As filed with the Securities and Exchange Commission on November 2, 2000
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
ALLOY STEEL INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Delaware 3325 98-0233941
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
Alloy Steel International, Inc.
42 Mercantile Way Malaga
P.O. Box 3087 Malaga D C 6945
Western Australia
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Gene Kostecki, President, CEO
Alloy Steel International, Inc.
42 Mercantile Way Malaga
P.O. Box 3087 Malaga D C 6945
Western Australia
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
copies to:
Martin C. Licht, Esq.
Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
Telephone: (212) 779-8600
Facsimile: (212) 779-8858
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement. If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box.
[X]
If this Form is filed to register additional securities pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities
Act Registration Statement number of the earlier effective Registration
Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
===========================================================================================================
Proposed Proposed
maximum maximum Amount of
Title of each class of securities Amount to offering price aggregate offering registration
to be registered be registered per security (1) price (1) fee (2)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share.......................... 5,586,250 $3.00 $16,826,250 $4,424
===========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 of the Securities Act.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
Preliminary Prospectus
The information in this preliminary prospectus is not complete and may be
changed. The securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the sale is not permitted.
Subject to Completion, Dated November 2, 2000
Alloy Steel International, Inc.
5,586,250 Shares of Common Stock
This is a public offering of shares of common stock of Alloy Steel
International, Inc. No public market currently exists for the common stock.
Sales may be made by selling stockholders at fixed prices which may be changed,
at market prices prevailing at the time of sale, or at negotiated prices. We
will not receive any of the proceeds from the sale of the shares of common
stock. We intend to apply for listing of our shares on the National Association
of Securities Dealers, Inc., OTC Bulletin Board under the symbol ____.
Before buying the shares of common stock, carefully read this prospectus,
especially the risk factors beginning on page 5. The purchase of our securities
involves a high degree of risk.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _____ , 2000.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY ........................................................ 1
RISK FACTORS .............................................................. 5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ...................... 9
DIVIDEND POLICY ........................................................... 11
CAPITALIZATION ............................................................ 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................................. 13
BUSINESS .................................................................. 15
MANAGEMENT ................................................................ 22
PRINCIPAL STOCKHOLDERS .................................................... 25
CERTAIN TRANSACTIONS ...................................................... 26
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION ............................. 27
DESCRIPTION OF SECURITIES ................................................. 31
LEGAL MATTERS ............................................................. 34
EXPERTS ................................................................... 34
Financial Statements ...................................................... F-1
----------------------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. You should
carefully read the entire prospectus, including the "Risk Factors" section and
the financial statements and the notes to the financial statements. This summary
does not contain all of the information that investors should consider before
investing in our common stock.
The Company
Our Business
We manufacture and distribute Arcoplate, a wear-resistant fused-alloy
steel plate, through a patented production process. The Arcoplate process
enables an alloy overlay to be evenly applied to a sheet of steel, creating a
metallurgical bond between the alloy and the mild steel that is resistant to
wear caused by impact, abrasion and erosion. We believe that wear is the primary
cause of down time and lost production in mining and mineral processing, and
that our Arcoplate product line will substantially lower down time and lost
production for our customers.
We have also intend to market for manufacture and distribution, the 3-D
Pipe Fitting Cladder process, a computer-driven and software-based mechanical
system for industrial use. The 3-D Pipe Fitting Cladder process enables wear
resistant alloy coatings to be applied to pipe fittings, where wear is most
likely to occur. Through the 3-D Pipe Fitting Cladder process, we intend to
apply alloy coatings to the interior surfaces of pipe fittings. We believe that
the mining and mineral industries, among others, would benefit from the reduced
abrasive wear and downtime associated with the use of the 3-D Pipe- Fitting
Cladder process.
Our Strategy
Our objective is to become an international market leader in
wear-resistant alloy steel products and to establish significant market share
and brand awareness for our Arcoplate process and the 3-D Pipe Fitting Cladder
process within the mining, mineral processing and steel industries. We intend to
accomplish our objectives by capitalizing on our existing proprietary technology
and patented process for producing Arcoplate through the direct manufacture and
sale of Arcoplate-based products to original equipment manufacturers and
distributors worldwide.
Corporate Background
Alloy Steel International was incorporated in Delaware in May 2000. Our
principal executive office is located at 42 Mercantile Way Malaga, Malaga D C
6945, Western Australia Our telephone number is 61 + (8) + 9248 3188. Our
Internet address is www.alloysteel.net. Information contained in our web sites
is not intended to be part of this prospectus. Unless otherwise indicated, all
information in this Prospectus gives effect to the following:
1
<PAGE>
o the acquisition of a license for the worldwide rights to
commercially exploit the Arcoplate process, with the exception of
the United States, in May 2000;
o the acquisition of a sub-license in May 2000 for the rights to
commercially exploit the Arcoplate process in the United States;
o the acquisition of certain plant equipment assets of Collier Unit
Trust in October 2000; and
o the acquisition of the 3-D Pipe Fitting Cladder Process in October
2000.
2
<PAGE>
SUMMARY FINANCIAL DATA
The following sets forth summary financial information regarding Alloy
Steel International, Inc. and Arcoplate division, Collier Unit Trust. The
Company was organized on May 4, 2000. Accordingly, no historical operations data
are included in 1999. The pro forma summary financial information includes
adjustments to reflect the acquisition of the Arcoplate division's net assets.
See pro forma financial statements included elsewhere herein.
Statement of operations data:
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------- ---------------------------
Year Ended May 4, 2000 Year Ended September 30,
September 30, (inception) to
1999 September 30, 2000 1999 2000
----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ 1,316,339 $ 1,188,403
----------- ----------- ----------- -----------
Gross Profit -- -- 637,909 487,774
Selling, general
and administrative -- (19,859) (395,932) (431,156)
Other Income -- -- 38,085 --
----------- ----------- ----------- -----------
Net Income (loss) $ -- $ (19,859) $ 280,062 $ 56,618
=========== =========== =========== ===========
</TABLE>
Balance sheet data:
Historical Pro Forma
September 30, 2000 September 30, 2000
------------------ ------------------
Cash and cash equivalents $ 8,674 $ 8,674
Working Capital (deficit) $ (13,126) $ 181,776
Total assets $ 585,545 $ 931,909
Total liabilities - all current $ 21,800 $ 78,077
Stockholders' equity $ 563,745 $ 853,832
3
<PAGE>
The Offering
Securities Offered ......... This prospectus relates to the offering of
5,586,250 shares of common stock which are being
offered for sale by selling stockholders. See
"Description of Securities" and "Selling
Stockholders and Plan of Distribution."
Price Per Share ............ Sales may be made at fixed prices which may be
changed, at market prices prevailing at the time
of sale, or at negotiated prices.
Common Stock Outstanding ... 17,000,000 shares.
Use of Proceeds ............ We will not receive any of the proceeds from the
sale of shares by the selling stockholders.
Risk Factors ............... You should read the "Risk Factors" section as well
as the other cautionary statements throughout the
entire prospectus, so that you understand the
risks associated with an investment in our
securities.
4
<PAGE>
Risk Factors
This offering involves a high degree of risk. You should carefully
consider the following factors and other information in this prospectus before
deciding to invest in our shares of common stock.
We cannot assure you that our technology will be accepted into the
marketplace and we may not be able to derive significant revenues.
We expect to incur substantial expenses as we continue our development and
distribution activities. Market acceptance of our products will depend upon the
pricing of our products and our ability to manufacture and deliver them on a
timely basis, as well as our ability to demonstrate the technical advantages of
our products over competing methodologies and products. We cannot assure you
that we will be able to develop or market Arcoplate successfully or that any of
our future alloy steel products, including the 3-D Pipe Fitting Cladder process,
or any of our other future products will be accepted in the marketplace.
We have a limited operating history and will face difficulties encountered
by early stage companies.
We have a limited operating history. We anticipate incurring significant
operating losses for at least the next 12 months. We cannot assure you that we
will achieve or maintain profitability. Until we achieve the manufacturing
capacity sufficient to sustain continuous production of Arcoplate or
Arcoplate-based products, we will have substantial production undercapacity, and
we may be unable to fill customer orders. Such events could cause us to incur
substantial operating losses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We have not completed the manufacture of the computer-controlled equipment
required for the additional production of our products and we have limited
production capacity.
Although we have prototype equipment, we do not currently have any of the
equipment necessary for the manufacturing of Arcoplate in commercial quantities.
We do not anticipate the completion of commercial equipment until November 2000
at the earliest. In addition, we do not currently manufacture the commercial
equipment necessary for the implementation of the 3-D Pipe Fitting Cladder
process. Accordingly, we have limited internal manufacturing capacity and no
experience in manufacturing our products in industrial or commercial quantities.
Due to our limited production capacity, we may be unable to meet demand for our
products. In addition, our manufacturing operations use certain equipment which,
if damaged or otherwise rendered inoperable or unavailable, could result in the
disruption of our manufacturing operations. Any extended interruption of
operations at our manufacturing facility would have a material adverse effect on
our business. See "Business--Manufacturing and Supply."
5
<PAGE>
We will need additional financing.
We believe that the available cash and anticipated cash flow from
operations will be sufficient to satisfy the Company's anticipated capital
requirements for approximately six months. Accordingly, we anticipate that we
will require additional financing to continue operations and pursue our plans
for expansion. Such financing may take the form of the issuance of common stock
or preferred stock or debt securities, or may involve bank or other lender
financing. We cannot assure you that we will be able to obtain such additional
financing on a timely basis, on favorable terms, or at all.
We compete in an industry that is characterized by intense competition,
technological change and new product development.
We operate in a highly competitive and evolving field. Our ability to
anticipate changes in technologies, markets and industry trends and to develop
and introduce new and enhanced products on a timely basis will be a critical
factor in our ability to grow and remain competitive. In addition, we expect
that we will devote substantial resources to research and development efforts
and we cannot assure you that we will benefit from such expenditures. In order
to realize the benefits of Arcoplate and the 3-D Pipe Fitting Cladder process,
our customers may need to modify their operations practices at their work sites,
and may not be willing to do so.
If we are unable to effectively manage our plan of rapid expansion, we
will not achieve profitability.
We plan to rapidly 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 power systems. 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.
The loss of any key personnel would disrupt our operations and hurt our
profitability.
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly, Gene
Kostecki, Chairman and Chief Executive Officer, and Alan Winduss, Chief
Financial Officer. The loss of the services of Mr. Kostecki or Mr. Winduss would
likely have a significantly detrimental effect on our business. We currently
have employment agreements with each of Mr. Kostecki and Mr. Winduss. However,
if Mr. Kostecki or Mr. Winduss becomes unwilling or unable to continue in their
current positions, it would be significantly more difficult to operate our
business, which could hurt our financial condition and results of operations.
Management controls approximately 73% of Alloy Steel; management's
interests may differ and conflict with yours.
6
<PAGE>
Our directors and executive officers own approximately 73% 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. If you purchase our common stock, you may
have no effective voice in our management.
We depend heavily on patents.
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. We cannot assure you that any granted patent or
pending patent application will provide protection against infringement.
Business--Intellectual Property."
We cannot predict the magnitude and direction of future currency exposure
with respect to international sales.
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.
We anticipate that competition will continue to intensify.
The wear plate solutions industry is highly competitive. We have numerous
competitors worldwide, including Triton, Inc., Trimay, Ltd., Australian National
Industries, Ltd., Australian Overseas, Ltd., Abresist Corporation and Duraweld,
Ltd. We compete in our chosen markets against several larger multi-national
companies, all of which are well-established and have substantially greater
financial and other resources than we maintain. Competitive market conditions
could adversely affect our results of operations if we are required to reduce
product prices to remain competitive or if we are unable to achieve significant
sales of our products. See "Business--Competition."
We depend heavily on 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. Our business would be materially and adversely affected if we were
unable to continue to receive materials at prices and on terms presently made
available to us by our principal suppliers. 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
7
<PAGE>
receive materials at prices and on terms comparable to those presently made
available to us by our principal suppliers. See "Business--Manufacturing and
Supply."
We depend heavily upon electrical power for our operations
We consume a large amount of electrical power during production. The
amount of electrical power consumed during the Arcoplate process represents
approximately 15% 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.
