Edgar Filing: ALLOY STEEL INTERNATIONAL INC

form10ksb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

(Mark One)

S	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2008

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ______ to ______

	Commission File Number 000-32875

ALLOY STEEL INTERNATIONAL, INC.

(Name of small business issuer in its charter)

Delaware		98-0233941
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

42 Mercantile Way
P.O. Box 3087 Malaga D C 6945
Western Australia
(Address of principal executive offices)

Issuer’s telephone number: +61 (8) 9248 3188

Securities registered under Section 12(b) of the Exchange Act:		None

Securities registered under Section 12(g) of the Exchange Act:		Common stock, $0.01 par value

Check whether the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ¨

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: S No: ¨

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-KSB or any amendment to this Form 10-KSB S

The issuer’s revenues for the fiscal year ended September 30, 2008 was $13,511,458.

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of December 1, 2008 was $2,273,963.

As of December 1, 2008, the issuer had a total of 16,950,000 shares of common stock outstanding.

Transitional Small Business Disclosure Format (check one):

Yes ¨ No S

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes: ¨ No: S

PART I

FORWARD-LOOKING STATEMENTS

Information included or incorporated by reference in this filing may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

This filing contains forward-looking statements, including statements regarding, among other things, (a) Alloy Steel’s projected sales and profitability, (b) Alloy Steel’s growth strategies, (c) anticipated trends in Alloy Steel’s industry, (d) Alloy Steel’s future financing plans and (e) Alloy Steel’s anticipated needs for working capital. These statements may be found under “Management’s Discussion and Analysis or Plan of Operation” and “Description of Business,” as well as in this filing generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, Alloy Steel will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made not misleading.

Item 1.

Description of Business.

Alloy Steel International, Inc. was incorporated in Delaware in May 2000. Our principal executive office is located at 42 Mercantile Way, Malaga, Western Australia 6945. Our telephone number is +61 (8) 9248 3188, our facsimile is +61 (8) 9248 3166. Our Email is info@alloysteel.net and our Internet address is www.alloysteel.net.

Overview of Business

We manufacture and distribute Arcoplate, a wear-resistant alloy overlay wear plate produced through a patented process. We believe that wear is the largest single factor leading to production losses in the mining, mineral-processing, and steel manufacturing industries. Consequently, wear solutions are indispensable for these businesses. The wearing of metal parts is generally defined as a gradual decay or breakdown of the metal. This wear of equipment may be due to many causes and accordingly, the selection of wear plate solutions can be a relatively complex process.

In order to minimize the effects of wear, businesses have traditionally employed such wear-combating materials as rubber compounds, ceramics, alloy castings, welded overlay wear plates, and quenched and tempered carbon steel plates. We believe that each of these materials offer a limited solution to the problem of wear. While tungsten carbide is generally recognized by the mining, mineral-processing and steel manufacturing industries as the most wear-resistant material suitable for industrial use, because of its high carbide content, we believe that the high costs associated with tungsten carbide make it impractical for most businesses. We believe that Arcoplate provides industry with solutions to most wear-related problems at a cost which is competitive with conventional welded overlay wear plates and substantially lower than tungsten carbide.

Arcoplate

The patented process by which we manufacture Arcoplate enables us to smoothly and evenly apply an alloy overlay to a sheet of steel, creating a metallurgical bond between the alloy and the steel backing plate that is resistant to wear caused by impact and/or abrasion. We believe that our Arcoplate product line will substantially lower down time and the lost production resulting from this down time.

Conventional welded wear plates have been used in the manufacturing, mining and construction industries for more than half a century and they are characterized by several functional limitations:

the tendency to separate into chips or fragments when subjected to high impact;

uneven base metal dilution resulting in uneven alloy content; and

rough surfaces which result in poor material flow.

We believe Arcoplate has properties that allow it to overcome the limitations of conventional welded wear plates. Independent laboratory and field tests, have shown that Arcoplate provides a wear-resistant barrier superior to that provided by conventional single or multiple-layer wear plates. This is because of its higher carbide content and smoother surface layer. Arcoplate wear plate sheets also can withstand rolling and pressing, within specified fabrication guidelines.

The claims with respect to the properties of Arcoplate, such as bond strength, specific hardness, density, hardness, resonance and wear resistance, have been subjected to studies and testing, by independent laboratories, universities and other recognized testing facilities, including Aust-Amet Pty Ltd and Central Power Research Institute of Bangalore India. Commercial fees were paid to Aust-Amet Pty Ltd while no fees were paid to the Power Research Institute of Bangalore and the National Research Council of Canada.

Arcoplate is designed for installation and use where structures and machinery suffer “wear” and “hangup” problems. Common situations are:

the mining of iron, gold, nickel, coal, copper and other ores;

brick and cement works;

power stations;

the manufacture of ore feed bins, transfer chutes, dredging systems and conveyor side skirts;

bulldozer arms and blades; and

truck tray liners and bucket loader liners.

Arcoplate is manufactured in a range of grades designed for specific applications. Our products are designed for ease of handling and can be fabricated to suit our customers’ specific requirements of shape, size and weight. Sheets of Arcoplate can be welded together to cover large surface areas. We also provide technical consultation services to customers and their design engineers.

We believe that our proprietary method of manufacturing Arcoplate results in a product that has many technical advantages over conventional welded wear plates. Conventional welded wear plates are generally characterized by structural weaknesses and limited wear resistance resulting from inefficient production methods. In order to achieve a wear-resistant, flat surface, a conventional wear plate must be rolled and pressed after its layers of hardfacing have been welded together. This post-production rolling and pressing can result in a weakened surface structure that cannot withstand high impact conditions. The Arcoplate process does not require post-production rolling and pressing. During the Arcoplate process, the plate is coated with the desired alloy thickness in one application, resulting in a uniform and, therefore, structurally sound surface. The Arcoplate process maintains a high carbide content in the overlay, which makes the plate more wear resistant than conventional welded wear plate.

Arcoplate products are currently distributed to customers in the United States, South America, India, Indonesia, Singapore, South Africa, Japan, China, Canada, Malaysia and other countries as well as being extensively used in the mining industry in Australia.

New Arcoplate Mill

After being delayed by the inability to obtain supply of certain components in a timely manner from overseas suppliers, the second Arcoplate mill has been completed and scheduled to go into its testing phase.

Subject to the testing and fine tuning of the mill, it is expected that it will commence commercial production in February 2009.

Sales and Marketing Strategy

The company’s objective is to become an international market leader in wear-resistant alloy steel products and to establish significant market share and brand awareness for Arcoplate within the mining, mineral-processing and steel industries. We believe that we can capitalize on our existing patented process for producing Arcoplate through the direct manufacture and sale of Arcoplate-based products to original equipment manufacturers and distributors worldwide. We are establishing market presence by visiting international and domestic trade shows, presenting technical papers at industry conferences, and appointing distributors who will be trained to present and promote Arcoplate products as a solution for wear-related problems.

In the year ended September 30, 2008, two customers accounted individually for at least 31.9% of our annual sales.

We anticipate incurring increased expenditures in connection with our marketing activities. Our marketing activities are also expected to include substantial engineering support to assist in the development of products for specific customer requirements and certain markets.

We are marketing Arcoplate products to consultant engineering companies both internationally and in Australia in order that they may ultimately incorporate Arcoplate materials into their equipment and plant designs. We will offer the services of our own engineering department to assist these engineers with design planning to optimize solutions for wear and material flow situations.

