we entered into a Services Agreement (the “Services Agreement”) with MRB. Under the Services Agreement, MRB provides us with prospecting, trenching, sampling and other exploration services and manpower with respect to the Lake Touladi Property. The Services Agreement has an initial term of six months and is subject to automatic extension for successive six month periods. The Services Agreement may be terminated by either party, at any time, upon 30 days prior written notice. Each extension will be evidenced by a separate agreement which will contain similar terms to those in the Services Agreement.

 

Performance of services by MRB under the Services Agreement is contingent on the prior receipt by MRB on the first of each month of an expense advance sufficient to cover budgeted expenses for that month. The initial term of the Services Agreement principally relates to Part B of Phase II of our work program which is dedicated to Prospect Exploration. Part A of our Phase II Program which involved the clearing of outcrops, preparing a preliminary map of outcrops and limited channel sampling has been completed. Part B of Phase II ran through March 2012 and involved costs of approximately US$189,000. Activities included geological mapping and sampling of outcrops. MRB was responsible for locating subcontractors including, but not limited to, heavy equipment operators, drilling companies, and assay labs. All subcontractors utilized by MRB must be approved by us. The costs charged to us by MRB are not to exceed actual cost plus 10%. We have agreed to provide MRB with reasonable support, as needed, for the services to be performed by MRB.

 

Further to Part A of our Phase II Program, in August 2011 we retained MRB to verify the presence of iron-bearing rock on the Property. A number of outcrops were discovered in or near the southern portion of the property in an area that was approximately 250 meters wide (east to west) and 500 meters long (north to south). A total of 43 one meter channel samples were taken at 18 separate outcrops. The samples were assayed at AGAT Laboratories in Mississauga, Ontario using a lithium borate fusion and ICP-OES finish. The average of all samples taken was 30.11% Iron Oxide (Fe2O3) and 2.83% Titanium Dioxide (TiO2). The best sample assayed indicated 40.75% Fe2O3. Titanium Dioxide appears to be highly variable with assays reported as high as 5.48% and as low as 0.149%. In addition, the samples contained an average of 0.42%, Phosphorous Pentoxide (P2O5), with a maximum of 5.48%. Additional exploration verified the presence of iron bearing rock in an area one kilometer to the north of the northern edge of the minerals detected in the previously tested area. Exploration was also done to investigate continuity of mineral between the two zones. No outcrops of iron-rich rock were found between the two zones. A total of 47 samples were taken during this phase and analyzed at the ALS Chemex Lad in Val d’Or, Quebec. Analysis of those samples indicated that the deposit is subtly zoned, being more iron-rich in the south and more titanium-rich in the north. Permits for trenching were applied for, but not granted due to wetlands issues. We are in the process of reapplying for trenching and drilling permits. No assurance can be given that our permit applications will be granted.

 

In September 2011, Bueno de Oro, a Nevada Geological Services corporation, was hired to manage the program. After managing the fall field program described above, Bueno de Oro designed and implemented a number of activities in order to use the data obtained during the field program to advance understanding of the deposit and design a more efficient approach to project exploration. Work included more detailed petrographic analysis, magnetic susceptibility testing, preliminary density determinations, metallurgical testing, analysis of analog deposits, construction of cross sections, geochemical analysis, geologic modeling, estimates of geologic potential, drill proposals, creation of customized standards for a QA/QC program and geologic reports. As a result of the work performed and related diligence, we have determined that a significant portion of the iron and possibly some of the titanium located on the Lake Touladi property is locked in silicate minerals where economic recovery is unlikely. This changes the economic focus on the Lake Touladi Property from iron potential to titanium potential. It remains to be determined whether there is a sufficient amount of recoverable titanium to make the mining of the property viable. As the result of the foregoing, some of the work related to the project has been deferred.

 

6
 

 

We plan to conduct additional mineralogical and metallurgical work to better define the character of the material, and to better determine how much of the minerals, if any, may be recoverable in a saleable concentrate. Given the limited size and nature of the sampling activities, absent drilling, metallurgy testing and further exploration activities, no assurance can be given as to the economic viability of the extraction of the minerals contained on the Property.

 

Exploration Stage Company

 

We are an exploration stage company. We have commenced operations but have yet to achieve any operating revenues. Our operations have consisted of (i) general administrative activities; (ii) locating and acquiring rights to mineral prospects; (iii) conducting due diligence; and (iv) commencing prospect exploration activities. Our operations to date have been primarily devoted to the following:

 

ŸDevelopment of the Company’s business plan;

 

ŸIdentifying alternative capital resources;

 

ŸEngaging in due diligence and research on potential acquisition candidates that will provide positive cash flow;

 

ŸRaising capital through the sale of stock and warrants;

 

ŸAcquiring an option to acquire a 60% interest in certain mineral claims;

 

ŸContracting with mineral rights consultants;

 

ŸEntering into a Services Agreement with a provider of mineral exploration services; and

 

ŸCommencing an exploration and prospecting program.

 

In order for us to expand and further develop our business, we will require additional capital. No assurance can be given that such capital will be available to us and if so, on reasonable terms.

 

During the year ended December 31, 2011 and the subsequent period the following events took place:

 

ŸPursuant to a Share Purchase Agreement dated February 1, 2011 (the “Share Purchase Agreement”), Shawn Wright sold 180,000,000 of his shares of common stock of the Company to Anna Yakovleva, who became our new majority shareholder, owning 81.6% of the then outstanding capital stock of the Company;

 

7
 

 

ŸPursuant to the Share Purchase Agreement, on February 2, 2011, Tammy Hardcastle, Michael Hesser, Shawn Wright and Heidi Williams resigned as officers and Jes Black was appointed as our sole officer and director of the Company;

 

ŸOn March 1, 2011, Jes Black accepted his appointment as our sole officer and director;.

 

ŸOn March 1, 2011, the Company entered into an executive employment agreement with Jes Black. As part of the employment agreement, the Company authorized compensation of an annual salary of $84,000 and the one time issuance of 72,000,000 shares of common stock to Mr. Black. Effective April 1, 2011, Mr. Black’s annual salary was increased to $91,000;

 

ŸOn March 25, 2011, the Company and Ms. Yakovleva agreed to the cancellation of 138,600,000 shares of her common stock of the Company;

 

ŸOn April 8, 2011, pursuant to the Share Purchase Agreement, Shawn Wright forgave the advances he had made to the Company totaling approximately $54,754;

 

ŸOn April 8, 2011, Michael Hesser wrote off his $50,000 deposit for 10,000,000 shares of common stock in the Company, stating that certain conditions were not met and that as a consequence he was not due the aforementioned shares;

 

ŸOn April 8, 2011, Royal Union, LLC forgave advances it had made to the Company totaling $14,560;

 

ŸEffective April 15, 2011 we entered into a Securities Purchase Agreement with North American pursuant to which we sold to North American 133,282 units of our securities at a purchase price of $0.75 per unit or an aggregate of $99,961.50, each unit consisting of one share of our common stock and a three year common stock purchase warrant to purchase one share of our common stock at a price of $0.90 per share. The agreement gave retroactive effect to the 18:1 forward stock split effected after the close of business on May 19, 2011.