Shares eligible for future sale after this offering could impair our stock
price.
The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock. See "Shares Eligible for Future Sale" for
further information concerning potential sales of our shares after this
offering.
We do not anticipate paying dividends on our common stock.
We have not paid dividends on our common stock to date and we do not
anticipate declaring or paying any dividends in the foreseeable future; rather,
we intend to retain our earnings, if any, for the operation and expansion of our
business.
There is no public market for our common stock and any public market that
develops upon completion of this offering may be limited.
There is currently no public market for our common stock and any public
market that develops may be limited. We intend to apply for listing on the OTC
Bulletin Board, but we cannot assure you that we will be approved for listing.
We cannot assure you that any market for the shares will develop or, if it
develops, that it will be sustained.
The market for our common stock, if any develops, may be volatile.
We intend to apply for listing of our common stock on the OTC Bulletin
Board. The OTC Bulletin Board experiences a high level of price and volume
volatility. Market prices for many companies, particularly small and emerging
growth companies have experienced wide price fluctuations not necessarily
related to their operating performance as such:
o The market price for our common stock may be affected by general
stock market volatility;
o Purchasers may have trouble reselling their stock;
o Broker/dealers may not be able to resell our stock as easily as
stocks which are traded on larger exchanges;
8
<PAGE>
o Financial results and various factors affecting our industry in
general may significantly affect the market price for our common
stock.
We cannot assure you that we can sustain an active trading market.
The Commission's penny stock rules may severely limit the liquidity of an
investment in our common stock.
Our shares of common stock may be subject to Rule 15g-9 under the Exchange
Act. This rule imposes additional sales practice requirements on broker/dealers
which sell such securities to persons other than established customers and
accredited investors. Generally, these individuals have a net worth in excess of
$1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their
spouses. For transactions covered by this Rule, a broker/dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
Rule may affect the ability of broker/dealers to sell our common stock and may
affect the ability of purchasers in the offering to sell their shares.
We intend to apply for listing of our common stock on the OTC Bulletin
Board. The Commission has adopted regulations which generally define a penny
stock as any non-Nasdaq equity security that has a market price of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. The market price for our common stock, if any market
develops, may be less than $5.00 per share. The following rules apply to
non-exempt penny stock:
o For any transaction by broker/dealers involving a penny stock, the
rules require delivery, prior to a transaction in a penny stock, of
a risk-disclosure document relating to the penny stock market;
o Disclosure is also required to be made about compensation payable to
both the broker/dealer and the registered representative and current
quotations for the securities;
o Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
We cannot assure you that our securities will qualify for exemption from
these restrictions at any time in the foreseeable future. Even if our common
stock were exempt from such restrictions, it would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while participating in a
distribution of penny stock from associating with a broker/dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest. If our common stock were
subject to the rules on penny stocks, the market liquidity for our securities
could be severely limited.
9
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, our beliefs and
assumptions. Words including "may," "could," "would," "will," "anticipates,"
"expects," "intends," "plans," "projects," "believes," "seeks," "estimates" and
similar expressions are intended 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 in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events.
10
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares by the
selling stockholders.
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock, but to retain our earnings, if
any, for the operation and expansion of our business. Dividends will be subject
to the discretion of our board of directors and will be contingent on future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors as our board of directors deems relevant.
11
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2000:
o on an actual basis; and
o on a pro forma basis to reflect the acquisition of the business and
net assets of the Arcoplate division of Collier Unit Trust and the
issuance of 3,640,200 shares of common stock for consulting and
professional services.
You should read this table in conjunction with our financial statements,
including the notes to our financial statements, which appear elsewhere in this
prospectus.
As of September 30, 2000
-----------------------------
Actual Pro Forma
----------- -----------
Stockholders' equity: $ -- $ --
Preferred stock $.01 par value,
authorized 3,000,000 shares;
no shares issued and outstanding
Common stock $.01 par value,
authorized 50,000,000 shares;
issued and outstanding - actual
8,696,250 shares; pro forma
17,000,000 shares 86,963 170,000
Additional paid-in capital 496,641 1,286,091
Deficit accumulated in the
development stage (19,859) (19,859)
Deferred compensation -- (582,400)
----------- -----------
Total: $ 563,745 $ 853,832
=========== ===========
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 prospectus.
Overview
We manufacture and distribute Arcoplate, a wear-resistant fused-alloy-clad
steel plate, which is manufactured by a patented production process. The
Arcoplate process enables an alloy overlay to be evenly applied to a mild steel
backing, creating a metallurgical bond between the alloy and the mild steel that
is resistant to wear caused by impact, abrasion and erosion. We believe that
wear is the primary cause of down time and lost production in mining and mineral
processing, and that our Arcoplate product line will substantially lower the
down time and lost production for our customers.
We have also developed, for manufacture and distribution, the 3-D Pipe
Fitting Cladder process, a computer-driven and software-based mechanical system
for industrial use. The 3-D Pipe Fitting Cladder process enables wear resistant
alloy coatings to be applied to pipe fittings, where wear is most likely to
occur. In pipe fittings, wear generally occurs in pipe bends, elbow pipe joints,
pipe "T" sections and pipe "Y" sections. Through the 3-D Pipe Fitting Cladder
process, we apply alloy coatings to the interior surfaces of pipe fittings. We
believe that the mining and mineral industries, among others, would benefit from
the reduced abrasive wear and downtime associated with the use of the 3-D
Pipe-Fitting Cladder process.
Results of Operations (Pro Forma)
Year ended September 30, 1999 compared to year ended September 30, 2000
Product Sales
For the year ended September 30, 1999 product sales were $1,316,339 as
compared to $1,188,403 for the year ended September 30, 2000, a decrease of
9.7%. Management believes that product sales decreased because its equipment was
shut down for approximately ten weeks during a relocation of the Company's
facilities.
Gross Profit
For the year ended September 30, 1999 gross profit was $637,909, 48.4% as
a percentage of product sales, as compared to $487,774, 41% as percentage of
product sales for the year ended September 30, 2000. Management believes that
the decrease of gross profit as a percentage of net sales is primarily
attributable to changes in the alloy formula which resulted in an increase in
composition cost.
13
<PAGE>
Selling General and Administrative Expenditures
For the year ended September 30, 1999, selling general and administrative
expenses were $395,932, 30.1% as a percentage of product sales, as compared to
$431,156, 36.3% as a percentage of product sales for the year ended September
30, 2000. Management attributes the increase in selling general and
administrative expenses to higher wage levels attributable to increased hardness
testing costs.
Other Income
For the year ended September 30, 1999, we had other income of $38,085
attributable to a reversal of the provision for doubtful accounts.
Liquidity and Capital Resources
We have funded our requirements for working capital through the sale of
the Company's securities and the sale of the Arcoplate products. As of September
30, 2000, we had a working capital deficit of $13,126.
In May 2000, we acquired an exclusive worldwide license from Kenside
Investments, Ltd., for a 25- year term, in connection with certain patent and
technology rights related to the Arcoplate process, in exchange for 4,760,000
shares of our common stock. The license 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.
In June 2000, we completed the sale of 2,217,500 shares of common stock at
a price of $0.16 and 0.25 per share in a private financing transaction to 18
accredited investors resulting in gross proceeds of $420,000. In August 2000, we
completed the sale of 1,718,750 shares of common stock to nine accredited
investors at a price of $0.16 per share in a private financing transaction
resulting in gross proceeds of $275,000.
In October 2000, we acquired, from Gene Kostecki and Alan Winduss, the
right to utilize and commercially exploit the 3-D Pipe Fitting Cladder process
in exchange for an aggregate of 3,413,750 shares of common stock. In October
2000, we acquired from Collier Unit Trust, certain mill and office equipment
assets relating to the manufacture, sale and distribution of Arcoplate in
exchange for 1,250,000 shares of common stock. In October 2000, we acquired,
from Collier Unit Trust, certain plant machinery relating to the manufacture,
sale and distribution of Arcoplate for a purchase price of $820,000. Mr.
Kostecki controls Collier Unit Trust. See "Certain Transactions."
Although we have no material commitments for capital expenditures, we
anticipate a substantial increase in our capital expenditures consistent with
anticipated growth in operations, infrastructure and personnel.
Our capital requirements depend on numerous factors, including, market
acceptance of our products and services, the resources we devote to marketing
and selling our services and our brand promotions, capital expenditures and
other factors. We have experienced a substantial increase in our capital
expenditures since our inception consistent with the growth in our operations
and staffing; we anticipate that this may continue for the foreseeable future
particularly relating to the development of new machines and alloys. We believe
that our current cash will be sufficient to meet our anticipated needs for
working capital, capital expenditures and business expansion for the next six
months. After six months, if cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional equity or
debt securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional 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.
14
<PAGE>
BUSINESS
General
Our Business
Arcoplate
We manufacture and distribute Arcoplate, a wear-resistant fused-alloy-clad
steel wear plate, through a patented production process. The Arcoplate process
enables an alloy overlay to be smoothly and evenly applied to a sheet of steel,
creating a metallurgical bond between the alloy and the steel that is resistant
to wear caused by impact, abrasion and erosion. We believe that, in the mining
and mineral processing industries, wear is the primary cause of down time, the
period of time when machinery is not in operation due to wear or malfunction. We
believe that our Arcoplate product line will substantially lower down time and
the resulting loss of production for our customers.
Although welded wear plates have been used in the manufacturing, mining
and construction industries for more than half a century, they are characterized
by several functional limitations. Conventional welded wear plates have:
o the tendency to spall into chips or fragments when subjected to high
impact;
o uneven base metal dilution resulting in uneven alloy content; and
o rough surfaces resulting in poor material flow.
We believe that Arcoplate has properties that allow it to overcome the
limitations of conventional wear plate. We believe that laboratory and field
tests demonstrate that Arcoplate is up to six times more wear-resistant than
conventional single or multiple layer wear plates due to a higher carbide
content and a
15
<PAGE>
more homogeneous surface layer. In addition, we believe that Arcoplate wear
plate sheets will withstand rolling and pressing, within the fabrication
guidelines, into various shapes for commercial distribution.
3-D Pipe Fitting Cladder Process
We intend to commercially utilize the 3-D Pipe Fitting Cladder process, a
computer-driven and software-based mechanical system for industrial use. The 3-D
Pipe Fitting Cladder process enables wear resistant alloy coatings to be applied
to pipe fittings, where wear is most likely to occur. In pipe fittings, wear
generally occurs in pipe bends, elbow pipe joints, pipe "T" sections and pipe
"Y" sections. Through the 3-D Pipe Fitting Cladder process, we apply alloy
coatings to the interior surfaces of pipe fittings. We believe that the mining
and mineral industries, among others, would benefit from the reduced abrasive
wear and downtime associated with the use of the 3-D Pipe-Fitting Cladder
process.
The Wear Plate Solutions Industry
We believe that wear in the operating workplace is the largest factor
leading to production losses in the mining, mineral-processing, and steel
manufacturing industries and, consequently, wear plate solutions are an integral
resource for businesses with wear-related concerns. The wearing of metal parts
is generally defined as a gradual decay or breakdown of the metal. A metal part
is usually worn by combinations of two or more types of wear. Because the wear
of equipment may have multiple causes, the selection of alloy wear plate
solutions can be a relatively complex process. There are five major types of
wear: abrasive wear, sliding wear, erosion, freting and gouging.
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 plate, and quenched and tempered carbon steel
plate. We believe that each of these materials offers a limited solution to the
problem of wear, and that conventional welded overlay wear plate has a tendency
to spall (separate) under high impact conditions. While tungsten carbide is
generally recognized by the mining, mineral-processing and steel manufacturing
industries as the most wear-resistant material available for industrial use due
to its high carbide content, we believe that the costs associated with tungsten
carbide are too high to be a practical wear plate solution for most businesses.
We believe that the Arcoplate process provides businesses with solutions to most
wear-related problems at a cost competitive with traditional welded overlay wear
plate, and substantially lower than tungsten carbide. In addition, we believe
that the 3-D Pipe Fitting Cladder process will provide businesses with solutions
for the problem of wear and down time in pipe fitting systems, reducing the
costs associated with lost production and the replacement of worn pipe fittings.