The company, as disclosed earlier this year, entered into a joint venture to service the burgeoning mining industry in Mongolia. Mongolia has experienced a large growth in companies preparing to mine for minerals in the country. This has resulted in all the major mining equipment manufacturers being represented in the country and they have expressed a positive requirement to have Arcoplate available to them.

Intellectual Property

We believe that protection of our licensed proprietary technology and know-how is critical to the development of our business. We have obtained patents for process in United States, Mexico, Brazil, Canada, Japan, Burma, South Korea, Australia, France, Germany, Great Britain, Greece, Italy, Belgium, Netherlands and Sweden. We cannot assure you that our existing patent rights, or any other patent rights that may be granted, will be valid and enforceable or provide us with meaningful protection from competitors. We cannot assure you that any pending patent application will issue as a patent, or that any claim thereof will provide protection against infringement. If our present or future patent rights are ineffective in protecting us against infringement, our marketing efforts and future revenues could be materially and adversely affected. In addition, if a competitor were to infringe our patent rights, the costs of enforcing our patent rights may be substantial or even prohibitive.

Research and Development

We are continually engaged in the development of new products and improvements to our existing products.

Manufacturing and Supply

The raw materials we employ are principally steel and a proprietary alloy compound. We presently purchase steel plate and alloy materials from various suppliers. Four of our suppliers, M & J Metals Pty Ltd, Bisley & Company Pty Ltd, UPE Australia and Metals & Powders Trading AB, account for more than 60% of the raw material we require. We also rely heavily on the use of fluxes, compounds designed to remove impurities, during the manufacturing process. We purchase our requirements for fluxes from various suppliers. We cannot assure you that we will be able to continue to obtain desired quantities of steel, alloy materials and fluxes on a timely basis at reasonable prices and upon favorable terms. We monitor the quality of our products by frequent tests and material certification, and maintain a strict internal quality control system to monitor the quality of production.

Government Regulation

The Arcoplate manufacturing plant is subject to many laws and regulations relating to the protection of the environment. These laws and regulations impose requirements concerning, among other matters, the treatment, acceptance, identification, storage, handling, transportation and disposal of industrial by-products, hazardous and solid waste materials, waste water, air emissions, noise emissions, soil contamination, electromagnetic radiation, surface and groundwater pollution, employee health and safety, operating permit standards, monitoring and spill containment requirements, zoning, and land use. We frequently examine ways to minimize any impact on the environment and to effect cost savings relating to environmental compliance. Our management believes that we are in material compliance with all applicable environmental laws and that our products and processes do not present any unusual environmental concerns.

Our operations are also governed by laws and regulations relating to workplace safety and health, principally under the Australian Occupational Safety and Health Act (WA) 1984, which, among other requirements, establish employee training, supervision and general safety standards. Our management believes that we are in material compliance with all applicable workplace safety and health laws and that our products and processes do not present any unusual safety concerns.

We require, and must comply with, various authorizations, permits and licenses to conduct our operations. Government agencies continually monitor our compliance with authorization, permits and licenses and our facilities are subject to periodic unannounced inspection by local, state and federal authorities. Violations of any permit or license, if not remedied, could result in our incurring substantial fines, or suspension of our operations.

Competition

The wear plate solutions industry is highly competitive. We compete and will continue to compete in markets against larger multi-national companies, all of which are well-established and may have substantially greater financial and other resources than us. Competitive market conditions could adversely affect our profit levels if we were required to reduce product prices to remain competitive. We are, however, confident that the continuing development of alloys and subsequently our product range will allow us to hold and increase our presence in the market place.

Employees

We employed 33 persons on a full-time basis as of December 1, 2008, including two executive officers, eight administrative personnel, three marketing personnel and 19 manufacturing personnel. None of our employees are members of a labor union. We consider our relationship with our employees to be good.

Item 2.

Description of Property.

Our business is conducted from leased premises located at 42 Mercantile Way Malaga Western Australia.

This lease is due for renegotiation prior to the end of June 2010. The lessor has indicated that a renewal will be granted.

Item 3.

Legal Proceedings.

There are no material legal proceedings pending or, to our best knowledge, threatened against us.

Item 4.

Submission of Matters to a Vote of Security Holders.

We held our Annual Meeting of Stockholders on August 6, 2008.

PART II

Item 5.

Market for Common Equity and Related Stockholders Matters and Small Business Issuer Purchases of Equity Securities

Our common stock is traded on the Over the Counter Bulletin Board. The following table sets forth the range of high and low bid quotations for our common stock for each calendar quarter within the last two years.

	Bid Price Per Share

Year ended September 30, 2008	High		Low
October 1 – December 31, 2007	$	0.72	$	0.49
January 1 – March 31, 2008	$	1.97	$	1.22
April 1 – June 30, 2008	$	2.50	$	1.25
July 1 – September 30, 2008	$	2.76	$	1.35


Year ended September 30, 2007	High		Low
October 1 – December 31, 2006	$	0.22	$	0.11
January 1 – March 31, 2007	$	0.60	$	0.11
April 1 – June 30, 2007	$	0.70	$	0.39
July 1 – September 30, 2007	$	0.85	$	0.30

The above prices were obtained from Nasdaq, Inc. The quotations represent inter-dealer quotations, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

As of December 1, 2008, there were approximately 131 holders of record of our common stock.

Our Board of Directors may from time to time declare, and we may pay, dividends on our outstanding shares in the manner and upon the terms and conditions provided by law. To date, we have not declared or paid any dividend.

Equity Compensation Plans

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders (1)	None	None	2,000,000
Equity compensation plans not approved by security holders	—	—	—
Total	None	None	2,000,000

(1) Includes our 2000 Stock Option Plan.

Item 6.

Management's Discussion and Analysis or Plan of Operation

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements, the notes to our financial statements and the other financial information contained elsewhere in this filing.

Overview

We manufacture and distribute Arcoplate, a wear-resistant alloy overlay wear plate, through a patented production process. This patented process by which we manufacture Arcoplate enables us to smoothly and evenly apply an alloy overlay to a sheet of mild steel, creating a metallurgical bond between the alloy and the steel backing plate that is resistant to wear caused by impact and/or abrasion. We believe that in the mining processing industries, wear is the primary cause of down time, the period of time where machinery is not in operation because of the necessity of repairs or refurbishment. We believe that our Arcoplate product line will substantially lower down time and the resulting lost production.

Plan of Operation

We intend to achieve market penetration through a multi-step process. In Australia, we intend to combine targeted marketing with advertising in trade journals and magazines. At the international level, we intend to establish market presence by visiting international trade shows, presenting technical papers at industry conferences, and appointing distributors who will be trained to present and promote Arcoplate products as a solution for wear-related problems. Where appropriate, we will commence our own operations or enter into joint ventures with suitable parties in order to achieve market presence. We are presently looking at the feasibility of licensing the production of Arcoplate in certain countries and market areas.

Results of Operations

Sales

Alloy Steel had sales of $13,511,458 for the year ended September 30, 2008, compared to sales of $8,729,644 for the year ended September 30, 2007. These sales consist solely of the sale of our Arcoplate product. Substantially all of our sales during the periods were denominated in US dollars. Sales denominated in Australian dollars were converted into U.S. dollars at the conversion rate of $0.90762 and $0.80867, representing the average foreign exchange rate for the years ended September 30, 2008 and 2007 respectively. The increase was due primarily to successful marketing efforts mainly in the Australian market which led to securing some major supply contracts for this year.