 

ŸOn May 27, 2011 we entered into the Assignment Agreement with North American and Canamara pursuant to which we issued 15,075,175 shares of common stock to North American;

 

ŸOn June 1, 2011, Jes Black, our principal shareholder and sole executive officer and director, cancelled 68,000,000 of the 72,000,000 Company’s shares owned by him in furtherance of our new business plan and to enhance our ability to raise future financing;

 

ŸOn June 1, 2011, we entered into consulting agreements which included the issuance of 50,000 shares of common stock;

 

ŸOn June 20, 2011, we entered into a Securities Purchase Agreement with North American, pursuant to which we sold to North American 759,894 units of our securities at a purchase price of $0.75 per unit or an aggregate of $569,923, each unit consisting of one share of our common stock and a three year common stock purchase warrant to purchase one share of our common stock at a price of $0.90 per share;

 

8
 

 

ŸOn June 22, 2011, the Company entered into consulting agreements which included the issuance of 75,000 shares of common stock;

 

ŸDuring July, 2011 we completed Phase I of our initial prospecting program;

 

ŸDuring August, 2011 we completed Part A of Phase II of our Exploration Program;

 

ŸIn September 2011 we engaged Bueno de Oro to manage our project exploration program;

 

ŸOn October 21, 2011 we entered into a Services Agreement with MRB,

 

ŸIn March 2012, we issued an aggregate of 125,000 shares of common stock to four consultants pursuant to our June 2011 Consulting Agreements.

 

WHERE YOU CAN GET ADDITIONAL INFORMATION

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our corporate office is located at 600 Grant, Suite 660, Pittsburgh, PA 15219. Our telephone number at that location is (412) 223-2663. It is our belief that the space is adequate for our immediate needs. Additional space may be required as we expand our operations. We do not foresee any significant difficulties in obtaining any required additional facilities. We do not presently own any real property.

 

ITEM 3. LEGAL PROCEEDINGS

 

In December 2008, the Company was named as a defendant in an amended complaint filed in the District Court of Nevada, Clark County by Phyllis Wynn Family Trust, Plaintiff, vs. Onecap Holding Corp, Onecap Properties, et al, defendant(s) [case number 08A578385]. The complaint names over eighty defendants including the Company and alleges multiple causes of actions including breach of contract and fraud against various other defendants and fraudulent conveyance. The substance of the Complaint involves a real estate transaction not involving the Company. We have answered with affirmative defenses including but not limited to the following: (1) the injuries and damages complained of did not occur as the result of any action on the part of the Company but as the sole, direct and proximate result of actions by the Plaintiff and third parties not otherwise related to the Issuer. Since then one or more of the other defendants filed for bankruptcy and this case was removed to a federal bankruptcy court [case number: Nevada Federal Bankruptcy Court Case No.: BK-S 10-20833-BA].

 

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In May 2010, the Company was named as an intervenor defendant in an amended complaint filed in the District Court of Nevada, Clark County by Anthony Puerner, Plaintiff, vs. Onecap Mortgage, et al, defendant(s)[case number A-09-596875-C]. The Complaint names more than 30 other individuals and/or entities as defendants. The Plaintiff’s claim as against these defendants including the Company is that they are the alter egos of a judgment debtor, not otherwise related to the Company. The Plaintiff in Intervention is an unsecured creditor with a judgment against an individual personally, who is not an officer, director or shareholder of the Company. We have answered with affirmative defenses including but not limited to the following: (1) the injuries and damages complained of did not occur as the result of any action on the part of the Company and failure to state a claim. In February, 2011, the case was moved to Federal Bankruptcy court [case number 10-18090-mkn United States Bankruptcy Court District of Nevada].

 

Other than the foregoing, we know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is currently quoted on the OTC Bulletin Board. Our common stock has been quoted on the OTC Bulletin Board since February 13, 2009 and is currently quoted under the symbol “AAST.OB.” We were previously quoted on the OTC Bulletin Board under the symbol “ZINN.OB”, which was changed on October 11, 2010 to “RUHC.OB” and changed on May 16, 2011 to “AAST.OB”. Because we are quoted on the OTC Bulletin Board, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.

 

The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share of our common stock on the OTCBB, reported by the National Association of Securities Dealers Composite Feed or other qualified interdealer quotation medium. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

10
 

 

Quarter Ended  High Bid(1)   Low Bid(1) 
         
December 31, 2011  $0.19   $0.05 
September 30, 2011  $0.75   $0.18 
June 30, 2011  $1.74   $0.01 
March 31, 2011  $0.01   $* 
December 31, 2010  $*   $* 
September 30, 2010  $N/A   $N/A 
June 30, 2010  $0.02   $0.02 
March 31, 2010  $N/A   $N/A 

* Less than $0.01.

 

(1) On April 27, 2011 our Board of Directors declared an 18:1 forward split on our common stock in the form of a stock dividend which was to shareholders of record as of the close of business on May 19, 2011. All high and low closing bid prices reflect the split.

 

As of December 31, 2011, we had 106 shareholders of record for our common stock.

 

Dividends

 

We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.

 

Recent Sales of Unregistered Securities

 

We made no sales of unregistered securities during the quarter ended December 31, 2011. All sales of unregistered securities made by us prior to the December 31, 2011 quarter, have been previously reported in our Forms 10-Q and 8-K.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

Equity Compensation Plan Information

 

The Company does not have any employee stock option or stock purchase plans at December 31, 2011.

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

11
 

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

 

The following discussion should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

 

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed elsewhere in this annual report.

 

Results of Operations

 

Net Loss

 

We incurred a net loss of $963,388 for the year ended December 31, 2011. For the year ended December 31, 2010, we incurred a net loss of $26,864. The increase in comparable net loss was primarily due to impairment of option for mineral rights, stock compensation, exploration costs, salary and an increase in general administrative expenses. We incurred net losses of $1,111,304 for the period from March 7, 2007 (date of inception) through December 31, 2011 and have not yet generated any revenues since inception. These losses coupled with our lack of revenues caused our independent registered public accounting firm to include an explanatory paragraph in their report for the years ended December 31, 2011 and 2010 that raises substantial doubt about our ability to continue as a going concern.

 

Revenues

 

We generated no revenues during the period from March 7, 2007 (date of inception) through December 31, 2011.

 

Liquidity and Capital Resources

 

We will need additional capital to implement our strategies including the potential exercise of the option on the Lake Touladi Property. Given the currently unsettled state of the capital markets and credit markets, there is no assurance that we will be able to raise the amount of capital that we seek. Even if financing is available, it may not be on terms that are acceptable to us. In addition, we do not have any determined sources for any future funding. If we are unable to raise the necessary capital at the times we require such funding, we may have to materially change our business plan, including delaying implementation of aspects of our business plan or curtailing or abandoning our business plan. We represent a speculative investment and investors may lose all of their investment.

 

Since inception, we have been financed primarily by way of loans and sales of our equity and debt securities. During 2011, these financings principally consisted of our April 15, 2011 and June 20, 2011 Securities Purchase Agreements with North American under which we received net proceeds of $669,885.

 

At December 31, 2011, cash was $225,036 and we had other current assets of $10,499 which consisted of prepaid expenses. At the same time we had current liabilities of $28,893, which consisted of accounts payable and accrued expenses. We attribute our net loss to having no revenues to sustain our operating costs as we are an exploration stage company. At December 31, 2010, cash was $17 and we had no other current assets and current liabilities of $75,983, which consisted of accounts payable, accrued expenses and advances from related parties.

 

12
 

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was ($447,038) for the year ended December 31, 2011, as compared to net cash used of ($4,057) for the year ended December 31, 2010. The increase was primarily due to stock issued for services and impairment of option for mineral rights acquired with stock.

 

Net Cash Provided by Financing Activities

 

During the year ended December 31, 2011, we received net proceeds of $672,057 from financing activities principally representing proceeds from the issuance of common stock and warrants. During the year ended December 31, 2010 we received net proceeds of $3,750 from financing activities consisting of principally advances from related parties. During the period from March 7, 2007 (date of inception) through December 31, 2011, we received net proceeds of $791,081 from financing activities consisting of primarily proceeds from the issuance of common stock and warrants.

 

General

 

We will only commit to capital expenditures for any future projects requiring us to raise additional capital as and when adequate capital or new lines of finance are made available to us. There is no assurance that we will be able to obtain any financing or enter into any form of credit arrangement. Although we may be offered such financing, the terms may not be acceptable to us. If we are not able to secure financing or it is offered on unacceptable terms, then our business plan may have to be modified or curtailed or certain aspects terminated. There is no assurance that even with financing we will be able to achieve our goals.