Our Strategy
Our 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 and the 3-D Pipe Fitting Cladder process
within the mining, mineral-processing and steel industries. We intend to
accomplish our objectives by first establishing a substantial market presence in
Australia, and then developing an international market presence, focusing on
India, South America, Brazil, Indonesia, the United States, and Canada. We
believe
16
<PAGE>
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. At the local level, our
strategy will combine targeted marketing with advertising in trade journals,
newspapers 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 supplied
with samples of Arcoplate and who will be trained to present Arcoplate products
as a solution for wear-related problems.
Products and Applications
Characteristics of Arcoplate
We believe that Arcoplate is adaptable to a wide range of industrial
applications, and that Arcoplate significantly reduces wear in any application
where abrasive materials come into contact with steel surfaces.
Arcoplate is designed for installation and use where the wear of parts and
machinery frequently occurs, including:
o the mining of iron, gold, nickel, copper and other ores;
o brick and cement works and power stations;
o the manufacture of ore feed bins, transfer chutes, dredging systems
and conveyor side skirts;
o bulldozer arms and blades; and
o truck box liners and bucket loader liners.
Our product lines include a range of standard alloy overlay plates. Our
products are designed for ease of handling and can be fabricated to suit our
customers' equipment and needs regarding shape, size, weight, and other factors.
Sheets of Arcoplate can be welded together to cover large surface areas, and can
be cut into a range of shapes, while still maintaining resistance to wear. We
also provide consultation services to customers and their design engineers with
particular wear-related problems, and we can formulate Arcoplate to meet the
specific requirements of our customers.
We believe that our proprietary method of manufacturing Arcoplate results
in a product that has many technical advantages over conventional weld clad
plates. Conventional weld clad 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, conventional wear
plate must be rolled and pressed after its layers of hardfacing have been welded
together. 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 also ensures that the overlay has a uniform and high
carbide content, which makes the plate more resistant to wear than traditional
welded wear plate. The higher content of carbide in Arcoplate greatly increases
its wear resistance. Many of our claims with respect to the physical
characteristics of Arcoplate have been subjected to studies and testing,
performed by independent
17
<PAGE>
laboratories, universities and other testing facilities, of Arcoplate's various
properties such as bond strength, specific hardness, density, hardness,
resonance and wear resistance.
Characteristics of the 3-D Pipe Fitting Cladder Process
We believe that the 3-D Pipe Fitting Cladder process overcomes many of the
problems associated with pipe fitting wear. Pipe fittings are extensively used
in the dredging, mineral processing, coal-fired power generation, cement
manufacturing, and oil refinery industries, where materials are frequently
transported in enclosed pipe. Due to their angled and/or curved structures, pipe
fittings generally have higher wear and a much shorter working life than
ordinary straight pipe, because material flow does not flow uniformly through
pipe fittings. In order to increase the wear-resistance of the pipe fittings,
the 3-D Pipe Fitting Cladder process deposits a uniform layer of wear-resistant
alloy on to wear-susceptible interior surfaces.
We believe that the wear of pipe fittings in industrial pipe results in
substantial production costs due to down time and expenditures for replacement
parts. By uniformly applying alloy coatings to the interior surfaces of pipe
fittings with the 3-D Pipe Fitting Cladder process, we believe that the need for
replacement parts, abrasive wear and down time will be greatly reduced. We
believe that the 3-D Pipe Fitting Cladder process enables a variety of different
alloys to coat the interior surfaces of pipe fittings, and it will therefore be
adaptable for use in many different industrial settings.
Sales and Marketing
To date, most of our orders have been the result of unsolicited inquiries
from prospective customers who have learned of our Arcoplate products on a
word-of-mouth basis in their respective industries. We intend to achieve market
penetration in selected major markets through a multi-step process consisting
of:
o presentation of technical papers at industry related seminars;
o initial discussions of the application highlighting the advantages
of Arcoplate;
o initial discussions of the application highlighting the advantages
of the 3-D Pipe Fitting Cladder process;
o an engineering and marketing evaluation by the prospective customer
of sample material and demonstration products; and
o licensing a production program where appropriate expenditures are
made on tooling, equipment and quality control necessary to fulfil
market requirements.
We anticipate incurring increased expenditures in connection with our
marketing activities. Our marketing activities are also expected to include
substantial applications engineering support to assist in the development of
products for specific customers and markets, evaluation of Arcoplate and the 3-D
Pipe Fitting Cladder by institutions that specialize in technology and/or
markets of this type, development of appropriate sales materials such as
specification sheets and corporate brochures, and promotion through appearances
at selected trade shows and selective advertising in journals and the trade
press.
18
<PAGE>
In order to develop our Australian and international customer base, we
intend to contact all major mining and mineral processing companies to determine
their current methods for minimizing down time due to wear-related problems. We
will establish initial contact with these companies by telephone, followed by a
targeted mailing containing a letter with brochures and case histories provided
to us by current customers. After prospective customers have had the opportunity
to review the contents of our targeted mailing, we will attempt to set up a
meeting with key employees of the prospective customer in order to review their
operations, materials, wear-related problems, and frequency of shut-downs so
that we may then suggest specific Arcoplate products, 3-D Pipe Fitting Cladder
procedures and other solutions to reduce down time. For original equipment
manufacturers, we will attempt to review existing operations in order to
determine how our products may assist in enhancing equipment performance. We
intend to hold seminars in our offices, or at our customers' places of business,
with operations managers, maintenance superintendents and maintenance
schedulers, individuals who are directly responsible for production and
machinery performance.
In addition, we intend to market our Arcoplate products to consultant
engineering companies so that they may ultimately incorporate Arcoplate
materials into their equipment designs. We will offer the services of our own
engineering department to assist consultant engineers with design planning in
order to maximize material flow, and to minimize wear and down time.
Acquisition of Technology
In May 2000 we acquired an exclusive license from Kenside Investments,
Ltd., for a 25 year term, to develop and market the proprietary Arcoplate
process, and to commercially exploit the patent rights and technology rights
related to the Arcoplate process worldwide, with the exception of the United
States in exchange for 4,760,000 shares of our common stock. Pursuant to the
license, we have the option to extend the license for three terms of 10 years
each. The license provides for royalty payments to Kenside Investments, Ltd., in
an amount equal to 2% of our net sales of Arcoplate products. Gene Kostecki, our
chief executive officer, director and principal stockholder, controls Kenside
Investments, Ltd. See "Certain Transactions."
Kenside Investments, Ltd. has licensed the right to develop and market the
Arcoplate process in the United States for a 25 year term and two five year
renewal options to Arcoplate Holdings, PLC for a royalty in an amount equal to
2% of net sales. We have sub-licensed, such rights from Arcoplate Holdings, PLC,
for a five year term, with an option to purchase such rights from Arcoplate
Holdings, PLC. for 1,298,908 shares of common stock. The sub-license provides
for royalty payments to Arcoplate Holdings, PLC in an amount equal to 3% of our
net sales of Arcoplate products in the United States. Mr. Kostecki controls
Kenside Investments Ltd. and Arcoplate Holdings, PLC. See "Certain
Transactions."
In October 2000, we acquired, from Gene Kostecki and Alan Winduss, the
right to utilize and commercially exploit the 3-D Pipe Fitting Cladder process
in exchange for an aggregate of 3,413,750 shares of common stock. In October
2000, we acquired from Collier Unit Trust, certain mill and office equipment
assets relating to the manufacture, sale and distribution of Arcoplate in
exchange for 1,250,000 shares of common stock. In October 2000, we acquired,
from Collier Unit Trust, certain plant machinery relating
19
<PAGE>
to the manufacture, sale and distribution of Arcoplate for a purchase price of
$820,000. Mr. Kostecki controls Collier Unit Trust. See "Certain Transactions."
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 do not have intellectual property protection for the
3-D Pipe Fitting Cladder process. 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 engaged in the development of new products and improvements to our
existing products and we intend to maintain laboratory facilities for these
purposes as well as a network of outside independent test laboratories and
specialty subcontractors. Our past research and development efforts were focused
on Arcoplate's wear resistance, as compared with the wear plate solutions of our
competitors. We expect that our techniques will continue to be developed and
refined through empirical tests and prototype development. We expect that we
will devote substantial resources to research and development efforts. The costs
of those efforts will be recorded for accounting purposes as expenses as they
are incurred, notwithstanding that the benefits, if any, from our research and
development efforts (in the form of increased revenues or decreased product
costs), and may not be reflected in our operating results, if at all, until
subsequent periods.
Manufacturing and Supply
The raw materials we employ are principally steel and a proprietary alloy
compound. We presently purchase steel from one supplier, De Candilo & Sons Pty
Ltd. We presently purchase our alloy materials from C.M.C. Australia Pty Ltd. We
also rely heavily on the use of fluxes, devices designed to remove impurities,
during the manufacturing process. We purchase our requirements for fluxes from
Lincoln Electric Australia Ltd Although we believe that steel and alloy
compounds are readily available from other suppliers, we cannot assure you that
we will be able to continue to obtain desired quantities of steel, alloy and
fluxes on a timely basis at prices and terms deemed reasonable by us. We monitor
the quality of our products by frequent tests and material certification, and we
intend to maintain a strict internal quality control system to monitor the
quality of production at our facility.
20
<PAGE>
Government Regulation
Our manufacturing and packaging operations will be subject to a wide range
of government regulations, including the discharge, handling and disposal of
hazardous wastes regulations contained in the environmental laws and the plant
and laboratory safety requirements of various occupational safety and health
laws that are applicable to all our facilities and operations. We believe that
we have complied in all material respects with regard to applicable governmental
regulations. To date, such regulations have not materially restricted or impeded
our operations.
Competition
The wear plate solutions industry is highly competitive. We compete in our
chosen markets against several larger multi-national companies, all of which are
well-established in those markets and have substantially greater financial and
other resources than we do. Competitive market conditions could adversely affect
our results of operations if we were required to reduce product prices to remain
competitive or if we are unable to achieve significant sales of our products.
Wear-resistant alloy steel plates are manufactured by numerous corporations
worldwide. In the United States and Canada, major manufacturers of wear plates
include Triton, Inc. and Trimay, Ltd. In Australia, major manufacturers of wear
plates include Australian National Industries, Ltd. and Australian Overseas,
Ltd. Other major manufacturers in the European Union and Asia include Vautid
(Gmd.) and Duraweld.
Employees
We employed 11 persons as of June 30, 2000, including two Company
executive officers, six manufacturing personnel and three persons engaged in
sales and marketing activities. None of our employees is a member of a labor
union. We consider our relationship with our employees to be good. We anticipate
hiring approximately six additional manufacturing employees, two additional
research and product development employees and two additional sales and
marketing employees in the next 12 months.
Property
We lease our facility in Perth, Australia, at a monthly rental of $7,083
per month. The lease expires in June 2005. Of the total 26,000 square foot area
of the facility, approximately 4,000 square feet will be utilized for office
space and approximately 22,000 square feet will be utilized for manufacturing
operations dedicated to Arcoplate manufacturing, secondary processes and
warehousing. The facility is designed for expansion of capacity to match our
anticipated needs.
Legal Proceedings
There are no material legal proceedings pending or, to our best knowledge,
threatened against us.
21
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth information concerning our directors and
executive officers.
Name Age Position
---- --- --------
Gene Kostecki 55 President, Chief Executive Officer and Director
Alan Charles Winduss 59 Chief Financial Officer and Director
-------------
The following is a brief summary of the background of each executive officer and
director:
Gene Kostecki has served as our Chief Executive Officer, President, and
Director since June 2000. From July 1997 to the present, Mr. Kostecki served as
the Chief Executive Officer and director of Arcoplate, Inc. and Arcoplate
Holdings (UK) PLC. 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.
Alan Charles Winduss has served as our Chief Financial Officer, Vice
President and Director since June 2000. From July 1997 to the present, Mr.
Winduss served as the Chief Financial Officer and director of Arcoplate, Inc.
and Arcoplate Holdings (UK) PLC. From July 1979 to the present, Mr. Winduss has
served as the senior principal of Winduss & Cook, an accounting firm in Western
Australia, which specializes in commercial accounting, corporate finance and
management.