Costs of Sales

Alloy Steel had cost of sales of $6,541,427 for the year ended September 30, 2008, compared to cost of sales of $4,385,872 for the year ended September 30, 2007. The gross profit amounted to $6,970,031 compared to $4,343,772 for the year ended September 30, 2007. The gross profit percentage increased to 51.6% in 2008 from 49.8% in 2007 due to the adoption of more favorable pricing policies for larger orders and tenders during the year.

Selling, General and Administrative Expenses

Alloy Steel had selling, general and administrative expenses of $3,359,311 for the year ended September 30, 2008, compared to $2,320,778 in the year ended September 30, 2007. The increase was primarily due to the increased marketing and promotional activity of the company during the year ending September 30, 2008. The increase in travel and similar expenses mainly occurred due to the costs in establishing operations in Indonesia and Mongolia.

Income (Loss) Before Income Tax Expense (Benefit)

Our income before tax expense was $3,670,143 for the year ended September 30, 2008, compared to $1,963,452 for the year ended September 30, 2007.

Income Tax Expense (Benefit)

Alloy Steel had income tax expense of $1,164,368 for the year ended September 30, 2008 compared to $654,587 for the year ended September 30, 2007. The current year’s income tax expense relates to taxes payable in Australia.

Net Income (Loss)

We had a net income of $2,507,912 or $0.15 per share, for the year ended September 30, 2008, compared to $1,308,865 or $0.08 per share for the year ended September 30, 2007.

Liquidity

For the year ended September 30, 2008, net cash provided by operating activities was $1,427,687. The net income may be reconciled to this amount by an adjustment for depreciation and amortization of $198,080, write down of assets to fair values of $76,762, income received in forms other than cash of $3,105, non-controlling shareholders interests in subsidiary loss of $2,137 and a decrease in cash and cash equivalents attributable to changes in operating assets and liabilities of $1,349,825, which consisted primarily of an increase in inventory of $1,878,924, which was offset by a decrease in accounts receivable and other current assets of $81,110, a decrease in accounts payable and other current liabilities of $185,287 and an increase in tax payable of $633,276.

Future cash flows from sales are anticipated to be sufficient to sustain the Company’s operations. The Company is also reviewing available options to raise capital in alternative markets, although it currently has no commitments to do so.

As of September 30, 2008, we had a working capital surplus of $2,409,040.

The Company is obligated under various contractual commitments over the next five years. The following is a summary of the five-year commitments of the Company as of September 30, 2008:


	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
Contractual Obligations
Long term debt		301,467		75,739		225,728		-		-
Operating leases		325,826		186,186		139,640		-

Total contractual obligations	$	627,923	$	261,925	$	365,368		-		-

We anticipate that the funding of our working capital needs will come primarily from the cash generated from our operations. To the extent that the cash generated from our operations is insufficient to meet our working capital needs or the purchase of machinery or equipment, then we will need to raise capital from the sale of securities in private offerings or loans. We have no commitments for capital. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

Significant Changes in Numbers of Employees

We anticipate hiring 2 additional manufacturing employees in the next 12 months.

Critical Accounting Policies

We have prepared our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America. This has required us to make estimates, judgments, and assumptions that affected the amounts we reported. Note 1 of the notes to consolidated financial statements contains the significant principles that we used to prepare our consolidated financial statements.

We have identified several critical accounting policies that require us to make assumptions that were uncertain at the time of our estimates. Had we used different estimates and assumptions, the amounts we recorded could have been significantly different. Additionally, actual results that would have material effect on our financial condition or results of operation could be based on different assumptions or conditions. The critical accounting policies that were affected by the estimates, assumptions, and judgments used in the preparation of financial statements are listed below.

Allowance for Doubtful Accounts

We do not believe there is a need for a provision for doubtful accounts as of September 30, 2008. The directors have reached this conclusion notwithstanding the current economic climate by having regard to the company’s credit criteria and quality of clients.

Inventories

Our inventories are recorded at the lower of cost or net realizable market, with cost based on a first-in, first-out basis. We periodically assess this inventory for obsolescence and potential excess by reducing the difference between our cost and the estimated market value of the inventory based on assumptions about future demand and historical sales patterns. Our inventories consist of materials and products that are subject to technological obsolescence and competitive market conditions. If market conditions or future demand are less favorable than our current expectations, additional inventory write downs or reserves may be required, and that could have an adverse effect on our reported results in the period the adjustments are made.

Long-Lived Assets

We review our long-lived assets for potential impairment based on a review of projected undiscounted cash flows associated with these assets. Long-lived assets are included in impairment evaluations when events and circumstances exist that indicate the carrying amount of these assets may not be recoverable. Measurement of impairment losses for long-lived assets that we expect to hold and use is based on the estimated fair value of the assets. We have recorded asset impairment charges when the carrying value of certain assets was in excess of their fair value. Should market conditions or the assumptions used by us in determining the fair value of these assets change, or management change plans for usage of certain assets, additional charges to operations may be required in the period in which such conditions occur.

RISK FACTORS

Alloy Steel is subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. These are not the only risks and uncertainties that we face. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed.

If We Are Unable To Effectively Manage Our Plan of Expansion, We Will Not Achieve Profitability.

We plan to expand all aspects of our operations. As a result, we need to expand our financial and management controls, reporting systems and procedures. We will also have to expand, train and manage our work force for marketing, sales, engineering and technical support, product development, and manage multiple relationships with various customers, vendors, strategic partners and other third parties. We will need to continually expand and upgrade our technology and develop new products. If we are unable to manage our growth effectively, we may be unable to handle our operations, control costs or otherwise function in a profitable manner, or at all.

If We Are Unable To Protect Our Proprietary Technology, We Could Lose Our Competitive Advantage.

We currently have only limited patent protection for our technology, and may be unable to obtain even limited protection for our proprietary technology in certain foreign countries. Currently, we have patents in various countries. We cannot assure you that any granted patent or pending patent application will provide protection against infringement.

If We Do Not Correctly Anticipate the Magnitude and Direction of Currency Exposure, There Could Be A Material Adverse Impact On Our Prospects for Profitability.

All of our production will take place overseas, and many of the raw materials and supplies for our products will be purchased in foreign currencies. In addition, international sales will likely be denominated in local currencies. These factors may combine to expose us to currency gains and losses in addition to gains and losses from our basic operations. The magnitude and direction of future currency exposure cannot be predicted, nor can we assure you that we will be able to manage such exposure to our benefit or to a neutral effect.

Our Business Would Be Materially and Adversely Affected If We Were Unable To Receive Materials At Prices and On Terms Presently Made Available To Us By Our Principal Suppliers.

We presently purchase our principal raw materials, steel and alloy compound components, from a limited number of suppliers. There are no written contracts between us and our suppliers, and requirements are purchased using individual purchase orders, with customary terms regarding payment, quality and delivery. Although we believe that alternatives are readily available from other suppliers, we cannot assure you that we will be able to continue to obtain desired quantities of materials on a timely basis at prices and on terms deemed reasonable by us. Our business would be materially and adversely affected if we are unable to continue to receive materials at prices and on terms comparable to those presently made available to us by our principal suppliers.

Since We Depend Heavily Upon Electrical Power for Our Operations, Any Increase In Prices Would Adversely Affect Our Business and Profitability.

We consume a large amount of electrical power during production. The amount of electrical power consumed during the Arcoplate process represents approximately 3% of our overall production costs. There may be fluctuations in the price of electricity due to changes in the regulation of utility companies in Australia, and in other jurisdictions where we may engage in production. We cannot assure you that we will be able to continue to obtain our energy supplies at current prices, and any material increase in prices of electricity would adversely affect our business and profitability.