 

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, our ability to continue as a going concern will be dependent upon our ability to generate sufficient cash flow from our planned operations to meet our obligations on a timely basis, to obtain additional financing, and ultimately attain profitability. The report of our independent accountants on our December 31, 2011 consolidated financial statements included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to recurring losses. Our ability to continue as a going concern will be determined by our ability to obtain additional funding or generate sufficient revenue to cover our operating expenses. We currently have no sources of financing available and we do not expect to earn any revenues in the near term. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Critical Accounting Policies

 

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

13
 

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

 

Going Concern

 

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors have included in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern.

 

Future Financings

 

The Company intends to continue to pursue equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

14
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

  Index
   
Report of Independent Registered Public Accounting Firm F-1
   
Balance Sheets as of December 31, 2011 and 2010 F-2
   
Statements of Operations for the years ended December 31, 2011 and 2010 and the period from March 7, 2007 (date of inception) through December 31, 2011 F-3
   
Statement of Stockholders’ Equity (Deficit) for the period from March 7, 2007 (date of inception) through December 31, 2011 F-4
   
Statements of Cash Flows for the years ended December 31, 2011 and 2010 and the period from March 7, 2007 (date of inception) through December 31, 2011 F-5
   
Notes to the Audited Financial Statements F-6 – F-16

 

15
 

 

SEALE AND BEERS, CPAs

PCAOB & CPAB REGISTERED AUDITORS

www.sealebeers.com 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

Allied American Steel Corporation

(An Exploration Stage Company)

 

We have audited the accompanying balance sheets of Allied American Steel Corporation (An Exploration Stage Company) as of December 31, 2011 and 2010, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years ended December 31, 2011 and 2010 and since inception on March 7, 2007 through December 31, 2011. Allied American Steel Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. 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 for 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Allied American Steel Corporation (An Exploration Stage Company) as of December 31, 2011 and 2010, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years ended December 31, 2011 and 2010 and since inception on March 7, 2007 through December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has no revenues, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Seale and Beers, CPAs

 

Seale and Beers, CPAs

Las Vegas, Nevada

March 26, 2012

 

50 S. Jones Blvd. Suite 202 Las Vegas, NV 89107 Phone: (888)727-8251 Fax: (888)782-2351

 

F-1
 

 

ALLIED AMERICAN STEEL CORP

(An Exploration Stage Company)

 

Condensed Balance Sheets

 

   December 31, 2011   December 31, 2010 
         
ASSETS          
           
Current assets:          
Cash and cash equivalents  $225,036   $17 
Prepaid expenses   10,499    - 
Total current assets   235,535    17 
           
Total Assets  $235,535   $17 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
           
Current liabilities:          
Accounts payable and accrued expenses  $28,893   $6,669 
Advances from related parties   -    69,314 
Total current liabilities   28,893    75,983 
           
STOCKHOLDERS' EQUITY (DEFICIT)          
           
Preferred stock; $.001 par value, 50,000,000 shares authorized, zero shares issued and outstanding   -    - 
Common stock; $.001 par value, 900,000,000 shares authorized; 101,543,351 and 220,050,000 shares issued and outstanding at December 31, 2011 and 2010, respectively   101,543    220,050 
Additional paid-in-capital   1,216,278    (195,300)
Accumulated (deficit) during the exploration stage   (1,111,304)   (147,916)
Stock issuable   125    50,000 
Less: Stock issued for receivable   -    (2,800)
Total stockholders' equity (deficit)   206,642    (75,966)
           
Total Liabilities and Stockholders' Equity (Deficit)  $235,535   $17 

 

The accompanying notes are an integral part of these financial statements.

 

F-2
 

 

ALLIED AMERICAN STEEL CORP

(An Exploration Stage Company)

 

Condensed Statements of Operations

 

           March 7, 2007 
           (date of inception) 
   For year ending   For year ending   through 
   December 31, 2011   December 31, 2010   December 31, 2011 
             
Revenues  $-   $-   $- 
                
Operating expenses               
Impairment of option for mineral rights   125,626    -    125,626 
General administrative   456,671    26,864    554,712 
General administrative - related-party   -    -    49,875 
Stock compensation bonus   212,000    -    212,000 
Exploration costs   87,742    -    87,742 
Officer payroll   75,250    -    75,250 
Payroll tax expense   6,099    -    6,099 
Total operating expenses   963,388    26,864    1,111,304 
                
Provision for income taxes   -    -    - 
                
Net loss  $(963,388)  $(26,864)  $(1,111,304)
                
Basic and diluted loss per common share  $(0.01)  $(0.00)     
                
Basic and diluted weighted average common shares outstanding   143,075,765    220,050,000      

 

The accompanying notes are an integral part of these financial statements.

 

F-3
 

 

ALLIED AMERICAN STEEL CORP

(An Exploration Stage Company)

 

Condensed Statements of Cash Flows

 

           March 7, 2007 
           (date of inception) 
   For year ending   For year ending   through 
   December 31, 2011   December 31, 2010   December 31, 2011 
             
Operating activities:               
Net loss  $(963,388)  $(26,864)  $(1,111,304)
Adjustments to reconcile net loss to net cash used in operating activities:               
Impairment of option for mineral rights acquired with stock   125,626    -    125,626 
Stock issued for services   378,999    -    383,999 
Changes in operating assets and liabilities:               
(Increase) decrease in prepaid expense   (10,499)   600    (10,499)
Expenses paid on company behalf by related parties   -    16,490    17,240 
Increase in accounts payable and accrued expenses   22,224    5,717    28,893 
Net cash (used in) operating activities   (447,038)   (4,057)   (566,045)
                
Financing activities:               
Proceeds from issuance of units of common stock and warrants   669,885    -    669,885 
Net proceeds from issuance of common stock   -    -    66,950 
Advances from related parties   4,075    4,660    57,059 
Payments to related parties   (1,903)   (910)   (2,813)
Net cash provided by financing activities   672,057    3,750    791,081 
                
Net change in cash   225,019    (307)   225,036 
Cash, beginning of period   17    324    - 
Cash, ending of period  $225,036   $17   $225,036 
                
Non cash financing activities:               
Related party debt forgiven  $71,486   $-   $71,486 

 

The accompanying notes are an integral part of these financial statements.

F-4
 

 

ALLIED AMERICAN STEEL CORP

(An Exploration Stage Company)

 

Statements of Stockholders' Equity (deficit)

Inception through December 31, 2011

 

                   Additional   Shares       Total 
   Common stock   Stock issuable   paid-in   issued for   Accumulated   Shareholders' 
   Shares   Amount   Shares   Amount   capital   receivable   (deficit)   (deficit) 
                                 
Balance March 7, 2007 (date of inception)   -   $-    -   $-   $-   $-   $-   $- 
                                         
Common shares issued for cash at $0.001 per share   90,000,000    90,000    -    -    (85,000)   -    -    5,000 
                                         
Common shares issued for service at $0.001 per share   90,000,000    90,000    -    -    (85,000)   -    -    5,000 
                                         
Net (loss) for the period March 7, 2007 (inception) to December 31, 2007   -    -    -    -    -    -    (22,644)   (22,644)
                                         
Balance December 31, 2007   180,000,000   $180,000    -   $-   $(170,000)  $-   $(22,644)  $(12,644)
                                         
Common shares issued for cash at $0.01 per share   40,050,000    40,050    -    -    (17,800)   (2,800)   -    19,450 
                                         
Offering related cost   -    -    -    -    (7,500)   -    -    (7,500)
                                         
Net (loss) for the year ended December 31, 2008   -    -    -    -    -    -    (16,227)   (16,227)
                                         