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,
officers or key employees.
Executive Compensation
Our executives did not receive any cash or non-cash compensation for the
period from May 4, 2000 (inception) through September 30, 2000.
Employment Agreements
22
<PAGE>
We have entered into five-year employment agreements, commencing as of
October 2, 2000, with Gene Kostecki, our President and Chief Executive Officer,
and Alan Charles Winduss, our Chief Financial Officer, which provide for an
annual salary of $150,000 and $80,000, respectively. The employment agreements
provide that each of Mr. Kostecki and Mr. Winduss are eligible to receive
incentive bonus compensation, at the discretion of the board of directors, based
on their respective performance and contributions to our success. The employment
agreements provide for termination based on death, disability or voluntary
resignation and each provides for severance payments upon termination in the
event that there is termination without cause, if the employee terminates his
employment for good reason or in the event of a change in control of Alloy
Steel. If the employment agreement is terminated without cause, as a result of
change of control, or terminated by the employee for good reason, the amount of
the severance payment will be equal to three times that average annual
compensation payable under the employment agreement.
We have entered into consulting agreements with Berryhill Investments,
Ltd., Chartreuse Nominees Pty., Ltd., Persia Consultants, Inc. and Ragstar
Investments, Ltd., commencing as of October 2, 2000, which provide for
compensation in the amount of 150,000, 500,000, 500,000 and 90,000, shares,
respectively, of our common stock. Pursuant to the terms of each agreement, the
consultants shall provide certain advisory services with regard to corporate
development. We have entered into consulting agreements with Mark Angelo, Joseph
Donohue, Bob Farrell and Hunter Singer, commencing as of October 2, 2000, each
of which provides for compensation in the amount of 200,000 shares of our common
stock. We have entered into a consulting agreement with Hong Zhu, commencing as
of October 2, 2000, which provides for compensation in the amount of 50,000
shares of our common stock.
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
500,000 shares of common stock for issuance under the plan. As of the date of
this prospectus, no options have 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. The term of all incentive stock
options owners. Our board of directors approves the terms of each option. These
terms are reflected in a written stock option agreement.
23
<PAGE>
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.
We have been advised that it is the position of the commission that
insofar as the indemnification provisions referenced above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Securities Act and are,
therefore, unenforceable.
24
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of October 31, 2000, the number and
percentage of outstanding shares of common stock beneficially owned by:
o each person who we know beneficially owns more than 5% of the
outstanding shares of our common stock;
o each of our officers and directors; and
o 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 the date of this
Prospectus, 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.
Percentage of Common Stock
Name of Number of Beneficially
Beneficial Owner Shares Owned
---------------- ----------- --------------------------
Gene Kostecki 10,598,000(1) 62.3%
Alan Charles Winduss 1,893,250(2) 11.1%
All present officers and
directors as a group (Two persons) 12,491,250 73.4%
----------
(1) Includes (i) 4,760,000 shares issued to Kenside Investments, Ltd., (ii)
1,250,000 shares issued to Collier Unit Trust, and (iii) 937,500 shares
issued to Ames Nominees Pty. Ltd., all of which shares of common stock are
beneficially owned by Mr. Kostecki.
(2) Includes (i) 500,000 shares issued to Chartreuse Nominees Pty. Ltd., (ii)
90,000 shares issued to Ragstar Investments, Ltd., and (iii) 312,500
shares issued to Alan Winduss Pty. Ltd, all of which shares of common
stock are beneficially owned by Mr. Winduss.
25
<PAGE>
CERTAIN TRANSACTIONS
In May 2000, we acquired an exclusive worldwide license from Kenside
Investments, Ltd., for a 25-year term, in connection with certain patent and
technology rights related to the Arcoplate process, in exchange for 4,760,000
shares of our common stock. The license 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.
In May 2000, we sub-licensed the right to utilize the Arcoplate process in
the United States from Arcoplate Holdings, PLC, for a term of five years.
Arcoplate Holdings, PLC has licensed the right to utilize the Arcoplate process
in the United States from Kenside Investments, Ltd., for an initial term of 25
years, with two options to extend the license for further terms of five years
each. The sub-license provides for royalty payments to Arcoplate Holdings, PLC,
in an amount equal to 3% of our net sales of Arcoplate products in the United
States. The sub-license grants us the right to purchase the license from
Arcoplate Holdings, PLC in exchange for 1,298,908 shares of our common stock.
Gene Kostecki, is an officer, director and principal shareholder of Arcoplate
Holdings, PLC and controls Kenside Investments, Ltd.
In October 2000, we acquired certain assets of Collier Unit Trust in
exchange for 1,250,000 shares of our common stock. In October 2000, we also
acquired the Arcoplate manufacturing plant and plant equipment from Collier Unit
Trust for an aggregate purchase price of $820,000. Our Chief Executive Officer,
director and principal shareholder, Gene Kostecki controls the Collier Unit
Trust.
In October 2000, we acquired the right to utilize the 3-D Pipe Fitting
Cladder process, from Gene Kostecki and Alan Winduss, in exchange for an
aggregate of 3,413,750 shares of our common stock.
In October 2000, we entered into consulting agreements with Chartreuse
Nominees Pty., Ltd. and Ragstar Investments, Ltd., which provide for
compensation in the amount of 150,000, 500,000 and 90,000, shares, respectively,
of our common stock. Pursuant to the terms of each agreement, the consultants
shall provide certain advisory services with regard to corporate development.
Mr. Winduss controls Chartreuse Nominees Pty. Ltd. and Ragstar Investments, Ltd.
In July 2000, we entered into a lease agreement with Raglan Securities
Pty. Ltd., for our office facilities, for a term of five years, at an annual
rent of $85,000. Mr. Kostecki controls Raglan Securities Pty. Ltd.
In June 2000, we sold 919,500 shares of our common stock to Gene Kostecki,
and 308,000 shares of our common stock to Alan Winduss at a price of $0.16 per
share.
26
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The registration statement, of which this prospectus forms a part, relates
to our registration, for the account of the selling stockholders, of an
aggregate of 5,586,250 shares of common stock. We will not receive any of the
proceeds from the sale of these shares.
The sale of the selling stockholders' shares by the selling stockholders
may be effected from time to time in transactions, which may include block
transactions by or for the account of the selling stockholders, in the
over-the-counter market or in negotiated transactions, or through the writing of
options on the selling stockholders' shares, a combination of these methods of
sale, or otherwise. Sales may be made at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices.
The selling stockholders may effect the transactions by selling their
shares directly to purchasers, through broker\dealers acting as agents for the
selling stockholders, or to broker\dealers who may purchase shares as principals
and thereafter sell the selling stockholders' shares from time to time in the
over-the-counter market, in negotiated transactions, or otherwise. These
broker\dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchaser
for whom which broker-dealers may act as agents or to whom they may sell as
principals or both, which compensation as to a particular broker-dealer may be
in excess of customary commissions.
The selling stockholders and broker-dealers, if any, acting in connection
with these sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any commission they receive and any profit
upon the resale of the securities might be deemed to be underwriting discounts
and commissions under the Securities Act.
Sales of any shares of common stock by the selling stockholders may
depress the price of the common stock in any market that may develop for the
common stock.
At the time a particular offer of the shares is made by or on behalf of a
selling stockholder, to the extent required, a prospectus supplement will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers,
or agents, the purchase price paid by any underwriter for shares purchased from
the selling stockholder and any discounts commissions, or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
Under the Exchange Act and its regulations, any person engaged in the
distribution of shares of common stock, or securities convertible into common
stock, offered by this prospectus may not simultaneously engage in market-making
activities with respect to the common stock during the applicable "cooling off"
period prior to the commencement of this distribution. In addition, and without
limiting the foregoing, the selling stockholders will be subject to applicable
provisions of the Exchange Act and its rules and regulations, including without
limitation Regulation M promulgated under the Exchange Act, in
27
<PAGE>
connection with transactions in the shares, which provisions may limit the
timing of purchases and sales of shares of common stock by the selling
stockholders.
The following table sets forth information known to us regarding ownership
of our common stock by each of the selling stockholders as of October 2, 2000
and as adjusted to reflect the sale of shares offered by this prospectus. None
of the selling stockholders has had any position with, held any office of, or
had any other material relationship with us during the past three years.
o Mark Angelo, Joseph Donohue, Bob Farrell, Hunter Singer, Hong Zhu,
and Persia Consultants, Inc. are consultants to the Company.
o Silverman, Collura & Chernis, P.C. is counsel to the Company.
o Gene Kostecki is Chairman, Chief Executive Officer and Director of
the Company.
o Alan Winduss is Chief Financial Officer and Director of the Company.
We believe, based on information supplied by the following persons, that
the persons named in this table have sole voting and investment power with
respect to all shares of common stock which they beneficially own. The last
column in this table assumes the sale of all of our shares offered in this
prospectus.
Common Shares
Shares Stock Owned After Offering
Names of Selling Beneficially Offered by --------------------
Stockholders Owned Beneficial Owner Number Percent
------------ ------------ ---------------- ------ -------
Mark Angelo 200,000 200,000 0 0
Joseph Donohue 200,000 200,000 0 0
Bob Farrell 200,000 200,000 0 0
Hunter Singer 200,000 200,000 0 0
Hong Zhu 112,500 112,500 0 0
Persia Consultants,
Inc 500,000 500,000 0 0
Silverman, Collura &
Chernis, P.C 300,000 300,000 0 0
Janice Magill 31,250 31,250 0 0
Jennifer Richards 31,250 31,250 0 0
Judith Saunders 31,250 31,250 0 0
Jillian Clazie 31,250 31,250 0 0
28
<PAGE>
Common Shares
Shares Stock Owned After Offering
Names of Selling Beneficially Offered by --------------------
Stockholders Owned Beneficial Owner Number Percent
------------ ------------ ---------------- ------ -------
Barbara Kearney 31,250 31,250 0 0
Norma Merrey 31,250 31,250 0 0
Gene Kostecki 10,598,000 919,500 9,678,500 56.9%
Alan Winduss 1,893,250 308,000 1,585,250 9.3%
Balmere Assets Ltd. 40,000 40,000 0 0
Robert McDougall 400,000 400,000 0 0
Allan Bray 100,000 100,000 0 0
Dave Peters 40,000 40,000 0 0
Yeowart Gregory 20,000 20,000 0 0
Terry Taylor 10,000 10,000 0 0
New Wave 62,500 62,500 0 0
Nominees
Gillian Woodford 100,000 100,000 0 0
Darren Whittaker 10,000 10,000 0 0
Joris Claessens 20,000 20,000 0 0
Po-Chin King 125,000 125,000 0 0
Chung Kuan Yen 125,000 125,000 0 0
Peter Che Nan Chen 593,750 593,750 0 0
Sui Wa Chau 312,500 312,500 0 0
Wei Z. Yen 250,000 250,000 0 0
Jinsheng Yi 62,500 62,500 0 0
Shuhai Guo 62,500 62,500 0 0
Xiangdong Liang 125,000 125,000 0 0
29
<PAGE>
DESCRIPTION OF SECURITIES
The following section should be read in conjunction with detailed
provisions of our certificate of incorporation and bylaws, copies of which have
been filed with our registration statement of which this prospectus forms a
part. Our capital stock is also governed by the provisions of applicable
Delaware law.
General
Our authorized capital stock consists of 50,000,000 shares of common
stock, $0.01 par value and 3,000,000 shares of preferred stock, $0.01 par value.
As of November 1, 2000, 17,000,000 shares of common stock were issued and
outstanding. As of the date of this prospectus, we have approximately 40 holders
of our common stock. No shares of preferred stock are outstanding.
Common Stock
Each holder of common stock is entitled to one vote per share, either in
person or by proxy, on all matters that may be voted upon by the owners of our
shares at meetings of our stockholders. There is no provision for cumulative
voting with respect to the election of directors by the holders of common stock.
Therefore, the holders of more than 50% of our shares of outstanding common
stock can, if they choose to do so, elect all of our directors. In this event,
the holders of the remaining shares of common stock will not be able to elect
any directors.
The holders of common stock:
o have equal rights to dividends from funds legally available
therefor, when and if declared by our board of directors;
o are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs; and
o do not have preemptive rights, conversion rights, or redemption of
sinking fund provisions.