Our Common Stock May Be Affected By Limited Trading Volume and May Fluctuate Significantly.

There has been a limited public market for our common stock and there can be no assurance that an active trading market for our common stock will develop. As a result, this could adversely affect our shareholders’ ability to sell our common stock in short time periods, or possibly at all. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially.

We May Need To Raise Additional Capital To Finance Operations or Expansion.

We have relied on significant external financing to fund our operations. Such financing has historically come from a combination of borrowings from and sale of common stock to third parties and funds provided by certain officers and directors. We cannot assure you that financing whether from external sources or related parties will be available if needed or on favorable terms. The sale of our common stock to raise capital may cause dilution to our existing shareholders. Our inability to obtain adequate financing will result in the need to reduce or curtail our business operations. Any of these events would be materially harmful to our business and may result in a lower stock price.

We Have A Limited Customer Base.

At present, our customer base consists primarily of companies involved in the mining and dredging industries. Our ability to operate depends on increasing our customer base and achieving sufficient gross profit margins. We cannot assure you that we will be able to increase our customer base or to operate profitably. If any of our major customers stop or delay its purchases of our products, our revenue and profitability would be adversely affected. For the year ended September 30, 2008, two customers accounted for at least 31.9% of our annual sales. We anticipate that sales of our products to relatively few customers will continue to account for a significant portion of our revenue. If these customers cancel or delay their purchase orders, our revenue may decline. We cannot assure you that our current customers will continue to place orders with us, that orders by existing customers will continue at the levels of previous periods or that we will be able to obtain orders from new customers. Although our financial performance depends on large orders from key customers and resellers, we do not have binding commitments from any of them.

Our Common Stock Is Deemed To Be “Penny Stock”, Which May Make It More Difficult for Shareholders To Sell Their Shares Due To Suitability Requirements.

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are stock:

With a price of less than $5.00 per share;

That are not traded on a “recognized” national exchange;

Whose prices are not quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still have a price of not less than $5.00 per share); or

In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for our shareholders to resell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

We Face Significant Competition Within Our Market.

We expect competition to persist and intensify in the future as new products and manufacturers enter the market. The wear plate solutions industry is highly competitive.

Many of our competitors are substantially larger than Alloy Steel and have significantly greater financial, marketing, technical and manufacturing resources with more established distribution channels. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than we can. Furthermore, some of our competitors may make strategic acquisitions or establish cooperative relationships to increase their ability to rapidly gain market share by addressing the needs of our prospective customers. These competitors may enter our existing or future markets with solutions that may be less expensive, provide higher performance or additional features or be introduced earlier than our solutions. If any technology is more reliable, resistant, and less expensive or has other advantages over our technology, then the demand for our products and services would decrease, which would seriously harm our business.

We expect our competitors to continue to improve the performance of their current products and introduce new products and technologies as industry standards and customer requirements evolve. These new products and technologies could supplant or provide lower cost alternatives to our products. To be competitive, we must continue to invest resources in research and development, sales and marketing, and customer support.

Increased competition is likely to result in price reductions, reduced gross margins, longer sales cycles, and loss of market share, any of which would seriously harm our business and results of operations.

We Have Limited Marketing and Sales Capability.

Because of our previous limited working capital, we have not had the resources to fully implement our marketing and sales strategy. In order to increase our revenues, we are in the process of further implementing a marketing and sales force with technical expertise and marketing capability. There can be no assurance that we will be able to:

Establish and develop such a sales force;

Gain market acceptance for our products;

Obtain and retain qualified sales personnel on acceptable terms; and

Meet our proposed marketing schedules or plans.

To the extent that we arrange with third parties to market our products, the success of such marketing will depend on the efforts of these third parties.

Item 7.

Financial Statements.

Our audited consolidated financial statements for the year ended September 30, 2008 appear following Item 14 of this report and are incorporated herein by reference.

Item 8.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 8A.

Controls and Procedures

(a)	Evaluation of disclosure controls and procedures

Management is responsible for establishing and maintaining adequate internal control over the financial reporting function of the company.

Based on their evaluation of our disclosure controls and procedures (as defined in Rule 13a-15 (e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10-KSB such disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

(b)	Changes in internal control over financial reporting.

During the last quarter of the year under report, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 8B.

Other Information

None.

PART III

Item. 9

Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

Our present directors and executive officers are as follows:

Name	Age	Position

Gene Kostecki	63	President, Chief Executive Officer and a Director

Alan C. Winduss	67	Chief Financial Officer, Secretary and a Director

The following is a brief summary of the background of each executive officer and director:

Gene Kostecki has served as a director and as our President and Chief Executive Officer since June 2000. From July 1995 to July 1997, Mr. Kostecki served as Managing Director of the Collier Unit Trust, an engineering business and distributor based in Western Australia. He acts as our President and Chief Executive Officer on a full-time basis.

Alan C. Winduss has served as a director and as our Chief Financial Officer and Secretary since June 2000. From July 1979 to the present, Mr. Winduss has served as director of Winduss & Associates Pty Ltd, an accounting firm in Western Australia, which specializes in commercial accounting, corporate finance and management. He intends to devote approximately 60% of his time to his duties as one of our executive officers.

Board Composition

Our Board of Directors currently consists of two directors. At each annual meeting of our stockholders, all of our directors are elected to serve from the time of election and qualification until the next annual meeting following election. In addition, our bylaws provide that the maximum authorized number of directors may be changed by resolution of the stockholders or by resolution of the board of directors.

Each officer is elected by, and serves at the discretion of, our board of directors. There are no family relationships among any of our directors or officers or key employees with the exception of our General Manager (Operations), Mr Steven Kostecki, who is the son of Mr Gene Kostecki (CEO).

Control by Officers and Directors

Our directors and executive officers own approximately 74.0% of the outstanding shares of our common stock. Accordingly, these stockholders possess substantial control over our operations. This control may allow them to amend corporate filings, elect all of our board of directors, and substantially control all matters requiring approval by our stockholders, including approval of significant corporate transactions.

Compliance With Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors and executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities, to file with the Securities and Exchange Commission (the “Commission”) initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors, and persons who beneficially own more than ten percent of a registered class of our equity securities are required by the regulations of the Commission to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on review of the copies of such reports furnished to us, during the fiscal year ended September 30, 2008, our officers, directors, and greater than ten percent beneficial owners complied with all Sections 16(a) filing requirements applicable to them.

Item 10.

Executive Compensation.

The following table sets forth the annual cash compensation for services rendered by our Chief Executive Officer for the fiscal year ended September 30, 2008. No other executive officer earned or secured more than $100,000 in salary and bonus for services rendered during the fiscal year ended September 30, 2008:

SUMMARY COMPENSATION TABLE

		Annual Compensation
Name and Position	Year	Salary		Bonus		Long-Term Compensation		All Other Compensation
Gene Kostecki	2008	$	125,000	$	0		—		—
President and Chief	2007	$	150,000	$	0		—		—
Executive Officer	2006	$	150,000	$	0		—		—

Stock Option Plan

In May 2000, we adopted the 2000 Stock Option Plan. The purpose of the plan is to enable us to attract, retain and motivate key employees, directors, and consultants, by providing them with stock options. Options granted under the plan may be either incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986, or non-qualified stock options. We have reserved 2,000,000 shares of common stock for issuance under the plan. As of December 1 2008, no options had been granted pursuant to the plan.

