ITEM 1. BUSINESS
Formation
Allied American Steel Corp. (the “Company” or “we”) was incorporated in the State of Nevada on March 7, 2007 under the name Zion Nevada Corporation to acquire, develop and manage commercial and residential real estate properties. We were unsuccessful in this endeavor and never commenced material operations in this area. On May 21, 2009 we changed our name to Royal Union Holding Corporation. On April 28, 2011 we entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which we merged with our wholly owned subsidiary, Allied American Steel Corp., a Nevada corporation with no material operations ("Merger Sub" and such merger transaction, the "Merger"). Upon the consummation of the Merger, the separate existence of Merger Sub ceased and our shareholders became shareholders of the surviving company named Allied American Steel Corp. As permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the Merger was to effect a change of the Company's name. Upon the filing of Articles of Merger (the "Articles of Merger") with the Secretary of State of Nevada on April 28, 2011 to effect the Merger, our Articles of Incorporation were deemed amended to reflect the change in our corporate name. We changed our name to Allied American Steel Corp. to reflect a name which recognized our present business focused on the discovery and production of iron ore resources and titanium dioxide resources.
Forward Stock Split
On April 27, 2011, our Board of Directors declared an 18-for-1forward split of our common stock, in the form of a stock dividend (the “Stock Split”). In connection therewith, Company shareholders of record as of the close of business on May 19, 2011 received an additional 17 shares of our common stock for each share of our common stock held by them. All references to stock issuance throughout this Form 10-K give retroactive effect to the Stock Split.
Our Business
Assignment and Sale Agreement
On May 27, 2011, we entered into an Assignment and Sale Agreement (the “Assignment Agreement”) with North American Iron Ore, Inc., a Nevis corporation (“North American”) and Canamara Energy Corporation, a British Columbia, Canada corporation (“Canamara”). The Assignment Agreement provided us with the option to acquire up to a 60% undivided interest in certain mineral claims (the “Mineral Claims”, the “Property” or the “Lake Touladi Property”) located in Lyonne Township, Roberval County in the Province of Quebec, free and clear of all claims, liens, charges and encumbrances, save and except for those set forth in the Assignment Agreement, including a 2.5% royalty held by the underlying owner. The Mineral Claims represent 48 contiguous claims totaling approximately 2,741 hectares of iron and titanium dioxide resources.
Pursuant to the Assignment Agreement, we were the assignee of North American which had entered into an agreement with Canamara on May 7, 2010, under which North American had the option to acquire the Mineral Claims by making certain cash payments to Canamara or making expenditures on the Property.
To exercise the option assigned to us in the Assignment Agreement, we were required to incur expenditures on the Property in the amount of CDN $1,548,346 (approximately US$1,599,000 based on the conversion rate in effect as of June 1, 2011) on or before May 7, 2012. Based upon work performed by us on the Lake Touladi Property, review of diligence materials and internal discussions with the members of our Advisory Board, in May 2012 we determined that a significant portion of the iron and possibly some of the titanium located on the Property was locked in silicate materials making economic recovery unlikely. Consequently, we determined not to exercise the option.
We continue to look at other ventures involving the discovery and production of iron ore resources and the titanium dioxide resources often associated with iron deposits.
Consulting Agreements
On June 1, 2011 we entered into Consulting Services Agreements with Richard Tschauder, Erik Ostensoe, and Michael Boily under which Messrs. Tschauder, Ostenoe and Boily served as our Senior Geologist, Senior Exploration Advisor and as a General Advisor, respectively through and including June 1, 2012. On June 22, 2011 we entered into Consulting Services Agreements with David Dunn and Stewart Jackson under which Messrs. Dunn and Jackson served as General Advisors through and including June 22, 2012. Each of Messrs. Tschauder, Ostenoe, Boily, Dunn and Jackson has extensive experience in the mining industry.
Exploration Stage Company
We are an exploration stage company. We have yet to achieve any operating revenues. Our operations have consisted of (i) general administrative activities; (ii) locating and acquiring rights to mineral prospects; (iii) conducting due diligence; and (iv) commencing and concluding prospect exploration activities. Our operations to date have been primarily devoted to the following:
ŸDevelopment of our business plan;
ŸIdentifying alternative capital resources;
ŸEngaging in due diligence and research on potential acquisition candidates that will provide positive cash flow;
ŸRaising capital through the sale of stock and warrants;
ŸAcquiring an option (the “Option”) to acquire a 60% interest in certain mineral claims;
ŸContracting with mineral rights consultants;
ŸEntering into a Services Agreement with a provider of mineral exploration services;
ŸCommencing an exploration and prospecting program; and
ŸDetermining not to exercise the Option and to discontinue our exploration and prospecting program on the Lake Touladi Property based upon a determination that economic recovery was unlikely.