Balance December 31, 2008 (Restated)   220,050,000   $220,050    -   $-   $(195,300)  $(2,800)  $(38,871)  $(16,921)
                                         
Stock issuable - See note 4   -    -    10,000,000    50,000    -    -    -    50,000 
                                         
Net (loss) for the year ended December 31, 2009   -    -    -    -    -    -    (82,181)   (82,181)
                                         
Balance December 31, 2009   220,050,000   $220,050    10,000,000   $50,000   $(195,300)  $(2,800)  $(121,052)  $(49,102)
                                         
Net (loss) for the year ended December 31, 2010   -    -    -    -    -    -    (26,864)   (26,864)
                                         
Balance December 31, 2010   220,050,000   $220,050    10,000,000   $50,000   $(195,300)  $(2,800)  $(147,916)  $(75,966)
                                         
Common shares issued for Services on March 1, 2011 per Employment Agreement at $0.00295 per share   72,000,000    72,000    -    -    140,000    -    -    212,000 
                                         
Common shares cancelled on March 25, 2011   (138,600,000)   (138,600)   -    -    138,600    -    -    - 
                                         
Contributed Capital from Loans forgiven   -    -    -    -    2,172    -    -    2,172 
                                         
Contributed Capital from Loans forgiven   -    -    -    -    69,314    -    -    69,314 
                                         
Contributed Capital   -    -    (10,000,000)   (50,000)   47,200    2800    -    - 
                                         
Common shares and warrants issued for cash on April 15, 2011   133,282    133    -    -    99,828    -    -    99,961 
                                         
Common shares issued for mineral rights Assignment Agreement on May 27, 2011   15,075,175    15,075    -    -    110,551    -    -    125,626 
                                         
Common shares cancelled on June 1, 2011   (68,000,000)   (68,000)   -    -    68,000    -    -    - 
                                         
Common shares issued for Services on June 1, 2011 per Consulting Agreements at $1.01 per share   50,000    50    -    -    50,450    -    -    50,500 
                                         
Common shares and warrants issued for cash on June 20, 2011   759,894    760    -    -    569,163    -    -    569,923 
                                         
Common shares issued for Services on June 22, 2011 per Consulting Agreements at $1.39 per share   75,000    75    -    -    104,175    -    -    104,250 
                                         
Common shares issueble for Services on December 1, 2011 per Consulting Agreements at $0.11 per share   -    -    50,000    50    5,450    -    -    5,500 
                                         
Common shares issueble for Services on December 22, 2011 per Consulting Agreements at $0.09 per share   -    -    75,000    75    6,675    -    -    6,750 
                                         
Net (loss) for the year ended December 31, 2011   -    -    -    -    -    -    (963,388)   (963,388)
                                         
Balance December 31, 2011   101,543,351   $101,543    125,000   $125   $1,216,278   $-   $(1,111,304)  $206,642 

 

F-5
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

Note 1. Nature of Business and Summary of Significant Accounting Policies

 

The summary of significant accounting policies is presented to assist in the understanding of the financial statements. The financial statements and notes are representations of management. These accounting policies conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied in the preparation of the financial statements.

 

In the opinion of management, the accompanying balance sheets and related interim statements of operations and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with U.S. GAAP for Allied American Steel Corp. (the “Company”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions.

 

Nature of business and organization

 

On April 28, 2011, Royal Union Holding Corporation (“Royal Union”), formerly Zion Nevada Corporation, which was incorporated in the State of Nevada on March 7, 2007, entered into an Agreement and Plan of Merger (the “Merger Agreement”) to merge (the “Merger”) with the Company’s wholly owned subsidiary, Allied American Steel Corp., a Nevada corporation (“Merger Sub”). Upon the consummation of the Merger, the separate existence of the Merger Sub ceased and shareholders of the Company became shareholders of the surviving company named Allied American Steel Corp. The sole purpose of the Merger was to effect the name change from Royal Union Holding Corporation to Allied American Steel Corp. The Company’s principal business objective is as an exploration company focused on the discovery and production of significant iron ore resources and the titanium dioxide resources often associated with iron deposits. Prior to entering into the May 27, 2011 Assignment Agreement (see Note 4), we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). We believe that as a result of such Assignment Agreement we have ceased to be a shell company. The Company’s planned principal operations have commenced, but there has been no significant revenue therefrom, operations have been limited to general administrative operations and exploration, and as a result the Company is considered an exploration stage company as defined by ASC Topic 915 and SEC Industry Guide 7.

 

Estimates

 

The preparation of the financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company is subject to uncertainty of future events, economic, environmental and political factors and changes in the Company's business environment; therefore, actual results could differ from these estimates. Accordingly, accounting estimates used in the preparation of the Company's financial statements will change as new events occur, more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Changes are made in estimates as circumstances warrant. Such changes in estimates and refinement of estimation methodologies are reflected in the statements.

 

Mineral Properties

 

The Company accounts for its mining activities in accordance with FASB ASC 930 “Extractive Activities – Mining.” The Company capitalizes the costs to acquire mineral properties. Exploration costs are expensed as incurred and include geological and geophysical work on areas without identified reserves, together with drilling and other related costs. Capitalization of mine development costs that meet the definition of an asset begins once all operating permits have been secured, mineralization is classified as proven and probable reserves and a final feasibility study has been completed. Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. All capitalized costs are amortized using the units-of-production method over the estimated life of the ore body based on recoverable quantities to be mined from proven and probable reserves. Interest expense allocable to the cost of developing mining properties and to construct new facilities is capitalized until assets are ready for their intended use. The Company had no mine development costs at December 31, 2011.

  

F-6
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

Mining facilities and equipment are recorded at cost. Expenditures for facilities and equipment relating to new assets or improvements are capitalized if they extend useful lives or extend functionality. Fixed plant and machinery are amortized using the units-of-production method over the estimated life of the ore body based on recoverable quantities to be produced from estimated proven and probable mineral reserves. Repairs and maintenance costs are charged to expense as incurred, except when these repairs extend the life or functionality of the asset. In these instances, that portion of the expenditure is capitalized and amortized over the period benefited. Depreciation, depletion and amortization is allocated to product inventory cost and then included as a component of operating expense as inventory is sold. As of December 31, 2011, the Company had no facilities and equipment.

 

As of December 31, 2011, the Company had not established any proven or probable reserves.

 

Impairment of Long-lived Assets

 

The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. Impairment on interests in mineral reserves are evaluated by considering criteria such as estimates of future cash flows that are directly associated with the asset, future extractive activity plans for the properties, and the results of geographic and geologic data related to the properties. For the twelve months ended December 31, 2011, the Company recorded an impairment to its interest in mineral rights in the amount of $125,626.

 

Cash and cash equivalents

 

Cash is comprised of cash deposits held at banks. Cash equivalents are financial instruments issued or guaranteed by major financial institutions and governments that have an original maturity date of less than 90 days. Cash equivalents are stated at cost, which approximates market value.

 

Revenue recognition

 

The Company has no revenues to date from its operations. Once revenues are generated, management will establish a revenue recognition policy.

 

Basic and diluted net loss per share

 

The Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share,” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period.

 

Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive. Shares associated with stock warrants are not included because their inclusion would be antidilutive (i.e., reduce the net loss per share).

 

At December 31, 2011, the Company had outstanding potentially dilutive shares of 893,176.

 

Share-Based Compensation

 

Compensation cost relating to share-based payment transactions are recognized under fair value accounting and recorded in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).

 

F-7
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

The fair value of the warrants is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based on an average of historical volatility of common stock prices of the Company or its peer companies where there is a lack of relevant volatility information of the Company for the length of the expected term. The expected term is derived from estimates and represents the period of time that the warrants granted is expected to be outstanding. The Company uses historical data and management estimates to estimate warrant exercises. The risk-free rate for the expected term is the yield on the zero-coupon U.S. Treasury security with a term comparable to the expected term of the warrant. The Company does not include an estimated dividend yield since it has not paid dividends on its common stock historically.