Our Board of Directors will administer the plan. Our Board has the power to determine the terms of any options granted under the plan, including the exercise price, the number of shares subject to the option, and conditions of exercise. Options granted under the plan are generally not transferable, and each option is generally exercisable during the lifetime of the holder only by the holder. The exercise price of all incentive stock options granted under the plan must be at least equal to the fair market value of the shares of common stock on the date of the grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of our stock, the exercise price of any incentive stock option granted must be equal to at least 110% of the fair market value on the grant date. Our Board of Directors approves the terms of each option. These terms are reflected in a written stock option agreement.

Employment Agreements

There are current employment agreements in place with Mr. Gene Kostecki, our President and Chief Executive Officer, and Mr. Alan Winduss, our Chief Financial Officer and Secretary.

Limitations of Liability and Indemnification of Directors and Officers

Our certificate of incorporation and bylaws limit the liability of directors and officers to the maximum extent permitted by Delaware law. We will indemnify any person who was or is a party, or is threatened to be made a party to, an action, suit or proceeding, whether civil, criminal, administrative or investigative, if that person is or was a director, officer, employee or agent of ours or serves or served any other enterprise at our request.

In addition, our certificate of incorporation provides that, generally, a director shall not be personally liable to us or our stockholders for monetary damages for breach of the director’s fiduciary duty. However, in accordance with Delaware law, a director will not be indemnified for a breach of its duty of loyalty, acts or omissions not in good faith or involving intentional misconduct or a knowing violation or any transaction from which the director derived improper personal benefit.

Item 11.

Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth, as of December 1 2008, the number and percentage of outstanding shares of common stock beneficially owned by:

each person who we know beneficially owns more than 5% of the outstanding shares of our common stock;

each of our executive officers and directors; and

all of our officers and directors as a group.

Except as otherwise noted, the persons named in this table, based upon information provided by these persons, have sole voting and investment power with respect to all shares of common stock owned by them. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes the shares of common stock underlying options or warrants held by such person that are exercisable within 60 days of December 1, 2008, but excludes shares of common stock underlying options or warrants held by any other person. Unless otherwise indicated, the address of each beneficial owner is c/o Alloy Steel, 42 Mercantile Way Malaga, P.O. Box 3087 Malaga D C 6945, Western Australia.

Name of Beneficial Owner	Number of Shares		Percentage of Common Stock Beneficially Owned
Gene Kostecki		10,598,000		62.5	%
Alan C. Winduss		1,893,250		11.2	%
All officers and directors as a group (two persons)		12,491,250		74.0	%

Item 12.

Certain Relationships and Related Transactions.

Messrs. Gene Kostecki and Alan Winduss are both directors of Alloy Steel International, Inc. and its subsidiary, Alloy Steel Australia (Int) Pty Ltd.

Mr. Winduss is a director of a public accounting firm Winduss & Associates Pty Ltd, which provides accounting and secretarial services to Alloy Steel’s subsidiary, Alloy Steel Australia (Int.) Pty Ltd. These services are provided at normal commercial rates and conditions. The cost of these services are recovered under the fees paid by Mr. Winduss’ consulting agreement.

Alloy Steel Australia (Int.) Pty Ltd. paid rent of $206,000, for commercial premises it occupied during the year, to Raglan Securities Pty Ltd., a company controlled by Gene Kostecki.

The license granted to use the Alloy process provides for royalty payments to Kenside Investments, Ltd., in an amount equal to 2% of our net sales of Arcoplate products. Our Chief Executive Officer, director and principal shareholder, Gene Kostecki controls Kenside Investments, Ltd.

Item 13.

Exhibits

Exhibit No.		Description

3.1		Certificate of Incorporation*

3.2		By-laws*

4.1		Specimen Certificate*

10.1		2000 Stock Option Plan*

10.2		License Agreement, dated May 4, 2000, between Alloy Steel and Kenside Investments, Ltd.*

10.3		Employment Agreement, dated October 2, 2000, between Alloy Steel and Gene Kostecki*

10.4		Employment Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss*

10.5		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Berryhill Investments, Ltd.*

10.6		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Chartreuse Nominees Pty. Ltd.*

10.7		Amended and Restated Consulting Agreement, dated October 2, 2000, between Alloy Steel and Persia Consulting Group, Inc.*

10.8		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Ragstar Investments, Ltd.*

10.9		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss Pty. Ltd.*

10.10		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Ames Nominees Pty. Ltd.*

10.11		Lease Agreement, dated July 1, 2000, between Alloy Steel and Raglan Securities Pty. Ltd.*

10.12		Asset Purchase Agreement, dated October 2, 2000 between Alloy Steel and Collier Unit Trust*

10.13		Equipment Purchase Agreement, dated October 2, 2000, between Alloy Steel and Collier Unit Trust*

10.14		Asset Purchase Agreement, dated October 2, 2000, by and among Alloy Steel and Gene Kostecki and Alan Winduss*

10.15		Amendment dated July 1, 2004, to Employment Agreement between Alloy Steel and Gene Kostecki*

10.16		Amendment dated July 1, 2004, to Employment Agreement between Alloy Steel and Alan Winduss*

31.1		Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)**

31.2		Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)**

32.1		Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350**

32.2		Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350**

99.1		Letter of Authority from the Former Accountant to use the 2007 Report of the Independent Registered Public Accounting Firm**

*		Previously filed. See Exhibit Index.
**		Filed herewith.

Item 14.

Principal Accountant Fees and Services.

The Board of Directors reviewed all services performed for the company by Grant Thornton (WA) Partnership and UHY Haines Norton, our independent auditors, for the fiscal year ended September 30, 2008, within and outside the scope of their quarterly and annual auditing function. The company replaced Grant Thornton (WA) Partnership as independent auditors with UHY Haines Norton in January 2008.

	2008		2007
Audit Fees		51,744		14,870
Audit-Related Fees		-		-
Tax Fees		-		-
All Other Fees		-		-

The fees labeled Audit-Related Fees above principally involved the auditing of the annual financial statements of the company and the economic entity and review of the audit of the overseas operating entity, together with the review of quarterly financial statements as lodged with regulatory authorities.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: December 23, 2008	ALLOY STEEL INTERNATIONAL, INC.
		(Registrant)


		By:	/s/ Gene Kostecki
			Gene Kostecki
			President and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Gene Kosetcki	Director and President and Chief Executive Officer (Principal Executive Officer)	December 23, 2008
Gene Kostecki		December 23, 2008

/s/ Alan Winduss	Director and Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)	December 23, 2008
Alan C. Winduss		December 23, 2008

Alloy Steel International, Inc.

Annual Report on Form 10-KSB for the

Year Ended September 30, 2008

EXHIBIT INDEX

Exhibit No.		Description

3.1		Certificate of Incorporation [Incorporated by reference to Exhibit 3.1 to our Registration Statement on Form SB-2, SEC File No. 333-49146, filed on November 2, 2000, as amended (the “Registration Statement”).]

3.2		By-laws [Incorporated by reference to Exhibit 3.2 to the Registration Statement.]

4.1		Specimen Certificate [Incorporated by reference to Exhibit 4.1 to the Registration Statement.]

10.1		2000 Stock Option Plan [Incorporated by reference to Exhibit 10.1 to the Registration Statement.]

10.2		License Agreement, dated May 4, 2000, between Alloy Steel and Kenside Investments, Ltd. [Incorporated by reference to Exhibit 10.2 to the Registration Statement.]