In order for us to expand and further develop our business, we will require additional capital. No assurance can be given that such capital will be available to us and if so, on reasonable terms.
During the year ended December 31, 2012 and the subsequent period, the following events took place:
In March 2012, we issued an aggregate of 125,000 shares of common stock to four consultants pursuant to our June 2011 Consulting Agreements.
In May 2012, we determined not to exercise the option on the Lake Touladi Property which was the subject of the May 27, 2011 Assignment Agreement among us, North American Iron Ore, Inc. and Canamara Energy Corporation.
Subsequent to May 2012, we have been looking at possible ventures involving the discovery and production of iron ore resources and titanium dioxide resources.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Our corporate office has been located at 600 Grant, Suite 660, Pittsburgh, PA 15219 since February 2, 2010. Our telephone number at that location is (412) 223-2663. Since January 1, 2013 we have been looking for a new location for our corporate office. We do not presently own any real property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In December 2008, we were named as a defendant in an amended complaint filed in the District Court of Nevada, Clark County by Phyllis Wynn Family Trust, Plaintiff vs. Onecap Holding Corp, Onecap Properties, et al, defendant(s) [case number 08A578385]. The complaint names over eighty defendants including the Company and alleges multiple causes of actions including breach of contract and fraud against various other defendants and fraudulent conveyance. The substance of the Complaint involves a real estate transaction not involving the Company. We have answered with affirmative defenses including but not limited to the following: the injuries and damages complained of did not occur as the result of any action on the part of the Company but as the sole, direct and proximate result of actions by the Plaintiff and third parties not otherwise related to the Company. Since then one or more of the other defendants filed for bankruptcy and this case was removed to a federal bankruptcy court [case number: Nevada Federal Bankruptcy Court Case No.: BK-S 10-20833-BA].
In May 2010, we were named as an intervenor defendant in an amended complaint filed in the District Court of Nevada, Clark County by Anthony Puerner, Plaintiff vs. Onecap Mortgage, et al, defendant(s) [case number A-09-596875-C]. The complaint names more than 30 other individuals and/or entities as defendants. The Plaintiff’s claim as against these defendants, including the Company, is that they are the alter egos of a judgment debtor, not otherwise related to the Company. The Plaintiff in Intervention is an unsecured creditor with a judgment against an individual personally, who is not an officer, director or shareholder of the Company. We have answered with affirmative defenses including but not limited to the following: the injuries and damages complained of did not occur as the result of any action on the part of the Company and failure to state a claim. In February 2011, the case was moved to federal bankruptcy court [case number 10-18090-mkn United States Bankruptcy Court District of Nevada].
In the ordinary course of our business, we may from time to time become subject to routine litigation or administrative proceedings which are incidental to our business. Except as set forth above, we are not a party to nor are we aware of any existing, pending or threatened lawsuits or other legal actions involving us.
Other than the foregoing, we know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5.	 MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is currently quoted on the OTC Bulletin Board. Our common stock has been quoted on the OTC Bulletin Board since February 13, 2009 and is currently quoted under the symbol “AAST.OB.” We were previously quoted on the OTC Bulletin Board under the symbol “ZINN.OB”, which was changed on October 11, 2010 to “RUHC.OB” and changed on May 16, 2011 to “AAST.OB”. Because we are quoted on the OTC Bulletin Board, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.
The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share of our common stock on the OTCBB, reported by the National Association of Securities Dealers Composite Feed or other qualified interdealer quotation medium. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
* Less than $0.01.
(1) On April 27, 2011 our Board of Directors declared an 18:1 forward split on our common stock in the form of a stock dividend which was to shareholders of record as of the close of business on May 19, 2011. All high and low closing bid prices reflect the split.
As of December 31, 2012, we had 49 shareholders of record for our common stock.
Dividends
We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.
Recent Sales of Unregistered Securities
We made no sales of unregistered securities during the quarter ended December 31, 2012. All sales of unregistered securities made by us prior to the December 31, 2012 quarter, have been previously reported in our Forms 10-Q and 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Equity Compensation Plan Information
We did not have any employee stock option or stock purchase plans at December 31, 2012 or subsequent thereto.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed elsewhere in this annual report.