 

Fair Value Measurements

 

The Company applies the fair value hierarchy as established by US GAAP. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value as follows.

 

  Level 1 – quoted prices in active markets for identical assets or liabilities.

 

  Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

 

  Level 3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

 

The following table summarizes fair value measurements by level at December 31, 2011 for assets and liabilities measured at fair value on a recurring basis:

 

   Level I   Level II   Level III   Total 
Cash  $225,036   $-   $-   $225,036 

 

The following table summarizes fair value measurements by level at December 31, 2010 for assets and liabilities measured at fair value on a recurring basis:

 

   Level I   Level II   Level III   Total 
Cash  $17   $-   $-   $17 

 

Income taxes

 

The Company accounts for its income taxes in accordance with ASC Topic 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

 

Advertising

 

The Company accounts for its advertising costs in accordance with ASC Topic 720. The Company expenses advertising costs as incurred. For the year ended December 31, 2011, the Company incurred advertising expenses in the amount of $29,853.

 

F-8
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

Recent Accounting Pronouncements

 

The Company has analyzed all recent accounting pronouncements and believes that none will have a material impact on the financial statements.

 

Note 2.  Going Concern

 

The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred a net operating loss of $1,111,304 from inception through December 31, 2011. The Company’s planned principal operations have commenced, but there has been no significant revenue.  Operations have been limited to general administrative operations and exploration, and the Company remains in the exploration stages, raising substantial doubt about the Company’s ability to continue as a going concern.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Note 3.  Prepaid Expense

 

At December 31, 2011, prepaid expenses consisted of $762 of accounting fees, $6,667 of consulting fees, and $3,070 of directors and officers insurance.

 

Note 4.  Option to Purchase Mineral Interests

  

We do not own any property.  We have an option to acquire certain mineral rights.

 

On May 27, 2011, the Company entered into an Assignment and Sale Agreement (the “Assignment Agreement”) with North American Iron Ore, Inc., a Nevis corporation (“North American”), who became a related party on May 27, 2011, and Canamara Energy Corporation, a British Columbia corporation (“Canamara”).  The Assignment Agreement provides the Company with an option to acquire up to a 60% undivided interest in certain mineral claims (the “Mineral Claims” or the “Property”) located in Lyonne Township, Roberval County in the Province of Quebec, free and clear of all claims, liens, charges and encumbrances, save and except for those set forth in the Assignment Agreement, including a 2.5% royalty held by the underlying owner. The Mineral Claims presently represent 48 contiguous claims totaling approximately 2,741 hectares.

 

To exercise the option assigned to the Company in the Assignment Agreement, we are required to incur expenditures on the Property in the amount of CDN $1,548,346 (approximately US$1,599,000 based on the conversion rate in effect as of June 1, 2011) on or before May 7, 2012. The Assignment Agreement represents the assignment and sale of an option only and although we intend to exercise the option, subject to receipt of required financing, we are under no obligation to North American or Canamara to do so.

  

F-9
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

The Company’s interest in the Mineral Claims consists of its contractual right to acquire an interest in the Mineral Claims. As of December 31, 2011, the Company has incurred $87,742 of exploration costs on the property on which such Mineral Claims are located.

 

Under the Assignment Agreement, the Company issued 15,075,175 shares of its restricted common stock. The stock value was based on ASC 505-50-30-6, which evaluates the fair value of the equity instruments issued versus the fair value of goods or services received in share-based payment transactions with nonemployees, whichever is more reliably measurable. The Company determined that the fair value of the equity instruments issued were reliably measurable, and the Company valued the 15,075,175 shares at $0.00833 per share (rounded) for a total of $125,626 based on the per share value of a March 2011 stock transaction which was recorded on the Over-the-Counter Bulletin Board.

 

The Company evaluated the Assignment Agreement for impairment based on ASC 360-10-35-21 as a result of the Company’s current-period operating loss, history of operating losses, combined with the difficulty of accurately and reliably estimating future cash flows directly associated with the Property, given the stage of development of the Property. As a result, for the year ending December 31, 2011, the Company fully impaired the value of the Assignment Agreement in the amount of $125,626.

 

F-10
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

Summary

 

Mineral interests consisted of the following:

   December 31, 
   2011   2010 
Option on mineral rights  $125,626   $- 
Impairment charge   (125,626)   - 
Total  $-   $- 

 

Note 5.  Commitments and Contingencies

 

The Company is subject to certain commitments and contingencies related to the Assignment Agreement that is described in Note 4.

 

Note 6.  Stockholders’ Equity and Warrants

 

The Company’s articles of incorporation provide for the authorization of 50,000,000 shares of preferred stock and 900,000,000 shares of common stock with par values of $0.001.  Common stock holders have all the rights and obligations that normally pertain to stockholders of Nevada corporations.  The Company has not issued any shares of preferred stock.  As of December 31, 2011 and December 31, 2010, the Company had 101,543,351 and 220,050,000 shares of common stock issued and outstanding, respectively.  On April 27, 2011, the Company authorized an 18:1 forward split in the form of a dividend of its issued and outstanding common stock which became effective May 19, 2011.  The dividend shares were issued on June 1, 2011.  These condensed financial statements and notes retroactively reflect the forward split.

 

Pursuant to a Share Purchase Agreement dated February 1, 2011, Shawn Wright sold 180,000,000 of his personally held common shares of Royal Union to Anna Yakoleva (“Yakoleva”).  The transaction handed control of the company to Yakoleva, who became the majority shareholder and a related party, owning 81.8% of the Company’s outstanding common stock as of that date.

 

On March 1, 2011, Royal Union entered into an executive employment agreement with Jes Black.  As part of the employment agreement, Royal Union authorized compensation of an annual salary of $84,000 and the one time issuance of 72,000,000 shares of common stock, valued at $212,000, to Mr. Black.  The valuation of the stock was determined by recent sales of stock between private parties that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6.

 

On March 25, 2011, Royal Union and Yakoleva agreed to the cancelation of 138,600,000 shares of Yakoleva’s common stock.

 

On April 8, 2011, Michael Hesser wrote off his $50,000 deposit for 10,000,000 shares of common stock in the Company, stating that certain conditions were not met and that as a consequence he was not due the aforementioned shares.

 

On April 28, 2011, Royal Union entered into the Merger Agreement to effect the Merger.  Upon the consummation of the Merger, the separate existence of the Merger Sub ceased and shareholders of the Company became shareholders of the surviving company named Allied American Steel Corp.  The sole purpose of this merger was to effect the name change to Allied American Steel Corp.

 

On June 1, 2011, Jes Black, the Company’s principal shareholder and sole executive officer and director cancelled 68,000,000 of the 72,000,000 Company’s shares owned by him in furtherance of the Company’s new business plan and to enhance the Company’s ability to raise future financing.

 

Warrants

 

In April 2011, the Company entered into a Securities Purchase Agreement with North American, for the sale of 133,282 units of securities of the Company at $0.75 per unit, for aggregate gross proceeds of $99,962. Each unit consisted of the following: (1) one share of common stock; (2) one warrant, entitling the holder to purchase one share of common stock of the Company at an exercise price of $0.90 per share during a period of three years from issuance. No warrants have been exercised as of December 31, 2011.

 

F-11
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

The Company calculated the fair value of these warrants to be $700 using the Black Scholes model.  The Company used the following assumptions: stock price of $0.0083, an exercise price of $0.90, expected term of 36 months, volatility of 220.54%, and discount rate of 1.280%. The fair value of the warrants is treated as offering costs and it would be a debit and credit entry to additional paid in capital resulting in a null effect in net equity.