The rights, preferences and privileges of the holders of common stock may
be adversely affected by the rights of the holders of shares of any series of
preferred stock that we designate in the future.
Preferred Stock
The board of directors is authorized, without stockholder approval, from
time to time to issue up to an aggregate of 3,000,000 shares of preferred stock
in one or more series. The board of directors can fix the rights, preferences
and privileges of the shares of each series and any qualifications, limitations
or restrictions. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third-party to
acquire, or of
30
<PAGE>
discouraging a third-party from attempting to acquire a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
Private Financings
In June 2000, we completed the sale of 2,217,500 shares of common stock at
prices of $0.16 and 0.25 per share in a private financing transaction to 18
accredited investors resulting in gross proceeds of $420,000. In August 2000, we
completed the sale of 1,718,750 shares of common stock to nine accredited
investors at a price of $0.16 per share in a private financing transaction
resulting in gross proceeds of $275,000. We have agreed to register the shares
of common stock issued in these private financing transactions which are being
offered by this prospectus.
Delaware Law and Certificate of Incorporation and Bylaw Provisions
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. This section prevents us from engaging, under
some circumstances, in a business combination, which includes a merger or sale
of more than 10% of its assets, with any interested stockholder, defined as a
stockholder who owns 15% or more of its outstanding voting stock, as well as
affiliates and associates of any such persons, for three years following the
date such stockholder became an interested stockholder unless:
o the transaction in which the stockholder became an interested
stockholder is approved by the board of directors prior to the date
the interested stockholder attained that status;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding at
the time the transaction commenced, excluding shares owned by
persons who are directors or officers and shares owned by employee
stock plans; or
o the business combination is approved by the board of directors and
authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Some of the provisions of our certificate of incorporation and bylaws
could discourage, delay or prevent an acquisition of Alloy Steel at a premium
price. Our bylaws provide that any vacancy on the board of directors may be
filled by a majority of the directors then in office. Our bylaws provide that
special meetings of stockholders may be called only by a majority of the
directors of our board or the President or by at least 25% of the holders of
shares of common stock.
In addition, the certificate of incorporation also authorizes the board of
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of Alloy Steel.
31
<PAGE>
Transfer Agent
We intend to appoint Continental Stock Transfer & Trust Company as the
transfer agent and registrar for our shares of common stock.
32
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market,
or the availability of shares for sale, could adversely affect the prevailing
market price of our common stock and our ability to raise capital through an
offering of equity securities.
The 5,586,250 shares of common stock offered in this offering will be
immediately tradeable without restriction under the Securities Act, except for
any shares held by an "affiliate" of ours, as that term is defined in the
Securities Act. Affiliates will be subject to the resale limitations of Rule 144
under the Securities Act. The remaining 11,413,750 shares of common stock will
be deemed "restricted securities" as defined in Rule 144.
In general, under Rule 144, a stockholder, or stockholder whose shares are
aggregated, who has beneficially owned "restricted securities" for at least one
year will be entitled to sell an amount of shares within any three month period
equal to the greater of:
o 1% of the then outstanding shares of common stock; or
o the average weekly trading volume in the common stock during the
four calendar weeks immediately preceding the date on which notice
of the sale is filed with the commission, provided certain
requirements are satisfied.
In addition, our affiliates must comply with additional requirements of
Rule 144 in order to sell shares of common stock, including shares acquired by
affiliates in this offering. Under Rule 144, a stockholder who had not been our
affiliate at any time during the 90 days preceding a sale by him, would be
entitled to sell those shares without regard to the Rule 144 requirements if he
owned the restricted shares of common stock for a period of at least two years.
The foregoing summary of Rule 144 is not a complete description.
LEGAL MATTERS
The validity of the common stock being offered in this prospectus will be
passed upon for us by Silverman, Collura & Chernis, P.C., New York, New York.
Silverman, Collura & Chernis, P.C. owns 300,000 shares of our common stock.
EXPERTS
The financial statements of Alloy Steel as of September 30, 2000 and for
the period May 4, 2000 (inception) to September 30, 2000 appearing in this
Prospectus and Registration Statement, have been audited by Feldman Sherb & Co.,
P.C., independent auditors, as set forth in their report thereon appearing in
the Registration Statement, and are included in reliance upon such report given
upon the authority of such
33
<PAGE>
firm as experts in accounting and auditing. The financial statements of
Arcoplate, a division of Kroko Nominees Pty Ltd., as trustee for Collier Unit
Trust, for the years ended June 30, 1999 and 2000 appearing in this Prospectus
and Registration Statement have been audited by Somes & Cooke, independent
auditors, as set forth in their report thereon appearing in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. Except for the
inclusion of the report of Somes & Cooke in this Prospectus, Somes & Cooke was
not involved in the preparation of this Prospectus and Registration Statement
and disclaims any responsibility for the contents.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
public may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
Upon effectiveness of the registration statement, we will be subject to
the reporting and other requirements of the Exchange Act and we intend to
furnish our stockholders annual reports containing financial statements audited
by our independent auditors and to make available quarterly reports containing
unaudited financial statements for each of the first three quarters of each
year.
We intend to apply for the listing of our common stock on the NASD OTC
Bulletin Board under the symbol "____". After this offering is effective, you
may obtain certain information about us on Nasdaq's Internet site
(http://www.Nasdaq-Amex.com).
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ALLOY STEEL INTERNATIONAL, INC.
Page
Independent Auditors' Report F-1
Balance Sheet, September 30, 2000 F-2
Statement of Operations, May 4, 2000 (Inception) to
September 30, 2000 F-3
Statement of Changes in Stockholders' Equity,
May 4, 2000 (Inception) to September 30, 2000 F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6-10
ARCOPLATE DIVISION - COLLIER UNIT TRUST
Independent Auditors' Report F-11
Statement of Assets and Liabilities, June 30, 2000 F-12
Statement of Revenues over Direct Operating Expenses,
Year Ended June 30, 2000 F-13
Statement of Cash Flows, Year Ended June 30, 2000 F-14
Notes to Financial Statements F-15-17
Independent Auditors' Report F-18
Statement of Assets and Liabilities, June 30, 1999 F-19
Statement of Revenues over Direct Operating
Expenses, Year Ended June 30, 1999 F-20
Statements of Cash Flows, Year Ended June 30, 1999 F-21
Notes to Financial Statements F-22-24
Supplemental Information F-25-28
Pro Forma Financial Statements (Unaudited) F-29
Pro Forma Balance Sheet, September 30, 2000 F-30
Pro Forma Statement of Operations, Year Ended June 30, 2000 F-31
Notes to Pro Forma Financial Statements F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Alloy Steel International, Inc.
We have audited the accompanying balance sheet of Alloy Steel
International, Inc. (A Development Stage Company) as of September 30, 2000 and
the related statements of operations, stockholder's equity and cash flows for
the period May 4, 2000 (inception) to September 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
the financial position of Alloy Steel International, Inc. (A Development Stage
Company) as of September 30, 2000 and the results of its operations and its cash
flows for the period May 4, 2000 (inception) to September 30, 2000 in conformity
with generally accepted accounting principles.
/s/ Feldman Sherb and Co., P.C.
-------------------------------
Feldman Sherb and Co, P.C
New York, New York
October 27, 2000
F-1
<PAGE>
ALLOY STEEL INTERNATIONAL, INC
(A Development Stage Company)
BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CASH $ 8,674
CONSTRUCTION IN PROGRESS 576,871
---------
$ 585,545
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES - Payable for construction in progress $ 21,800
---------
STOCKHOLDERS' EQUITY:
Preferred stock - $0.01 par value, authorized - 3,000,000 shares
issued and outstanding - none --
Common stock - $0.01 par value, authorized - 50,000,000 shares;
issued and outstanding - 8,696,250 shares 86,963
Additional paid-in capital 496,641
Deficit accumulated in the development stage (19,859)
---------
TOTAL STOCKHOLDERS' EQUITY 563,745
---------
$ 585,545
=========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
ALLOY STEEL INTERNATIONAL, INC
(A Development Stage Company)
STATEMENT OF OPERATIONS
MAY 4, 2000 (INCEPTION) TO SEPTEMBER 30, 2000
REVENUES $ --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 19,859
----------
NET LOSS $ (19,859)
==========
BASIC AND DILUTED LOSS PER SHARE $ (0.00)
==========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,696,250
==========
See notes to financial statements.
F-3
<PAGE>
ALLOY STEEL INTERNATIONAL, INC
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
MAY 4, 2000 (INCEPTION) TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional in the
------------------ -------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 4, 2000 (Inception) -- $ -- -- $ -- $ -- $ -- $ --
Stock issued for cash:
May 4, - 31, 2000 - $0.16 - $0.25 2,217,500 22,175 397,825 -- 420,000
per share
June 26, - July 7, 2000 -
$0.16 per share -- -- 1,718,750 17,188 257,812 -- 275,000
Offering expenses -- -- -- -- (111,396) -- (111,396)
Stock issued for license 4,760,000 47,600 (47,600) --
Net loss -- -- -- -- -- (19,859) (19,859)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 2000 -- $ -- 8,696,250 $ 86,963 $ 496,641 $ (19,859) $ 563,745
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ALLOY STEEL INTERNATIONAL, INC
(A Development Stage Company)
STATEMENT OF CASH FLOWS
MAY 4, 2000 (INCEPTION) TO SEPTEMBER 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (19,859)
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in progress (555,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 583,604
---------
NET INCREASE IN CASH 8,674
CASH AT BEGINNING OF PERIOD --
---------
CASH AT END OF PERIOD $ 8,674
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during period for:
Interest $ --
=========
Taxes $ --
=========
See notes to financial statements.
F-5
<PAGE>
ALLOY STEEL INTERNATIONAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MAY 4, 2000 (INCEPTION) To SEPTEMBER 30, 2000
1. ORGANIZATION AND BUSINESS DESCRIPTION
Alloy Steel International, Inc. (the "Company") was incorporated in
Delaware in May 2000 for the purpose of manufacturing and distributing
Arcoplate, a wear-resistant fused-alloy steel plate, through a patented
production process. The Company was in the development stage as of
September 30, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles 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 financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Company considers its financial instruments and obligations, which
are carried at cost, to approximate fair value due to the near-term due
dates.
Depreciation
Property and equipment are recorded at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the
related assets and will commence when assets are put into use.
F-6
<PAGE>
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the cost of an
asset may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market
value is required. At September 30, 2000, the Company did not believe
that any impairment had occurred.
Revenue Recognition
Revenues are recognized when products are shipped, provided that no
significant vendor obligations remain and collection of the resulting
receivable is deemed probable by management.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Stock Options
The Company accounts for all transactions under which employees,
officers and directors receive shares of stock in the Company in
accordance with the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." In accordance with
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," the Company adopted the pro
forma disclosure requirements of SFAS 123. Accordingly, no compensation
has been recognized in the results of operations for the employees,
officers and directors stock option plan.
Net Loss Per Common Share
The Company has adopted the provisions of Statement of Financial
Accounting Standard No. 128, "Earnings per Share", which requires that
the Company report basic and diluted earnings (loss) per share for all
periods reported. Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of common
shares outstanding for the period. Diluted net income (loss) per share
is computed by dividing net income (loss) by the weighted average
number of common shares outstanding for the period, adjusted for the
dilutive effect of common stock equivalents.
F-7
<PAGE>
Diluted net loss per share was the same as basic net loss per share
since the inclusion of the stock options would have been anti-dilutive.
New Accounting Pronouncements
The Company will adopt Statement of Financial Accounting Standard
No.133 ("SFAS No. 133"), "Accounting for Derivative Instruments and
Hedging Activities" for the year ended June 30, 2001. SFAS No. 133
establishes a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards.
The application of the new pronouncement is not expected to have a
material impact on the Company's financial statements.
3. CONSTRUCTION IN PROGRESS
The Company intends to construct steel plating equipment in Western
Australia, for the purpose of manufacturing Arcoplate in commercial
quantities. Accordingly, funds approximating $555,000 derived from the
private placement of common shares were disbursed as progress payments
for the construction work as of September 30, 2000. Such work is being
done by the Collier Unit Trust, an affiliated entity.