10.3		Employment Agreement, dated October 2, 2000, between Alloy Steel and Gene Kostecki [Incorporated by reference to Exhibit 10.3 to the Registration Statement.]

10.4		Employment Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss [Incorporated by reference to Exhibit 10.4 to the Registration Statement.]

10.5		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Berryhill Investments, Ltd. [Incorporated by reference to Exhibit 10.5 to the Registration Statement.]

10.6		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Chartreuse Nominees Pty. Ltd. [Incorporated by reference to Exhibit 10.6 to the Registration Statement.]

10.7		Amended and Restated Consulting Agreement, dated October 2, 2000, between Alloy Steel and Persia Consulting Group, Inc. [Incorporated by reference to Exhibit 10.7 to the Registration Statement.]

10.8		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Ragstar Investments, Ltd. [Incorporated by reference to Exhibit 10.8 to the Registration Statement.]

10.9		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss Pty. Ltd. [Incorporated by reference to Exhibit 10.9 to the Registration Statement.]

10.10		Consulting Agreement, dated October 2, 2000, between Alloy Steel and Ames Nominees Pty. Ltd. [Incorporated by reference to Exhibit 10.10 to the Registration Statement.]

10.11		Lease Agreement, dated July 1, 2000, between Alloy Steel and Raglan Securities Pty. Ltd. [Incorporated by reference to Exhibit 10.11 to the Registration Statement.]

10.12		Asset Purchase Agreement, dated October 2, 2000 between Alloy Steel and Collier Unit Trust [Incorporated by reference to Exhibit 10.12 to the Registration Statement.]

10.13		Equipment Purchase Agreement, dated October 2, 2000, between Alloy Steel and Collier Unit Trust [Incorporated by reference to Exhibit 10.13 to the Registration Statement.]

10.14		Asset Purchase Agreement, dated October 2, 2000, by and among Alloy Steel and Gene Kostecki and Alan Winduss [Incorporated by reference to Exhibit 10.14 to the Registration Statement.]

10.15		Amendment dated July 1, 2004, to Employment Agreement between Alloy Steel and Gene Kostecki.

10.16		Amendment dated July 1, 2004, to Employment Agreement between Alloy Steel and Alan Winduss.

31.1		Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)

31.2		Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)

32.1		Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350

32.2		Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350

99.1		Letter of Authority from the Former Accountant to use the 2007 Report of the Independent Registered Public Accounting Firm

ALLOY STEEL INTERNATIONAL, INC.

AND CONTROLLED ENTITIES

CONSOLIDATED FINANCIAL STATEMENTS

AND

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

SEPTEMBER 30, 2008

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(ITEM 7)

Report of Independent Registered Public Accounting Firm		F-2

Report of the Former Independent Registered Public Accounting Firm		F-3

Consolidated Financial Statements

Consolidated Balance Sheet September 30, 2008		F-4

Consolidated Statements of Operations Years ended September 30, 2008 and 2007		F-5

Consolidated Statements of Stockholders' Equity Years ended September 30, 2008 and 2007		F-6

Consolidated Statements of Cash Flows Years ended September 30, 2008 and 2007		F-7

Notes to Consolidated Financial Statements		F-8 – 15

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of Alloy Steel International Inc

We have audited the accompanying consolidated balance sheet of Alloy Steel International Inc and Controlled Entities (the “Company) as of September 30 2008, and the related consolidated statement of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standrards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30 2008, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

	/s/ UHY HAINES NORTON
	CHARTERED ACCOUNTANTS

Perth, Australia

December 23, 2008

F-2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Alloy Steel International, Inc.

We have audited the accompanying consolidated balance sheet of Alloy Steel International, Inc. and Subsidiary (the “Company”) as of September 30 2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years ended in the two year period September 30, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2007, and the results of its operations and its cash flows for each of the years ended in a two year period September 30, 2007, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton (WA) Partnership

Perth, Australia

January 14, 2008

F-3

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

CONSOLIDATED BALANCE SHEET

September 30, 2008

ASSETS


Current assets
Cash and cash equivalents	$	664,054
Accounts receivable		2,290,147
Inventories		2,365,049
Prepaid expenses and other current assets		70,161
Total current assets		5,389,411

Investments		173,422

Property and equipment, net		2,976,290


Other assets
Other
Deferred tax assets		-
Intangibles		17,863
Total other assets		17,863

	$	8,556,986

LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities
Notes payable, current portion	$	75,739
Notes payable, officers, current portion		-
Accrued officers' salaries		14,998
Royalties payable, related party		763,176
Loan payable, related party
Current tax payable		1,100,129
Accounts payable and other current liabilities		1,026,329
Total current liabilities		2,980,371

Long-term liabilities
Notes payable, less current portion		225,728
Notes payable, officers, less current portion
Employee entitlement provisions		9,402
Deferred tax liabilities		19,342
Total long-term liabilities		254,472

Commitments and contingencies

Stockholders' equity
Preferred stock, $.01 par value, authorized 3,000,000shares; issued and outstanding - none		-
Common stock, $.01 par value, authorized 50,000,000shares; issued and outstanding 16,950,000 shares		169,500
Capital in excess of par value		1,773,382
Accumulated income		2,838,409
Accumulated other comprehensive income		538,986
Non Controlling Interest		1,866
Total stockholders' equity		5,322,143

	$	8,556,986

See accompanying notes to consolidated financial statements.

F-4

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended September 30, 2008 and 2007

	Sep-08			Sep-07

Sales	$	13,511,458		$	8,729,644

Cost of sales		6,541,427			4,385,872

Gross profit		6,970,031			4,343,772

Selling, general and administrative expenses		3,359,311			2,320,778

Profit (Loss) from operations		3,610,720			2,022,994

Other income (expense)
Interest income		64,424			15,436
Interest expense		(20,938	)		(26,900	)
Dividend income		6,387			-
Insurance recovery		56,119			21,544
Sundry Income		30,154			20,890
Writedown of intangible assets		-			(90,512	)
Writedown for fair value adjustment		(76,762	)		-
Profit on disposal of property and equipment		39			-
		59,423			(59,542	)

Income (loss) before income tax (expense) benefit		3,670,143			1,963,452

Income tax (expense) benefit		(1,164,368	)		(654,587	)

Net income (loss)		2,505,775			1,308,865

Net (income) loss attributable to non controlling interests		2,137			-

Net income (loss) attributable to stockholders	$	2,507,912		$	1,308,865


Basic and diluted income (loss) per common share	$	0.15		$	0.08

Weighted average number of common shares used in computing basic and diluted income (loss) per common share		16,950,000			16,950,000

See accompanying notes to consolidated financial statements.

F-5

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended September 30, 2008 and 2007

					Capital in excess of par value		Accumulated Income			Comprehensive Income			Accumulated Other Comprehensive Income			Non controlling Interests			Total Stockholders' Equity

	Common Stock
	Shares		Amount


Balances, September 30, 2006		16,950,000	$	169,500	$	1,773,382	$	(978,368	)				$	538,189		$			$	1,502,703


Net Loss								1,308,865		$	1,308,865									1,308,865

Other comprehensive income, foreign currency translation adjustment											548,442			548,442						548,442

Total comprehensive income - Year ended September 30, 2007										$	1,857,307



Balances, September 30, 2007		16,950,000		169,500		1,773,382		330,497						1,086,631						3,360,010


Net Income								2,507,912		$	2,507,912									2,507,912

Other comprehensive income, foreign currency translation adjustment											(547,645	)		(547,645	)					(547,645	)

Total comprehensive income - Year ended September 30, 2008										$	1,960,267

Non controlling interest in subsidiary
Issued capital in subsidiary																	4,000
Accumulated income (loss)																	(2,137	)
Accumulated comprehensive income																	3			1,866


Balances, September 30, 2008		16,950,000	$	169,500	$	1,773,382	$	2,838,409					$	538,986		$	1,866		$	5,322,143

See accompanying notes to consolidated financial statements.