 

In June 2011, The Company entered into a Securities Purchase Agreement with North American, for the sale of 759,894 units of securities of the Company at $0.75 per unit, for aggregate gross proceeds of $569,923. Each unit consisted of the following: (1) one share of common stock; (2) one warrant, entitling the holder to purchase one share of common stock of the Company at an exercise price of $0.90 per share during a period of three years from issuance. No warrants have been exercised as of December 31, 2011.

 

The Company calculated the fair value of these warrants to be $1,247,800 using the Black Scholes model.  The Company used the following assumptions: stock price of $1.71, an exercise price of $0.90, expected term of 36 months, volatility of 220.54%, and discount rate of 0.765%. The fair value of the warrants is treated as offering costs and it would be a debit and credit entry to additional paid in capital resulting in a null effect in net equity.

 

The following is a summary of the status of all of the Company’s stock warrants as of December 31, 2011.

 

   Number
Of Warrants
   Weighted-Average
Exercise Price
 
Outstanding at January 1, 2011   -   $- 
Granted   893,176   $0.90 
Exercised   -   $- 
Cancelled   -   $- 
Outstanding at December 31, 2011   893,176   $0.90 
Warrants exercisable at December 31, 2011   893,176   $0.90 

 

The following tables summarize information about stock warrants outstanding and exercisable at December 31, 2011:

 

    STOCK WARRANTS OUTSTANDING AND EXERCISABLE 
Exercise Price   Number of
Warrants
Outstanding
   Weighted-Average
Remaining
Contractual
Life in Years
   Weighted-
Average
Exercise Price
 
$0.90    893,176    2.44   $0.90 
      893,176    2.44   $0.90 

 

Shares Issued Pursuant to Various Consulting Agreements

 

On June 1, 2011, the Company entered into a consulting agreement with Richard Tschauder to provide consulting services as the Company’s Senior Geologist. As compensation, Mr. Tschauder will receive $3,333 per month, payable each quarter in advance, plus $550 per day plus expenses for visits to the Company’s Property. The Company may require that Mr. Tschauder perform site visits three times per calendar year. In addition, Mr. Tschauder will receive 50,000 shares of the Company’s restricted common stock, 25,000 of which shares shall be payable as soon as practicable following the execution of the consulting agreement and 25,000 of which shares shall be payable as soon as practicable after December 1, 2011. The term of this agreement was for a twelve month period commencing June 1, 2011. 25,000 of these shares were issued in June 2011 and 25,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded cash-based compensation expense in the amount of $31,060 and stock-based compensation expense in the amount of $28,000, for total compensation expense in the amount of $59,060.

 

F-12
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

On June 1, 2011, the Company entered into a consulting agreement with Erik Ostensoe to provide consulting services as the Company’s Senior Exploration Advisor. As compensation, Mr. Ostensoe will receive $2,500 per month, payable each month in advance, plus $550 per day plus expenses for visits to the Company’s Property. The Company may require that Mr. Ostensoe perform site visits three times per calendar year. In addition, Mr. Ostensoe will receive 50,000 shares of the Company’s restricted common stock, 25,000 of which shares shall be payable as soon as practicable following the execution of the consulting agreement and 25,000 of which shares shall be payable as soon as practicable after December 1, 2011. The term of this agreement was for a twelve month period commencing June 1, 2011. 25,000 of these shares were issued in June 2011 and 25,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded cash-based compensation expense in the amount of $17,500 and stock-based compensation expense in the amount of $28,000, for total compensation expense in the amount of $45,500.

 

On June 22, 2011, the Company entered into a consulting agreement with David Dunn to provide consulting services as the Company’s Advisor. As compensation, Mr. Dunn will receive $550 per day plus expenses for visits to the Company’s Property. The Company may require that Mr. Dunn perform site visits three times per calendar year. In addition, Mr. Dunn will receive 50,000 shares of the Company’s restricted common stock, 25,000 of which shares shall be payable as soon as practicable following the execution of the consulting agreement and 25,000 of which shares shall be payable as soon as practicable after December 22, 2011. The term of this agreement was for a twelve month period commencing June 22, 2011. 25,000 of these shares were issued in June 2011 and 25,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded stock-based compensation expense in the amount of $37,000, for total compensation expense in the amount of $37,000.

 

On June 22, 2011, the Company entered into a consulting agreement with Stewart Jackson to provide consulting services as the Company’s Advisor. As compensation, Mr. Jackson will receive an upfront cash fee of $5,000 and $550 per day plus expenses for visits to the Company’s Property. The Company may require that Mr. Jackson perform site visits three times per calendar year. In addition, Mr. Jackson will receive 100,000 shares of the Company’s restricted common stock, 50,000 of which shares shall be payable as soon as practicable following the execution of the consulting agreement and 50,000 of which shares shall be payable as soon as practicable after December 22, 2011. The term of this agreement was for a twelve month period commencing June 22, 2011. 50,000 of these shares were issued in June 2011 and 50,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded cash-based compensation expense in the amount of $5,000 and stock-based compensation expense in the amount of $74,000, for total compensation expense in the amount of $79,000.

 

Note 7.  Related Party Transactions – Not Disclosed Elsewhere

 

Pursuant to the February 1, 2011 Share Purchase Agreement, on February 2, 2011, Heidi Williams, Shawn Wright, Tammy Hardcastle and Michael Hesser resigned as officers and Jes Black was appointed as the sole officer and director of Royal Union. On March 1, 2011, Mr. Black accepted his appointment as the sole officer and director of Royal Union.

 

The former officers of Royal Union have forgiven debt owed to them totaling $71,486, all inclusive.

 

On March 17, 2011 and March 24, 2011, Jes Black loaned the Company $1,750 to pay an accounting bill and $25 to open up a new checking account.  These loans are non-interest bearing and due on demand and summarized as follows:

 

Principal  $1,775 
Interest   - 
Total  $1,775 

 

The Company repaid these loans on November 4, 2011.

 

Beginning on April 1, 2011, Jes Black’s annual salary was increased to $91,000.

 

F-13
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

On April 8, 2011, pursuant to the Share Purchase Agreement, Shawn Wright forgave the advances he had made to the Company totaling $56,926.

 

On April 8, 2011, Royal Union, LLC forgave advances it had made to the Company totaling $14,560.

 

Note 8.  Subscription Services

 

On July 6, 2011 the Company signed an agreement with Vintage Filings, a financial filling and printing company. Vintage Filings will be responsible for the Company’s financial statement XBRL tagging and other HTML filings. The agreement is effective from June 30, 2011 through March 31, 2014 and can be terminated for any reason with a 30 day notice. Subscription expense paid to date is $8,000. There is an option to purchase unlimited HTML of 8-K’s, 10-Q’s and 10-K’s for $2,000 per year. No additional filings have been made to date and no liability incurred.

 

Note 9. Income Taxes

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2011 and 2010 are as follows:

 

   2011   2010 
Deferred tax assets:          
Net operating loss carryforwards  $1,111,304   $147,916 
Income tax rate   34%   34%
    377,843    50,291 
Less valuation allowance   (377,843)   (50,291)
   $-    - 

 

Through December 31, 2011, a valuation allowance has been recorded to offset the deferred tax assets, including those related to the net operating losses carryforwards. At December 31, 2011, the Company had $377,843 of federal and state net operating losses carryforwards. The net operating loss carryforwards, if not utilized will begin to expire in 2027.

 

Reconciliations of the U.S. federal statutory rate to the actual tax rate for the year ended December 31, 2011 and 2010 is as follows:

 

   2011   2010 
U.S. federal statutory income tax rate   34.0%   34.0%
State tax - net of federal benefit   0.0%   0.0%
    34.0%   34.0%
Increase in valuation allowance   (34.0)%   (34.0)%
Effective tax rate   0.0%   0.0%

 

Tax Uncertainties

 

Uncertainty in income taxes arise from tax positions taken or expected to be taken in the Company’s tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement.