4. ACQUISITION OF NET ASSETS OF ARCOPLATE DIVISION - COLLIER UNIT TRUST
AND CLADDER
In October 2000, the Company acquired substantially all of the net
assets of the Arcoplate Division-Collier Unit Trust, an Australian
entity, in exchange for 1,250,000 shares of the Company's common stock.
These assets included the Arcoplate manufacturing plant and related
facilities, mill equipment, office equipment, and motor vehicles. The
Company's chief executive officer, and principal shareholder, Gene
Kostecki controls the Collier Unit Trust.
In addition, the Company issued 3,413,750 shares of common stock to
Messrs. Kostecki and Winduss (Company officers and shareholders) to
acquire a 3-D Pipe Fitting Cladder. The Cladder is a computer-driven,
software-based mechanical system for industrial use, which the Company
intends to commercialize worldwide.
The above transactions will be recorded as distributions of capital to
the recipients and will be reflected in subsequent financial statements
as a charge to additional paid-in capital.
F-8
<PAGE>
5. ACQUISITION OF LICENSES
In May 2000, the Company obtained an exclusive license from Kenside
Investments, Ltd. for a 25-year term, to develop and market the
proprietary Arcoplate process, to commercially exploit certain patent
rights and technology rights related to the Arcoplate process in
exchange for 4,760,000 shares of the Company's common stock. The
license grants the licensee worldwide rights (except in the Unites
States) to the process. The license provides for quarterly royalty
payments to Kenside Investments, Ltd. of 2% of the Company's net sales
of Arcoplate products. Mr. Kostecki, an officer and principal
shareholder of the Company, controls Kenside Investments, Ltd. The
transaction was recorded as a distribution of capital to the recipient
and is accordingly reflected as a charge to additional paid-in capital
in the financial statements.
The Company obtained a similar sub-license from Arcoplate Holdings, PLC
(U.K.), an entity controlled by Mr. Kostecki. Such license grants
exclusive territorial rights in the Unites States for a term of five
years and provides for royalty payments of 3% of net sales of Arcoplate
products. The Company may purchase the license for 1,298,908 common
shares.
6. STOCK OPTION PLAN
In May 2000, the Company adopted the 2000 Stock Option Plan (the
"Plan") to enable the Company to attract, retain and motivate key
employees, directors and consultants. Options granted under the plan
may be either incentive stock options, as defined in Section 422A of
the Internal Revenue Code, or non-qualified stock options. The Company
has reserved 500,000 shares of common stock for issuance under the
Plan. As of September 30, 2000 no options were granted under the Plan.
The Company's board of directors will administer the Plan. The board
has the power to determine the terms of 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. The exercise price of any incentive stock option
granted to a participant owning more than 10% of the voting power of
all classes of the Company's stock must be equal to at least 110% of
the shares' fair market value on the grant date.
F-9
<PAGE>
7. COMMITMENTS
Operating Lease
The Company leases its facilities in Perth, Australia, which expires in
June 2005, for $7,083 per month. Approximately 22,000 square feet will
be used for manufacturing operations dedicated to Arcoplate
manufacturing, secondary processes and warehousing, and approximately
4,000 square feet will be used for office space.
Future minimum lease payments are $84,996 per annum through September
30, 2004 and $63,747 for the period October 1, 2004 through June 30,
2005.
Employment Agreements
The Company is obligated under five year employment agreements with its
President and its Vice-President commencing October 1, 2000. The
agreements provide for base salaries in the first year of $150,000 and
$80,000, respectively, and such additional amounts to be determined by
the board of directors in each subsequent year.
Consulting Agreements
The Company has entered into one year consulting agreements with six
persons who may be deemed affiliates, for services commencing October
1, 2000. Aggregate compensation for such services is 2,490,000 shares
of common stock valued at $398,400.
F-10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying statement of assets and liabilities of
Arcoplate, a division of Kroko Nominees Pty Ltd, as Trustee of Collier Unit
Trust (the Company) as of 30 June, 2000 and the related statements of revenues,
operating expenses and cash flow for the year ended 30 June 2000. These special
purpose financial statements are the responsibility of the Company's management.
Our relationship is to express an opinion on these financial statements based on
our audit.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance as whether the financial statements are free of
material misstatement. Our procedures included examination on a test basis of
evidence supporting the amounts and other disclosures in the financial
statements and the evaluation of accounting policies and significant accounting
estimates. These procedures have been undertaken to form an opinion as to
whether in all material respects, the financial statements are presented fairly
in accordance with Australian Accounting Standards so as to present a view which
is consistent with our understanding of Arcoplate's revenues, operating expenses
and cash flows.
In our opinion, the financial statements referred to above present fairly the
financial position of Arcoplate, a division of Kroko Nominees Pty Ltd, as
Trustees of Collier Unit Trust as of 30 June 2000 and the related statements of
revenues and operating expenses and cash flows for the year ended 30 June, 2000
in conformity with the accounting policies described in Note 1 to the financial
statements, and with generally accepted accounting principles in Australia.
SOMES & COOK
Chartered Accountants
John Cooke
Partner
Dated this 30 Day of October, 2000
Perth, Western Australia
F-11
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
STATEMENT OF ASSETS & LIABILITIES
Year Ended 30 June 2000
$ AUST
CURRENT ASSETS
Receivables 195,252
Inventory 221,643
---------
TOTAL CURRENT ASSETS 416,895
---------
NON-CURRENT ASSETS
Property Plant & Equipment 425,621
Less: Accumulated Depreciation (267,638)
---------
TOTAL NON-CURRENT ASSETS 157,983
---------
TOTAL ASSETS 574,878
---------
CURRENT LIABILITIES
Accounts Payable 83,406
Provision for employee entitlements 10,000
---------
TOTAL CURRENT LIABILITIES 93,406
---------
TOTAL LIABILITIES 93,406
---------
NET ASSETS $ 481,472
=========
The accompanying notes form part of these financial statements.
F-12
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
Year Ended 30 June 2000
Notes $ AUST
Product Sales 1,972,453
Less: Cost of goods sold 1,162,869
----------
Gross profit 809,584
Other direct operating expenditure 682,650
----------
Excess of revenues over direct operating expenses $ 126,934
==========
The accompanying notes form part of these financial statements.
F-13
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
STATEMENT OF CASH FLOWS
Year Ended 30 June 2000
$ AUST
Cash flows from operating activities:
Excess of revenues over direct expenses 137,415
Adjustments to reconcile excess of revenues over direct
operating expenses to net cash provided by operating activities
Depreciation 42,428
Changes in operating assets and liabilities:
Decrease in accounts receivable 410,509
Increase in inventory (88,534)
Increase in provisions 5,000
Decrease in accounts payable (100,735)
---------
Net cash generated by Arcoplate operations $ 406,083
=========
The accompanying notes form part of these financial statements.
F-14
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
NOTES TO FINANCIAL STATEMENTS
Year Ended 30 June 2000
Note 1.
Basis of Presentation
The statements of revenue over direct operating expenses and overhead expenses,
statement of assets and liabilities and cash flows of Arcoplate, a division of
Kroko Nominees Pty Ltd, as trustee for Collier Unit Trust is a special purpose
financial report prepared for use by directors of the Kroko Nominees Pty Ltd.
The directors have determined that the company is not a reporting entity. The
financial report has been prepared in accordance with the requirements of the
following Australian Accounting Standards.
AAS 5 Materiality
No other Australian Accounting Standard, Urgent Issues Group Consensus Views and
other authoritative pronouncements of the Australian Accounting Standards Board
have been applied.
The financial report is also prepared on an accruals basis and is based on
historic costs and does not take into account changing money values or except
where stated current valuations of non-current assets.
These financial statements are not intended to be a complete presentation of the
result of operations of the Collier Unit Trust but relate only to the operations
of the Arcoplate Division.
The financial statements include revenues, expenses, assets and liabilities
directly attributable to the Arcoplate division of the Company. Costs that could
not be directly attributable to the Arcoplate division have been allocated on a
percentage of sales basis. Items specifically excluded include bank liability,
trust beneficiary loan accounts, money owing to and from third parties that have
no relationship to the Arcoplate Operations or assets that are not utilized in
the production or sale of Arcoplate products.
F-15
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
NOTES TO FINANCIAL STATEMENTS
Year Ended 30 June 2000
a) Income Tax
No income tax has been provided for, as Unit Trusts are not required to
pay income tax under Australian Taxation Laws
b) Acquisition of Assets
The purchase method of accounting is used for all acquisition of assets
regardless of whether equity instruments or other assets are acquired.
Costs is measured as the fair value of assets given up, units issued or
liabilities undertaken at the date of acquisition.
c) Revenue Recognition
Amounts disclosed as revenue are net of returns, trade allowances and
taxes paid. A sale is recorded when goods have been despatched to a
customer pursuant to a sales order and the associated risks have passed to
the carrier.
d) Receivables
all trade debtors are recognized at the amounts receivable as they are due
for settlements no more than 30 days from the date of recognition.
Collectibility of trade debtors is reviewed on an ongoing basis. Debts
that are known to be uncollectible are written off.
e) Inventories
Finished goods are stated at the lower of cost and net realisable value.
f) Depreciation of property, plant and equipment.
Depreciation is calculated on a straight-line basis to write off the net
cost of property, plant and equipment over its expected useful life.
Estimates of remaining useful lives are made on a regular basis for all
assets, with annual reassessments for major items. The estimated useful
lives are as follows.
Plant and equipment 4-7 years
g) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
division prior to the end of the financial year and which are unpaid.
F-16
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
NOTES TO FINANCIAL STATEMENTS
Year Ended 30 June 2000
a) Construction of Arcoplate Machine No. 2.
Costs incurred in respect of the construction of Arcoplate machine no.2
have not been included in the statement of revenue over direct operating
expenses, as they are not related to the production of the Arcoplate
product. Assets and liabilities that have arisen from the construction of
machine no. 2 have not been included in the statement of assets and
liabilities of the Arcoplate Division.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying statement of assets and liabilities of
Arcoplate, a division of Kroko Nominees Pty Ltd, as Trustee of Collier Unit
Trust (the Company) as of 30 June, 1999 and the related statements of revenues,
operating expenses and cash flows for the year ended 30 June 1999. These special
purpose financial statements are the responsibility of the Company's management.
Our relationship is to express an opinion on these financial statements based on
our audit.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance as whether the financial statements are free of
material misstatement. Our procedures included examination on a test basis of
evidence supporting the amounts and other disclosures in the financial
statements and the evaluation of accounting policies and significant accounting
estimates. These procedures have been undertaken to form an opinion as to
whether in all material respects, the financial statements are presented fairly
in accordance with Australian Accounting Standards so as to present a view which
is consistent with our understanding of Arcoplate's revenues, operating expenses
and cash flows.
In our opinion, the financial statements referred to above present fairly the
financial position of Arcoplate, a division of Kroko Nominees Pty Ltd, as
Trustees of Collier Unit Trust as of 30 June 1999 and the related statements of
revenues and operating expenses and cash flows for the year ended 30 June, 1999
in conformity with the accounting policies described in Note 1 to the financial
statements, and with generally accepted accounting principles in Australia.
SOMES & COOKE
Chartered Accountants
John Cooke
Partner
Dated this 30 Day of October, 2000
Perth, Western Australia
F-18
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
STATEMENT OF ASSETS & LIABILITIES
Year Ended 30 June 1999
$ AUST
CURRENT ASSETS
Receivables 605,761
Inventory 133,109
---------
TOTAL CURRENT ASSETS 738,870
---------
NON-CURRENT ASSETS
Property Plant & Equipment 402,768
Less: Accumulated Depreciation (253,359)
---------
TOTAL NON-CURRENT ASETS 149,409
---------
TOTAL ASSETS 888,279
---------
CURRENT LIABILITIES
Accounts Payable 184,141
Provision for employee entitlements 5,000
---------
TOTAL CURRENT LIABILITIES 189,141
---------
TOTAL LIABILITIES 189,141
---------
NET ASSETS $ 699,138
=========
The accompanying notes form part of these financial statements.