F-6

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended September 30, 2008 and 2007

	Sep-08			Sep-07

Cash flows from operating activities
Net income (loss)	$	2,507,912		$	1,308,865
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		198,080			168,548
Write down of intangible assets and other assets		76,762			90,512
Profit on disposal of property and equipment		(39	)		-
Dividends reinvested directly to investments		(3,066	)		-
Loss attributable to non controlling interests		(2,137	)		-
Increase (decrease) in cash and cash equivalents attributable to changes in operating assets and liabilities:
Accounts receivable		14,844			(1,701,798	)
Inventories		(1,878,924	)		(80,682	)
Income taxes receivable					-
Prepaid expenses and other current assets		66,266			(96,150	)
Accrued officer's salaries		(315,080	)		20,680
Accounts payable and other current liabilities		129,793			726,837
Income taxes payable		633,276			732,940

Net cash provided by operating activities		1,427,687			1,169,752

Cash flows from investing activities
Purchase of property and equipment		(644,903	)		(505,492	)
Acquisition of interest in subsidiary		(17,863	)		-
Purchase of investments		(253,197	)		-

Net cash used in investing activities		(915,963	)		(505,492	)

Cash flows from financing activities
Repayment on notes and loans payable		(296,305	)		(377,946	)
Proceeds from capital issued to non controlling interests		4,000			-

Net cash used in financing activities		(292,305	)		(377,946	)

Effect of foreign exchange rate changes on cash and cash equivalents		(39,660	)		179,026

Net increase (decrease) in cash and cash equivalents		179,759			465,340

Cash and cash equivalents, beginning of year		484,295			18,955

Cash and cash equivalents, end of year	$	664,054		$	484,295

Supplemental disclosures of cash flow information, cash paid during the years for:

Income taxes	$	531,093		$	(75,866	)

Interest	$	(22,849	)	$	26,900

Supplemental disclosures of non-cash investing and financing activities,
Equipment acquired under notes payable	$	142,369		$	28,197

See accompanying notes to consolidated financial statements.

F-7

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Nature of operations

Alloy Steel International, Inc. (ASII), its wholly-owned subsidiary, Alloy Steel Australia (Int.) Pty Limited (ASAI) and majority owned subsidiary Alloy Steel Mongolia LLC (ASM) (collectively the "Company") manufacture and distribute Arcoplate, a wear-resistant fused-alloy steel plate, to customers throughout the world.

2.	Summary of significant accounting policies

Basis of Presentation

The Company adheres to accounting principles generally accepted in the United States of America. The Company's consolidated financial statements are denominated in United States dollars.

Principles of Consolidation

The consolidated financial statements include the accounts of ASII, ASAI and ASM. All material intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes revenues when products are shipped and title passes to customers. Provisions are established, as appropriate, for uncollectible accounts, returns and allowances and warranties in connection with sales.

Cash and Cash Equivalents

The Company considers all highly-liquid debt instruments purchased with maturities of three months or less to be cash equivalents.

Accounts Receivable

The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its receivables and establishes an allowance for doubtful accounts, based on the history of past write-offs and collections and current credit conditions. Accounts are written off as uncollectible once the Company has exhausted its collection efforts.

Fair Value of Financial Instruments

The fair value of the Company's assets and liabilities which qualify as financial instruments under Statement of Financial Accounting Standards (“SFAS”) No. 107, “Disclosures About Fair Value of Financial Instruments,” approximates the carrying amounts presented in the accompanying consolidated balance sheet.

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined principally on the first-in, first-out method.

F-8

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (continued)

Impairment of Long-Lived Assets

The Company periodically assesses the recoverability of the carrying amounts of long-lived assets, including intangible assets. A loss is recognized when expected undiscounted future cash flows are less than the carrying amount of the asset. The impairment loss is the difference by which the carrying amount of the asset exceeds its fair value.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using both the straight-line and declining value method over the estimated useful lives of the assets as follows:

		Estimated
Asset		Useful Lives
Plant and equipment		5-20 years
Furniture and fixtures		5-7 years
Vehicles		3-5 years
Office and computer equipment		3-5 years

Maintenance and repairs are charged to operations, while betterments and improvements are capitalized.

Intangibles

Intangibles include intellectual property rights of $90,512, which have been amortized in full in the current year as there is currently an indefinite period that exists before the Company will be able to develop and commercially exploit the property rights, and goodwill on consolidation of ASM of $17,863.

Advertising

Advertising costs are charged to operations as incurred and were approximately $14,000 and $11,000 for the years ended September 30, 2008 and 2007, respectively.

Income Taxes

The Company complies with SFAS No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Prior to 2008, these reserves were recorded when management determined that it was probable that a loss would be incurred related to these matters and the amount of the loss was reasonably determinable. In 2008, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN No. 48”). As a result, reserves recorded subsequent to adoption are based on a determination of whether and how much of a tax benefit taken in its tax filings or positions is more likely than not to be realized, assuming that the matter in question will be raised by the tax authorities. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense. At adoption date, the Company made a comprehensive review of its uncertain tax positions. The Company believes appropriate provisions for outstanding issues have been made.

F-9

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (continued)

Income (Loss) Per Common Share

SFAS No. 128, "Earnings Per Share", requires dual presentation of basic and diluted income (loss) per share for all periods presented. Basic income (loss) per share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted income (loss) per common share was the same as basic income (loss) per common share since there were no common stock equivalents outstanding for both years presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”. This statement generally clarifies the manner in which an entity is required to measure the fair value of its assets and liabilities, emphasizing that fair value is a market-based measurement and not an entity-specific measurement. This statement is effective for accounting changes made in the fiscal years beginning after November 15, 2007. Adoption of the provisions of the Statement is not expected to have a material effect on the operations or financial position of the Company.

In February 2007, the FASB issued FASB Statement NO. 159, The Fair Value Option for Financial Asset and Financial Liabilities, Including an amendment of FASB Statement No. 115. Under this statement, entities will be permitted to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option). By electing the fair value measurement attribute for certain assets and liabilities, entities will be able to mitigate potential “mismatches” that arise under the current mixed measurement attribute model. Entities will also be able to offset changes in the fair values of a derivative instrument and its related hedged item by selecting the fair value option for the hedged item. SFAS No. 159 will become effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect that the adoption of this statement will have on the consolidated financial statements.

Foreign Currency Translation

Assets and liabilities of the Company’s wholly-owned subsidiary are translated into U.S. dollars at year-end exchange rates, revenues and expenses and cash flows are translated at average rates prevailing during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income.