 

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. The periods subject to examination for the Company’s tax returns are for the years from 2007 to 2011. The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.

 

F-14
 

 

ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2011

 

The Company is subject to U.S. federal income tax including state and local jurisdictions. Currently, no federal or state income tax returns are under examination by the respective taxing jurisdictions.

 

The Company’s accounting policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company has not accrued interest for any periods.

 

Note 10. Subsequent Events

 

The Company has evaluated subsequent events through the date the financial statements were issued, and has determined there are no subsequent events to be reported.

 

F-15
 

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

ŸPertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

 

ŸProvide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

ŸProvide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

16
 

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of December 31, 2011, management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, we believe that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our financial statements as of December 31, 2011.

 

Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2011, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

17
 

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

Assuming we are able to secure additional working capital, we will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We also plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee which will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management.

 

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

 

We anticipate that these initiatives will be implemented in conjunction with the growth of our business.

 

ITEM 9B. OTHER INFORMATION.

 

None.

 

PART III

 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.

 

Identification of Directors and Executive Officers

 

The following table sets forth as of April 1, 2012 the names and ages of our directors and executive officers:

 

Name   Age   Position with the Company   Date(s) Appointed
             

Jes Black

Secretary, and Director

  36   CEO, CFO, President, Treasurer,   March 1, 2011

 

 

Term of Office

 

Each of our officers is elected by the Company’s Board of Directors and their terms of office are at the discretion of the Board. Our officers serve until the earlier occurrence of the election of his or her successor at the next meeting of stockholders, death, resignation or removal by the Board of Directors. At the present time, members of the Board of Directors are not compensated for their services to the Board.

 

18
 

 

Background and Business Experience

 

The business experience during the past five years of the person presently listed above as an Officer or Director of the Company is as follows:

 

Jes Black − Mr. Black has years of experience as a director of numerous early-stage companies since 2006, where he helped raise over $15 million in new project finance, and was recently published by Aspatore Books for his contribution to “Venture Capital Exit Strategies.” From 2001 to 2004, Mr. Black developed a strong education in finance and securities while working as a Senior Currency Strategist for MG Financial Group, where he analyzed global currency markets for London operations in New York and was quoted extensively by the Wall Street Journal, Barrons, Financial Times and Reuters. From 2004 to 2007, Mr. Black gained significant management experience serving as the Managing Director of an alternative asset management company, BF Capital, where he managed foreign exchange (currency) positions for individual and corporate accounts. In 2008, after closing the alternative asset management company, Mr. Black’s exit audit was referred to the Business Conduct Committee of the National Futures Association (NFA) for certain omissions relating to compliance standards enforced by the NFA, a self-regulatory body. Mr. Black did not intend to reestablish the company and settled with the NFA by agreeing to not apply for reinstatement for a period of 30 months which ended in August 2010. In 2009, Mr. Black developed a water filtration device and filed for a patent on it in 2010. In 2010, after filing the patent application, he formed Solegria Solutions, Inc. to develop the assets. Mr. Black was appointed as the Company’s sole officer and director due to his extensive experience as a manager and former director as well as in-depth knowledge of business and finance.

 

Identification of Significant Employees

 

We have no significant employees other than Jes Black, our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director.

 

Family Relationship

 

We currently do not have any officers or directors of our company who are related to each other.

 

Audit Committee and Audit Committee Financial Expert

 

The Company does not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its Board of Directors. All current members of the Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities. The Company has not yet employed an audit committee financial expert on its Board due to the inability to attract such a person.

 

The Company intends to establish an audit committee of the board of directors, which will consist of independent directors. The audit committee’s duties will be to recommend to the Company’s board of directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Company’s board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

 

19
 

 

Code of Ethics

 

We have adopted a Code of Ethics (the “Code”) that applies to our directors, officers and employees, including our chief executive officer and chief financial officer. A written copy of the Code is available on written request to the Company.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934 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 SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us under Rule 16a-3(e) with respect to the year ended December 31, 2011, we believe that with respect to the year ended December 31, 2011, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities satisfied their Section 16(a) filing requirements, except for CBH Bank.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth the compensation paid to all persons who served as our CEO or CFO or earned more than $100,000 during the years ended December 31, 2011 and December 31, 2010:

 

Name and Principal Position  Year   Salary
($)
   Bonus
($)
   Stock Awards
($)
   Option / Warrant Awards
($)
   Non-
Equity Incentive
Plan Compen-
sation
($)
   Non-
qualified
Deferred
Compen-
sation
Earnings
($)
   All
Other
Compen-
sation
($)
   Total
($)
 
                                     
Jes Black –   2011    75,833    0    200,000    0    0    0    0    275,833 
CEO and CFO (1)   2010    0    0    0    0    0    0    0    0 
                                              
Tammy Hardcastle –   2011    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil 
Former CFO, Treasurer   2010    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil 
                                              
Heidi Williams –   $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil 
Former President, CEO   $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil    $ nil 

 

(1) On March 1, 2011, the Company entered into an employment agreement with Jes Black. Pursuant to the terms of the agreement, Mr. Black received a one-time issuance of seventy-two million (72,000,000) shares of the Company’s restricted common stock and an annual salary of $84,000, in consideration of which Mr. Black agreed to act as the Company’s sole officer and director. The agreement is for a term of five (5) years and may be renewed thereafter. On June 1, 2011 Mr. Black cancelled 68,000,000 of the 72,000,000 shares he had received under his employment agreement.

 

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Narrative Disclosure to Summary Compensation Table

 

There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.

 

Outstanding Equity Awards at Fiscal Year-End

 

As of December 31, 2011 there were no outstanding equity awards to our executive officers

 

Long-Term Incentive Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.

 

Compensation of Directors

 

Our directors receive no extra compensation for their service on our board of directors.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

None.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Security Ownership of Certain Beneficial Owners

 

The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of March 6, 2012 by: (i) each of our directors; (ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our outstanding shares of common stock. Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.

 

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Name and Address of Beneficial Owner  Title of Class 

Amount and Nature of  Beneficial

Ownership (1)

(#)

   Percent of Class (2)

(%)
 

Jes Black (3)

600 Grant, Suite 660

Pittsburgh, PA 15219

  Common   4,000,000    3.939%
All Officers and Directors as a Group (1 Total)  Common   4,000,000    3.939%

Anna Yakovleva (4)

14 Rue De Malagny, Gland 1196

  Common   41,400,000    40.77%
              
Brown Brother Harriman & Co.
140 Broadway, New York, NY 10005
  Common   7,295,697    7.185%
              
North American Iron Ore, Inc.
Level 5, City Central Tower 2, 121 King William Street, Adelaide
  Common   16,861,527(5)   16.44%
              
CBH Bank
Boulevard Emile – Jacques - Dalcroze 7, Geneva 3
  Common   19,116,900    18.826%
              
VP Bank (Schweiz) AG
Nahnhofstrasse 3, Zurich 8022
  Common   8,876,525    8.742%

 

(1)The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of March 6, 2012, through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.

 

(2)Based on 101,543,351 issued and outstanding shares of common stock as of March 6, 2012.

 

(3)Jes Black acquired 72,000,000 shares pursuant to an Employment Agreement with the Company dated March 1, 2011. 68,000,000 of such shares were cancelled on June 1, 2011.

 

(4)Anna Yakovleva acquired 180,000,000 shares from Shawn Wright, a former director of the Company, pursuant to a private agreement dated February 1, 2011. Subsequently, on March 25, 2011, the Company and Anna Yakovleva authorized the cancellation of 138,600,000 shares of her common stock. David Craven, the husband of Anna Yakovleva is a director of North American Iron Ore, Inc. Mr. Craven disclaims any beneficial ownership of the Company shares owned by North American Iron Ore, Inc.