F-19
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
Year Ended 30 June 1999
Notes $ AUST
Product Sales $1,989,029
Less: Cost of goods sold 1,025,130
----------
Gross profit 963,899
Other direct operating expenditure 598,265
----------
365,634
Reversal of provision for doubtful debts 57,548
----------
Excess of revenues over direct operating expenses $ 423,182
==========
The accompanying notes form part of these financial statements.
F-20
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
STATEMENT OF CASH FLOWS
Year Ended 30 June 1999
$ AUST
Cash flows from operating activities:
Excess of revenues over direct expenses 423,182
Adjustments to reconcile excess of revenues over direct
operating expenses to net cash provided by operating activities
Depreciation 36,310
Provision for doubtful debt reversal (57,548)
Changes in operating assets and liabilities:
Increase in accounts receivable (355,166)
Increase in inventory (55,434)
Increase in provisions 5,000
Increase in accounts payable 10,377
--------
Net cash generated by Arcoplate operations $ 6,721
========
The accompanying notes form part of these financial statements.
F-21
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
NOTES TO FINANCIAL STATEMENTS
Year Ended 30 June 1999
Note 1.
Basis of Presentation
The statements of revenue over direct operating expenses and overhead expenses,
statement of assets and liabilities and cash flows of Arcoplate, a division of
Kroko Nominees Pty Ltd, as trustee for Collier Unit Trust is a special purpose
financial report prepared for use by directors of the Kroko Nominees Pty Ltd.
The directors have determined that the company is not a reporting entity. The
financial report has been prepared in accordance with the requirements of the
following Australian Accounting Standards.
AAS 5 Materiality
No other Australian Accounting Standard, Urgent Issues Group Consensus Views and
other authoritative pronouncements of the Australian Accounting Standards Board
have been applied.
The financial report is also prepared on an accruals basis and is based on
historic costs and does not take into account changing money values or except
where stated current valuations of non-current assets.
These financial statements are not intended to be a complete presentation of the
result of operations of the Collier Unit Trust but relate only to the operations
of the Arcoplate Division.
The financial statements include revenues, expenses, assets and liabilities
directly attributable to the Arcoplate division of the Company. Costs that could
not be directly attributable to the Arcoplate division have been allocated on a
percentage of sales basis. Items specifically excluded include bank liability,
trust beneficiary loan accounts, money owing to and from third parties that have
no relationship to the Arcoplate Operations or assets that are not utilized in
the production or sale of Arcoplate products.
F-22
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
NOTES TO FINANCIAL STATEMENTS
Year Ended 30 June 1999
a) Income Tax
No income tax has been provided for, as Unit Trusts are not required to
pay income tax under Australian Taxation Laws
b) Acquisition of Assets
The purchase method of accounting is used for all acquisition of assets
regardless of whether equity instruments or other assets are acquired.
Costs is measured as the fair value of assets given up, units issued or
liabilities undertaken at the date of acquisition.
c) Revenue Recognition
Amounts disclosed as revenue are net of returns, trade allowances and
taxes paid. A sale is recorded when goods have been despatched to a
customer pursuant to a sales order and the associated risks have passed to
the carrier.
d) Receivables
all trade debtors are recognized at the amounts receivable as they are due
for settlements no more than 30 days from the date of recognition.
Collectibility of trade debtors is reviewed on an ongoing basis. Debts
that are known to be uncollectible are written off.
e) Inventories
Finished goods are stated at the lower of cost and net realisable value.
f) Depreciation of property, plant and equipment.
Depreciation is calculated on a straight-line basis to write off the net
cost of property, plant and equipment over its expected useful life.
Estimates of remaining useful lives are made on a regular basis for all
assets, with annual reassessments for major items. The estimated useful
lives are as follows.
Plant and equipment 4-7 years
g) Trade and Other Creditors
These amounts represent liabilities for goods and services provided to the
division prior to the end of the financial year and which are unpaid.
F-23
<PAGE>
KROKO NOMINEES PTY LTD
As Trustee
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
NOTES TO FINANCIAL STATEMENTS
Year Ended 30 June 1999
a) Construction of Arcoplate Machine No. 2.
Costs incurred in respect of the construction of Arcoplate machine no.2
have not been included in the statement of revenues over direct operating
expenses, as they are not related to the production of the Arcoplate
product. Assets and liabilities that have arisen from the construction of
machine no. 2 have not been included in the statement of assets and
liabilities of the Arcoplate Division.
F-24
<PAGE>
KROKO NOMINEES PTY LTD
As Trustees
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
SUPPLEMENTAL INFORMATION
STATEMENT OF ASSETS AND LIABILITIES
Year Ended June 30, 2000
(Unaudited)
Australian Dollars U.S. Dollars
------------------ --------------
CURRENT ASSETS
Receivables $ 195,252 $ 117,639
Inventory 221,643 133,540
--------- ---------
TOTAL CURRENT ASSETS 416,895 251,179
--------- ---------
NON-CURRENT ASSETS
Property Plant and Equipment 425,621 256,437
Less: Accumulated Depreciation (267,638) (161,252)
--------- ---------
TOTAL NON-CURRENT ASSETS 157,983 95,185
TOTAL ASSETS $ 574,878 $ 346,364
========= =========
CURRENT LIABILITIES
Accounts Payable $ 83,406 $ 50,252
Provision for employee entitlement 10,000 6,025
--------- ---------
TOTAL CURRENT LIABILITIES 93,406 56,277
--------- ---------
TOTAL LIABILITIES 93,406 56,277
--------- ---------
NET ASSETS $ 481,472 $ 290,087
========= =========
Converted at $0.6025 U.S. Dollar for one Australian Dollar
F-25
<PAGE>
KROKO NOMINEES PTY LTD
As Trustees
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
SUPPLEMENTAL INFORMATION
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
Year Ended June 30, 2000
(Unaudited)
Australian Dollars U.S. Dollars
------------------ ------------
Product Sales $1,972,453 $1,188,403
Less: Cost of goods sold 1,162,869 700,629
---------- ----------
Gross profit 809,584 487,774
Other direct operating expenditures 682,650 411,297
---------- ----------
Excess of revenues over direct operating expenses $ 126,934 $ 76,477
========== ==========
Converted at $0.6025 U.S. Dollar for one Australian Dollar
F-26
<PAGE>
KROKO NOMINEES PTY LTD
As Trustees
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
SUPPLEMENTAL INFORMATION
STATEMENT OF ASSETS AND LIABILITIES
Year Ended June 30, 1999
(Unaudited)
Australian Dollars U.S. Dollars
------------------ ------------
CURRENT ASSETS
Receivables $ 605,761 $ 400,893
Inventory 133,109 88,092
--------- ---------
TOTAL CURRENT ASSETS 738,870 488,984
--------- ---------
NON-CURRENT ASSETS
Property Plant and Equipment 402,768 266,552
Less: Accumulated Depreciation (253,359) (167,673)
--------- ---------
TOTAL NON-CURRENT ASSETS 149,409 98,879
--------- ---------
TOTAL ASSETS $ 888,279 $ 587,863
========= =========
CURRENT LIABILITIES
Accounts Payable $ 184,141 $ 121,865
Provision for employee entitlement 5,000 3,309
--------- ---------
TOTAL CURRENT LIABILITIES 189,141 125,174
--------- ---------
TOTAL LIABILITIES 189,141 125,174
--------- ---------
NET ASSETS $ 699,138 $ 462,690
========= =========
Converted at $0.6618 U.S. Dollar for one Australian Dollar
F-27
<PAGE>
KROKO NOMINEES PTY LTD
As Trustees
THE COLLIER UNIT TRUST
ARCOPLATE DIVISION
SUPPLEMENTAL INFORMATION
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
Year Ended June 30, 1999
(Unaudited)
Australian Dollars U.S. Dollars
------------------ ------------
Product Sales $1,989,029 $1,316,339
Less: Cost of goods sold 1,025,130 678,431
---------- ----------
Gross profit 963,899 637,908
Other direct operating expenditures 598,265 395,932
---------- ----------
365,634 241,977
Reversal of provision for doubtful debts 57,548 38,085
---------- ----------
Excess of revenues over direct operating expenses $ 423,182 $ 280,062
========== ==========
Converted at $0.6618 U.S. Dollar for one Australian Dollar
F-28
<PAGE>
ALLOY STEEL INTERNATIONAL, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following pro forma balance sheet presents the pro forma financial position
of the Company as of September 30, 2000, assuming that the acquisition of the
net assets and business of the Arcoplate division of the Collier Unit Trust had
been consummated as of September 30, 2000.
The following pro forma statement of operations for the year ended September 30,
2000 presents the pro forma results of operations of the Company as if the
acquisition of the Arcoplate division of the Collier Unit Trust had been
consummated as of October 1, 1999.
These pro forma financial statements should be read in conjunction with the
Company's financial statements and those of the Arcoplate division of the
Collier Unit Trust included elsewhere herein. The pro forma balance sheet and
pro forma statement of operations do not necessarily reflect actual results
which may have occurred if the acquisition of the Arcoplate division of the
Collier Unit Trust had taken place as of the above indicated dates, nor are they
indicative of the results of future operations
F-29
<PAGE>
ALLOY STEEL INTERNATIONAL, INC
PRO FORMA BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
Alloy Steel Arcoplate Division
International, Inc. Collier Unit Trust(*) DR CR Pro Forma
------------------- --------------------- ------------------ ---------
Sept. 30, 2000 Jun. 30, 2000
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,674 $ -- $ 8,674
Receivables 117,639 117,639
Inventory 133,540 133,540
--------- --------- ---------
Total Current Assets 8,674 251,179 259,853
PROPERTY AND EQUIPMENT - NET 95,185 95,185
CONSTRUCTION IN PROGRESS 576,871 -- 576,871
--------- --------- ---------
TOTAL ASSETS $ 585,545 $ 346,364 $ 931,909
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 21,800 $ 56,277 $ 78,077
--------- --------- ---------
STOCKHOLDERS' EQUITY:
Common Shares 86,963 (a) 36,400
(b) 12,500
(c) 34,137 170,000
Additional paid-in capital 496,641 (a) 546,000
(b) 277,587
(c) 34,137 1,286,091
Other equity 290,087 (b) 290,087 --
Deficit (19,859) -- (19,859)
Deferred compensation (a) 582,400 (582,400)
--------- --------- ---------
563,745 290,087 853,832
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 585,545 $ 346,364 $ 931,909
========= ========= =========
</TABLE>
(*) Converted to U.S. Dollars at the rate of $0.6025 U.S. Dollars to one
Australian Dollar See notes to proforma financial statements.
See notes to proforma financial statements.
F-30
<PAGE>
ALLOY STEEL INTERNATIONAL, INC
PRO FORMA STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Alloy Steel Arcoplate Division
International, Inc. Collier Unit Trust (*) Pro Forma
------------------------ ---------------------- ---------
May 4, 2000 (Inception) Year Ended
to September 30, 2000 June 30, 2000
--------------------- -------------
<S> <C> <C> <C>
SALES $ -- $1,188,403 $1,188,403
COST OF SALES 700,629 700,629
--------- ---------- ----------
GROSS PROFIT -- 487,774 487,774
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 19,859 411,297 431,156
--------- ---------- ----------
NET INCOME (LOSS) $ (19,859) $ 76,477 $ 56,618
========= ========== ==========
NET INCOME (LOSS) PER SHARE $ 0.00
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,000,000
==========
</TABLE>
* Converted to U.S. Dollars at the rate of $0.6025 U.S. Dollars to one
Australian Dollar
See notes to proforma financial statements.
F-31
<PAGE>
ALLOY STEEL INTERNATIONAL, INC
(A Development Stage Company)
PRO FORMA ADJUSTMENTS
(Unaudited)
The pro forma adjustments reflect the following transactions:
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
a) Deferred Compensation 582,400
Common Stock 36,400
Additional Paid-In Capital 546,000
Issuance of 3,640,000 common shares for consulting and professional
services at $0.16 per share on October 1, 2000
b) Other Equity 290,087
Common Stock 12,500
Additional Paid-In Capital 277,587
Issuance of 1,250,000 shares at par value on October 1, 2000 to acquire
the net assets of the Arcoplate Division
c) Capital Distribution 34,137
Common Stock 34,137
Issuance of 3,413,750 shares at par value to acquire 3-D Pipe Fitting
Cladder, on October 1, 2000.