F-10

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of significant accounting policies (continued)

3.	Inventories

Inventories consist of the following at September 30, 2008:

Raw materials	$	1,564,030
Work in progress		35,573
Finished goods		765,446
	$	2,365,049

4.	Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following at September 30, 2008:

Prepaid expenses	$	63,992
Goods & services tax receivable		3,509
Deposit paid to suppliers		2,660
	$	70,161

5.	Property and equipment

Property and equipment consists of the following at September 30, 2008:

Leasehold Land	$	23,123
Less accumulated amortization		2,352
		20,771

Plant and equipment	$	3,586,645
Furniture and fixtures		40,603
Vehicles		261,772
Leasehold Improvements		31,480
Office and computer equipment		147,085
		4,067,585
Less accumulated depreciation		1,112,066
	$	2,955,519
	$	2,976,290

Depreciation and amortization expense for the years ended September 30, 2008 and 2007 was approximately $199,000 and $170,000, respectively. At September 30, 2008, property and equipment included approximately $430,000 and accumulated depreciation included approximately $77,000 related to assets acquired under notes payable.

6.	Intangible Asset

Goodwill on consolidation

17,863

F-11

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.	Notes payable

Notes payable at September 30, 2008 consists of the following:

Note payable (a)		12,377
Note payable (b)		130,472
Note payable (c)		15,306
Note payable (d)		42,672
Note payable (e)		100,640
		301,467
Less current portion		75,739
	$	255,728

(a)	The note is payable in monthly installments of $353 including interest at a rate of 7.61% per annum, with a final payment in March 2010. The note is collateralized by the underlying equipment and is guaranteed by the officers of the Company.

(b)	The note is payable in monthly installments of $4,158 including interest at a rate of 7.25% per annum, with a final balloon payment in November 2010. The note is collateralized by the underlying equipment and is guaranteed by the officers of the Company.

(c)	The note is payable in monthly installments of $640 including interest at a rate of 7.61% per annum, with a final balloon payment in February 2010. The note is collateralized by the underlying equipment and is guaranteed by the officers of the Company.

(d)	The note is payable in monthly installments of $905 including interest at a rate of 9.22% per annum, with a final payment in March 2012. The note is collateralized by the underlying equipment and is guaranteed by the officers of the company.

(e)	The note is payable in monthly installments of $2,094 including interest at a rate of 9.65% per annum, with a final payment in June 2012. The note is collateralized by the underlying equipment and is guaranteed by the officers of the company.

Aggregate annual principal payments for each of the following years are as follows:

Year ending September 30,
2009		75,739
2010		88,553
2011		71,392
2012		65,783
	$	301,467

F-12

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.	Income taxes

Income (loss) before income tax expense (benefit) for the years ended September 30, 2008 and 2007 were derived in the following jurisdictions:

	2008			2007
Australia		3,865,354			2,181,961
Mongolia		(3,206	)		-
US		(189,868	)		(218,509	)

		3,672,280			1,963,452

The components of income tax expense (benefit) are as follows for the years ended September 30, 2008 and 2007:

	2008		2007
Current
Foreign		1,100,129		480,960

Deferred
Foreign		64,239		173,621

		1,164,368		654,581

As of September 30, 2008, the Company had US net operating loss carryforwards of approximately $1,932,000 expiring through 2025.

The components of the deferred tax assets and liabilities consist of the following at September 30, 2008 and 2007:

	2008			2007
Deferred tax assets
Net operating loss carryforwards		676,333			609,879
Other		92,894			42,854
		769,227			652,733
Less valuation allowance		(676,333	)		(609,879	)
		92,894			42,854
Deferred tax liabilities
Other		(112,236	)		(81,149	)

Deferred tax assets (liabilities), net		(19,342	)		(38,295	)

SFAS No. 109, requires that the Company record a valuation allowance when it is more likely than not that some portion or all of the deferred income tax asset will not be realized. The change in the valuation allowance amounted to approximately $66,000 and $45,000 for the years ended September 30, 2008 and 2007, respectively. The ultimate realization of this deferred income tax asset depends on the Company's ability to generate sufficient taxable income in future years

The Company also has certain foreign tax credits available for future use.

F-13

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.	Income taxes (continued)

The effective tax rate in 2008 and 2007 differs from the U.S. federal statutory rate as follows:

	2008			2007

U.S. federal statutory rate		35	%		35	%
Change in valuation allowance		2	%		2	%
Benefit of lower foreign effective tax rates/Other		(5	%)		(4	%)
Effective tax rate		32	%		33	%

9.	Stock options

During 2000, the Company's Board of Directors (the Committee) adopted, and the stockholders approved, the 2000 stock option plan (the Plan) pursuant to which 500,000 shares of common stock were reserved for issuance upon the exercise of options granted to key employees, members of the Committee and consultants of the Company. Options under the Plan may be incentive stock options, nonqualified stock options, or any combination thereof, and the Committee may grant options at an exercise price which is not less than the fair market value on the date such options are granted. The Plan further provides that the maximum period in which stock options may be exercised will be determined by the Committee, except that they may not be exercisable after ten years from the date of grant or five years from the date of grant for any person owning more than ten percent of the voting power of all classes of the Company's stock. For the years ending September 30, 2008 and 2007, there were no stock options granted or outstanding stock options.

10.	Business Combination

The Company acquired a 60% controlling and equity interest in Alloy Steel Mongolia LLC (ASM), a company incorporated in Mongolia, to conduct a joint venture operation with Geomandal LLC, an unrelated company incorporated in Mongolia to provide services to the mining industry in Mongolia

The Company’s costs in acquiring the interest in the newly formed company totalled $23,863. As ASM was newly incorporated at the time of the Company acquiring its interest, ASM had no assets or liabilities.

11.	Commitments and contingencies

Operating Lease

The Company leases its office and manufacturing space from a related party for approximately $205,000 per annum plus certain expenses (as defined in the agreement). The lease expires on June 30, 2010.

Rent expense for the years ended September 30, 2008 and 2007 was approximately $205,000 and $160,000 respectively.

F-14

ALLOY STEEL INTERNATIONAL, INC. AND CONTROLLED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.	Commitments and contingencies (continued)

Royalty Agreements

The Company has a licensing agreement with a related party of which relates to the sale of all products sold in the United States of America. Under the terms of the agreement, the Company is required to pay royalties of 2% on the net sales of these products, calculated at the end of each quarter. The agreement expires in 2025 and has three ten-year renewal options to extend unless written notice of non-renewal is given by either party within 120 days prior to its expiration. At September 30, 2008, approximately $763,000 was payable under this agreement and is included in accounts payable and other current liabilities.

Royalty expense was approximately $260,000 and $176,000 for the years ended September 30, 2008 and 2007, respectively.

Employment Agreements

The Company has employment agreements with two of its executives, who are principal stockholders, requiring the payment of a minimum annual base compensation of approximately $80,000 and $150,000, adjusted semi-annually for increases approved by the Board of Directors, but not less than the base year amount, plus incentive compensation based on the executives’ performance and the Company's success. Approximately $218,000 and $170,000 has been expensed under these agreements in each of the years ended September 30, 2008 and 2007 respectively, and is included in selling, general and administrative expenses.

12.	Major customers, suppliers and geographic information

The Company had revenues from two customers and one customer for each of the years ended September 30, 2008 and 2007, of approximately $4,303,000 and $4,048,000 respectively. Accounts receivable due from the respective customers were approximately $1,592,000 and $1,425,000 at September 30, 2008 and 2007.

	2008			2007
Customer A		10.2	%		10.6	%
Customer B		21.6	%		35.7	%

For the years ended September 30, 2008 and 2007, the Company purchased approximately 41% and 39% of its inventories from two suppliers, respectively.

For the years ended September 30, 2008 and 2007, revenues were derived from the following:

	2008			2007
Australia		70	%		72	%
Americas		13	%		14	%
Other		17	%		14	%

		100	%		100	%

F-15