 

(5)Includes 893,176 presently exercisable warrants.

 

Changes in Control

 

There are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.

 

22
 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Director Independence

 

For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCBB on which shares of Common Stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

According to the NASDAQ definition, Jes Black is not an independent director because he is also an executive officer of the Company.

 

Related Party Transactions

 

In June 2009, the Company entered into an agreement to sell 10,000,000 shares of common stock at $0.001 par value to Royal Union, LLC, a Delaware limited liability company and a shareholder, owned and controlled by Michael Hesser, for equity investment in consideration of $50,000 non-refundable, non-interest bearing cash deposit. Mr. Hesser serves as a director of ours from September 22, 2009 until February 2, 2011. The Company received and deposited the $50,000 from Royal Union, LLC. Under the agreement, certain conditions have to be met prior to stock issuance. As of These conditions were never met and no shares were ever issued. A stock issuable in amount of 10,000,000 shares was reflected on our balance sheet. The $50,000 deposit was used to pay a $49,875 consulting fee to Royal Union Properties, LLC, a Nevada limited liability company controlled by Mr. Hesser. On April 8, 2011, Mr. Hesser relinquished his rights to the 10,000,000 shares and to a refund of the deposit. As of that date, the Company is no longer indebted to Mr. Hesser in any way.

 

During the years ended December 31, 2010 and 2009, Royal Union, LLC, a shareholder advanced $13,450 and $1,110, respectively, to the Company. Of the $13,450, $4,660 was contributed as cash and $8,790 represented expenses paid on the Company’s behalf by the shareholder. The advances are unsecured and non-interest bearing with no maturity date. As of December 31, 2010, the balance of this amount was $14,560. Per the Stock Purchase Agreement executed on February 1, 2011 by Shawn Wright and Anna Yakovleva, this debt was forgiven.

 

During the years ended December 31, 2010 and 2009, Shawn Wright, a shareholder and the Company’s former President, advanced $7,700 and $47,8964, respectively, to the Company. In 2010, Mr. Wright received a payment in the amount of $910 against these advances. The advances were unsecured and non-interest bearing with no maturity date. As of December 31, 2010, the balance of this amount was $54,754. Per the Stock Purchase Agreement executed on February 1, 2011 by Shawn Wright and Anna Yakovleva, this debt was forgiven.

 

During the year ended December 31, 2010 and 2009, the Company paid $49,875 and $0, respectively, of consulting fees to Royal Union Properties, LLC, a Nevada limited liability company controlled by Michael Hesser. These fees were paid by the funds received from Royal Union, LLC, a shareholder.

 

23
 

 

Pursuant to a Share Purchase Agreement dated February 1, 2011 (the “Share Purchase Agreement”), Shawn Wright sold 180,000,000 of his shares of common stock of the Company to Anna Yakovleva.

 

On March 1, 2011, we entered into an executive employment agreement with Jes Black. As part of the employment agreement, the Company authorized compensation of an annual salary of $84,000 and the one time issuance of 72,000,000 shares of common stock to Mr. Black. Effective April 1, 2011, Mr. Black’s annual salary was increased to $91,000;

 

On March 25, 2011, the Company and Ms. Yakovleva agreed to the cancellation of 138,600,000 shares of her common stock of the Company;

 

On April 8, 2011, Michael Hesser wrote off his $50,000 deposit for 10,000,000 shares of common stock in the Company, stating that certain conditions were not met and that as a consequence he was not due the aforementioned shares;

 

Effective April 15, 2011 we entered into a Securities Purchase Agreement with North American Iron Ore, Inc. (“North American”) pursuant to which we sold to North American 133,282 units of our securities at a purchase price of $0.75 per unit or an aggregate of $99,961.50, each unit consisting of one share of our common stock and a three year common stock purchase warrant to purchase one share of our common stock at a price of $0.90 per share. The agreement gave retroactive effect to the 18:1 forward stock split effected after the close of business on May 19, 2011.

 

On May 27, 2011 we entered into the Assignment Agreement with North American and Canamara Energy Corporation pursuant to which we issued 15,075,175 shares of common stock to North American;

 

On June 20, 2011, we entered into a Securities Purchase Agreement with North American, pursuant to which we sold to North American 759,894 units of our securities at a purchase price of $0.75 per unit or an aggregate of $569,923, each unit consisting of one share of our common stock and a three year common stock purchase warrant to purchase one share of our common stock at a price of $0.90 per share;

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

  

Year Ended

December 31, 2011

  

 Year Ended

December 31, 2010

 
Audit fees  $6,520   $3,500 
Audit-related fees                  nil    $              nil 
Tax fees                  nil    $              nil 
All other fees                  nil    $              nil 
Total  $6,520   $3,500 

 

Audit Fees

 

During the fiscal year ended December 31, 2011, we incurred approximately $6,520 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2011.

 

24
 

 

During the fiscal year ended December 31, 2010, we incurred approximately $3,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2010.

 

Audit-Related Fees

 

The aggregate fees billed during the fiscal years ended December 31, 2011 and 2010 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements was $0 and $0, respectively.

 

Tax Fees

 

The aggregate fees billed during the fiscal years ended December 31, 2010 and 2011 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $0 and $0, respectively.

 

All Other Fees

 

None.

 

25
 

 

PART IV

ITEM 15. EXHIBITS.

 

(a) Exhibits.

 

In reviewing the agreements included as exhibits to this Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 

§should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

§have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

§may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

§were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

The following exhibits are included as part of this report:

 

Exhibit Number   Description   Filed
3.1   Articles of Incorporation*   Filed with the SEC on June 22, 2007 as part of our Registration Statement on Form SB-2.
3.2   Bylaws*   Filed with the SEC on June 22, 2007 as part of our Registration Statement on Form SB-2.
3.3   Articles of Merger*   Filed with the SEC on May 5, 2011 as part of our Current Report on Form 8-K dated April 27, 2011.
10.1   Employment Agreement with Jes Black effective as of March 1, 2011*   Filed with the SEC on March 31, 2011 as part of our Form 8-K dated February 2, 2011.

 

26
 

 

Exhibit Number   Description   Filed
10.3   Assignment and Sale Agreement dated May 27, 2011 among North American Iron Ore, Inc., Canamara Energy Corporation and the Registrant*   Filed with the SEC on June 3, 2011 as part of our Current Report on Form 8-K dated May 27, 2011.
10.4   Share Cancellation Agreement dated as of June 1, 2011 among Registrant and Jes Black*   Filed with the SEC on June 3, 2011 as part of our Current Report on Form 8-K dated May 27, 2011.
10.5   Services Agreement dated October 21, 2011 between Registrant and Multi-Resources Boreal*   Filed with the SEC on October 27, 2011 as part of our Current Report on Form 8-K dated October 21, 2011.
14.   Code of Ethics*   Filed with the SEC on March 19, 2009 as part of our Annual Report on Form 10-K for the year ended December 31, 2008.
21.   List of Subsidiaries   Filed herewith.
31.1   Certification of Principal Executive Officer Pursuant to Rule 13a-14   Filed herewith.
31.2   Certification of Principal Financial Officer Pursuant to Rule 13a-14   Filed herewith.
32.1   CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.
32.2   CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act   Filed herewith.

 

*Incorporated by reference

 

27
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  ALLIED AMERICAN STEEL CORP.  
       
Dated:  April 16, 2012 By: /s/ Jes Black  
  Name:     Jes Black  
  Title:    President, Chief Executive, Financial and Accounting Officer  
  Accounting Officer  

 

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

Dated:  April 16, 2012 By: /s/ Jes Black  
  Name:     Jes Black  
  Title:    President, Chief Executive, Financial and  
  Accounting Officer, Director  

 

28