</TABLE>
F-32
<PAGE>
ALLOY STEEL INTERNATIONAL, INC.
5,608,750 Shares of Common Stock
--------------
PROSPECTUS
--------------
November __, 2000
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide any information or to make any representations
other than those contained in this prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by Alloy Steel International, Inc. This prospectus does not constitute an offer
or solicitation to any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither delivery of this prospectus nor any sale
of the shares of common stock hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of Alloy Steel
International, Inc. since the date hereof.
--------------
Until , 2000 (25 days after the date of this prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. 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 25. Other Expenses of Issuance and Distribution
The following is a statement of the estimated expenses to be paid by us in
connection with the issuance and distribution of the securities being
registered:
SEC Registration Fee ....................................... $ 4,442
Legal Fees and Expenses * .................................. $ 75,000
Accounting Fees and Expenses * ............................. $ 35,000
Printing ................................................... $ 5,000
Miscellaneous .............................................. $ 5,000
--------
Total ...................................................... $124,442
* estimate
Item 26. Recent Sales of Unregistered Securities
During the past three years, we have sold unregistered securities as
described below. Unless otherwise indicated, there were no underwriters involved
in the transactions and there were no underwriting discounts or commissions paid
in connection therewith, except as disclosed below. Unless otherwise indicated,
the issuances of these securities were considered to be exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. The purchasers of the securities in such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the certificates for the
securities issued in such transaction. The purchasers of the securities in the
transactions had adequate access to information about us.
II-1
<PAGE>
(1) On May 4, 2000, Kenside Investments, Ltd was issued 4,760,000 shares of
common stock for a license to commercially exploit the Arcoplate process
worldwide, under Section 4(2) of the Securities Act.
(2) In June 2000, in connection with a private financing to accredited
investors pursuant to Regulation D, we sold 2,217,500 shares of our common
stock at a price of $0.25 per share to the individuals listed below.
Date of Closing Name Number of Shares
--------------- ---- ----------------
June 30, 2000 Janice Magill 31,250
June 30, 2000 Jennifer Richards 31,250
June 30, 2000 Judith Saunders 31,250
June 30, 2000 Barbara Kearney 31,250
June 30, 2000 Jillian Clazie 31,250
June 30, 2000 Norma Kearney 31,250
June 30, 2000 Gene Kostecki 919,500
June 30, 2000 Alan Winduss 308,000
June 30, 2000 Balmere Assets Ltd. 40,000
June 30, 2000 Robert McDougall 400,000
June 30, 2000 Allan Bray 100,000
June 30, 2000 Dave Peters 40,000
June 30, 2000 Yeowart Gregory 20,000
June 30, 2000 Terry Taylor 10,000
June 30, 2000 New Wave Nominees Pty. Ltd. 62,500
June 30, 2000 Gillian Woodford 100,000
June 30, 2000 Darren Whittaker 10,000
June 30, 2000 Joris Claessens 20,000
(3) In June through July 2000, in connection with a private financing to
accredited investors pursuant to pursuant to Regulation D, we sold
1,718,750 shares of our common stock at a price of $0.16 per share to the
individuals listed below.
Date of Closing Name Number of Shares
--------------- ---- ----------------
June 28, 2000 Hong Zhu 62,500
June 28, 2000 Po-Chin King 125,000
June 28, 2000 Wei Z. Yen 250,000
June 28, 2000 Jinsheng Yi 62,500
June 28, 2000 Shuhai Guo 62,500
June 28, 2000 Xiangdong Liang 125,000
June 29, 2000 Peter Che Nan Chen 593,750
June 29, 2000 Sui Wa Chau 312,500
July 5, 2000 Chung Kuan Yen 125,000
(4) On October 2, 2000, Gene Kostecki was issued 2,731,000 shares of common
stock in connection with the purchase of the 3-D Pipe Fitting Cladder
process, under Section 4(2) of the Securities Act.
(5) On October 2, 2000, Alan Winduss was issued 682,750 shares of common stock
in connection with the purchase of the 3-D Pipe Fitting Cladder process,
under Section 4(2) of the Securities Act.
(6) On October 2, 2000, Collier Unit Trust was issued 1,250,000 shares of
common stock in connection with the purchase of plant equipment assets,
under Section 4(2) of the Securities Act.
II-2
<PAGE>
(7) On October 2, 2000, Alan Winduss Pty. Ltd was issued 312,500 shares of
common stock for consulting services under Section 4(2) of the Securities
Act.
(8) On October 2, 2000, Ames Nominees Pty Ltd was issued 937,500 shares of
common stock for consulting services under Section 4(2) of the Securities
Act.
(9) On October 2, 2000, Berryhill Investments, Ltd was issued 150,000 shares
of common stock for consulting services under Section 4(2) of the
Securities Act.
(10) On October 2, 2000, Chartreuse Nominees Pty. Ltd was issued 500,000 shares
of common stock for consulting services under Section 4(2) of the
Securities Act.
(11) On October 2, 2000, Persia Consultants, Inc. was issued 500,000 shares of
common stock for consulting services under Section 4(2) of the Securities
Act.
(12) On October 2, 2000, Ragstar Investments, Ltd. was issued 90,000 shares of
common stock for consulting services under Section 4(2) of the Securities
Act.
(13) On October 2, 2000, Silverman, Collura & Chernis, P.C. was issued 300,000
shares of common stock for legal services under Section 4(2) of the
Securities Act.
(14) On October 2, 2000, Mark Angelo was issued 200,000 shares of common stock
for consulting services under Section 4(2) of the Securities Act.
(15) On October 2, 2000, Joseph Donohue was issued 200,000 shares of common
stock for consulting services under Section 4(2) of the Securities Act.
(16) On October 2, 2000, Bob Farrell was issued 200,000 shares of common stock
for consulting services under Section 4(2) of the Securities Act.
(17) On October 2, 2000, Hunter Singer was issued 200,000 shares of common
stock for consulting services under Section 4(2) of the Securities Act.
(18) On October 2, 2000, Hong Zhu was issued 50,000 shares of common stock for
consulting services under Section 4(2) of the Securities Act.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the issuer pursuant
to any charter provision, by-law contract arrangements statute, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
II-3
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to suit information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such securities
at that time shall be deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(4) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
issuer under Rule 424(b)(1), or (4) or 497(h), under the Act as part of this
registration statement as of the time the Commission declared it effective.
(5) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement at
that time as the initial bona fide Offering of those securities.
(6) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
ITEM 27. EXHIBITS
3.1 Certificate of Incorporation
3.2 By-laws
4.1 Specimen Certificate(1)
5.1 Opinion(1)
10.1 Stock Option Plan
10.2 License Agreement, dated May 4, 2000, between the Company and
Kenside Investments, Ltd.(1)
10.3 Sub-license Agreement, dated May 4, 2000, between the Company and
Arcoplate Holdings, PLC(1)
10.4 Employment Agreement, dated October 2, 2000, between the Company
and Gene Kostecki;
10.5 Employment Agreement, dated October 2, 2000, between the Company
and Alan Winduss;
10.6 Consulting Agreement, dated October 2, 2000, between the Company
and Berryhill Investments, Ltd.
10.7 Consulting Agreement, dated October 2, 2000, between the Company
and Chartreuse Nominees Pty. Ltd.
10.8 Consulting Agreement, dated October 2, 2000, between the Company
and Persia Consultants, Inc(1)
10.9 Consulting Agreement, dated October 2, 2000, between the Company
and Ragstar Investments, Ltd.
10.10 Consulting Agreement, dated October 2, 2000, between the Company
and Mark Angelo;(1)
10.11 Consulting Agreement, dated October 2, 2000, between the Company
and Joseph Donohue;(1)
10.12 Consulting Agreement, dated October 2, 2000, between the Company
and Bob Farrell(1)
10.13 Consulting Agreement, dated October 2, 2000, between the Company
and Hunter Singer;(1)
II-4
<PAGE>
10.14 Consulting Agreement, dated October 2, 2000, between the Company
and Hong Zhu;(1)
10.15 Consulting Agreement, dated October 2, 2000, between the Company
and Alan Winduss Pty. Ltd.;(1)
10.16 Consulting Agreement, dated October 2, 2000, between the Company
and Ames Nominees Pty. Ltd.(1)
10.17 Lease Agreement, dated July 1, 2000, between the Company and Raglan
Securities Pty. Ltd.
10.18 Asset Purchase Agreement, dated October 2, 2000 between the Company
and Collier Unit Trust;
10.19 Equipment Purchase Agreement, dated October 2, 2000, between the
Company and Collier Unit Trust;
10.20 Asset Purchase Agreement, dated October 2, 2000, by and among the
Company and Gene Kostecki and Alan Winduss;
23.1 Consent of Feldman Sherb & Co.
23.2 Consent of Somes & Cooke, Ltd.
23.3 Consent of Silverman, Collura & Chernis, P.C.(1)
27.1 Financial Data Schedule
(1) To be filed by amendment.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Perth, Australia on November 1, 2000.
ALLOY STEEL INTERNATIONAL INC.
By: /s/ Gene Kostecki
---------------------------
Name: Gene Kostecki
Title: Chief Executive Officer
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
We, the undersigned officers and directors of Alloy Steel International,
Inc. hereby severally constitute and appoint Gene Kostecki, our true and lawful
attorney-in-fact and agent with full power of substitution for us and in our
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all documents
relating thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Gene Kostecki Chairman, Chief Executive Officer and 11/1/00
--------------------- Director
/s/ Alan Winduss Chief Financial Officer and Director 11/1/00
---------------------
II-6
<PAGE>
EXHIBITS
3.1 Certificate of Incorporation
3.2 By-laws
4.1 Specimen Certificate(1)
5.1 Opinion(1)
10.1 Stock Option Plan
10.2 License Agreement, dated May 4, 2000, between the Company and
Kenside Investments, Ltd.(1)
10.3 Sub-license Agreement, dated May 4, 2000, between the Company and
Arcoplate Holdings, PLC(1)
10.4 Employment Agreement, dated October 2, 2000, between the Company
and Gene Kostecki;
10.5 Employment Agreement, dated October 2, 2000, between the Company
and Alan Winduss;
10.6 Consulting Agreement, dated October 2, 2000, between the Company
and Berryhill Investments, Ltd.
10.7 Consulting Agreement, dated October 2, 2000, between the Company
and Chartreuse Nominees Pty. Ltd.
10.8 Consulting Agreement, dated October 2, 2000, between the Company
and Persia Consultants, Inc(1)
10.9 Consulting Agreement, dated October 2, 2000, between the Company
and Ragstar Investments, Ltd.
10.10 Consulting Agreement, dated October 2, 2000, between the Company
and Mark Angelo;(1)
10.11 Consulting Agreement, dated October 2, 2000, between the Company
and Joseph Donohue;(1)
10.12 Consulting Agreement, dated October 2, 2000, between the Company
and Bob Farrell(1)
10.13 Consulting Agreement, dated October 2, 2000, between the Company
and Hunter Singer;(1)
10.14 Consulting Agreement, dated October 2, 2000, between the Company
and Hong Zhu;(1)
10.15 Consulting Agreement, dated October 2, 2000, between the Company
and Alan Winduss Pty. Ltd.;(1)
10.16 Consulting Agreement, dated October 2, 2000, between the Company
and Ames Nominees Pty. Ltd.(1)
10.17 Lease Agreement, dated July 1, 2000, between the Company and Raglan
Securities Pty. Ltd.
10.18 Asset Purchase Agreement, dated October 2, 2000 between the Company
and Collier Unit Trust;
10.19 Equipment Purchase Agreement, dated October 2, 2000, between the
Company and Collier Unit Trust;
10.20 Asset Purchase Agreement, dated October 2, 2000, by and among the
Company and Gene Kostecki and Alan Winduss;
23.1 Consent of Feldman Sherb & Co.
23.2 Consent of Somes & Cooke, Ltd.
23.3 Consent of Silverman, Collura & Chernis, P.C.(1)
27.1 Financial Data Schedule
(1) To be filed by amendment.