Results of Operations
Net Loss
We incurred a net loss of $242,960 for the year ended December 31, 2012. For the year ended December 31, 2011, we incurred a net loss of $963,388. The $249,220 in comparable net loss was primarily due to general administrative costs of $141,805. We incurred net losses of $1,354,264 for the period from March 7, 2007 (date of inception) through December 31, 2012 and have not yet generated any revenues since inception. These losses coupled with our lack of revenues caused our independent registered public accounting firm to include an explanatory paragraph in their report for the years ended December 31, 2012 and 2011 that raises substantial doubt about our ability to continue as a going concern.
Revenues
We generated no revenues during the period from March 7, 2007 (date of inception) through December 31, 2012.
Liquidity and Capital Resources
We will need additional capital to implement our strategies. Given the currently unsettled state of the capital markets and credit markets, there is no assurance that we will be able to raise the amount of capital that we seek. Even if financing is available, it may not be on terms that are acceptable to us. In addition, we do not have any determined sources for any future funding. If we are unable to raise the necessary capital at the times we require such funding, we may have to materially change our business plan, including delaying implementation of aspects of our business plan or curtailing or abandoning our business plan. We represent a speculative investment and investors may lose all of their investment.
Since inception, we have been financed primarily by way of loans and sales of our equity and debt securities.
At December 31, 2012, cash was ($17) and we had no other current assets. At the same time we had current liabilities of $36,301, which consisted of accounts payable. We attribute our net loss to having no revenues to sustain our operating costs as we are an exploration stage company. At December 31, 2011, cash was $225,036, we had other current assets of $10,499 and current liabilities of $36,301, which consisted of accounts payable and accrued expenses.
Net Cash Used in Operating Activities
Net cash used in operating activities was ($225,053) for the year ended December 31, 2012, as compared to net cash used of ($447,038) for the year ended December 31, 2011. The decrease was primarily due to stock issued in 2011 for services and impairment of option for mineral rights acquired with stock.
Net Cash Provided by Financing Activities
During the year ended December 31, 2012, we received no net proceeds from financing activities. During the year ended December 31, 2011 we received net proceeds of $672,057 from financing activities principally representing proceeds from the sale of common stock and warrants. During the period from March 7, 2007 (date of inception) through December 31, 2012, we received net proceeds of $791,081 from financing activities consisting of primarily proceeds from the sale of common stock and warrants.
General
We will only commit to capital expenditures for any future projects requiring us to raise additional capital as and when adequate capital or new lines of finance are made available to us. There is no assurance that we will be able to obtain any financing or enter into any form of credit arrangement. Although we may be offered such financing, the terms may not be acceptable to us. If we are not able to secure financing or it is offered on unacceptable terms, then our business plan may have to be modified or curtailed or certain aspects terminated. There is no assurance that even with financing we will be able to achieve our goals.
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, our ability to continue as a going concern will be dependent upon our ability to generate sufficient cash flow from our planned operations to meet our obligations on a timely basis, to obtain additional financing, and ultimately attain profitability. The report of our independent accountants on our December 31, 2012 consolidated financial statements included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to recurring losses. Our ability to continue as a going concern will be determined by our ability to obtain additional funding or generate sufficient revenue to cover our operating expenses. We currently have no sources of financing available and we do not expect to earn any revenues in the near term. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors have included in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern.
Future Financings
The Company intends to continue to pursue equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SEALE AND BEERS, CPAs
PCAOB & CPAB REGISTERED AUDITORS
www.sealebeers.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Allied American Steel Corporation
(A Development Stage Company)
We have audited the accompanying balance sheets of Allied American Steel Corporation (A Exploration Stage Company) as of December 31, 2012 and 2011, and the related statements of income, stockholders’ equity (deficit), and cash flows for each of the years ended December 31, 2012 and 2011 and since inception on March 7, 2007 through December 31, 2012. Allied American Steel Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Allied American Steel Corporation (A Exploration Stage Company) as of December 31, 2012 and 2011, and the related statements of income, stockholders’ equity (deficit), and cash flows for the years ended December 31, 2012 and 2011 and since inception on March 7, 2007 through December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has no revenues, has negative working capital at December 31, 2012, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
April 16, 2013
50 S. Jones Blvd. Suite 202 Las Vegas, NV 89107 Phone: (888)727-8251 Fax: (888)782-2351
ALLIED AMERICAN STEEL CORP
(An Exploration Stage Company)
Condensed Balance Sheets
The accompanying notes are an integral part of these financial statements.
ALLIED AMERICAN STEEL CORP
(An Exploration Stage Company)
Condensed Statements of Operations
The accompanying notes are an integral part of these financial statements.
ALLIED AMERICAN STEEL CORP
(An Exploration Stage Company)
Condensed Statements of Cash Flows
The accompanying notes are an integral part of these financial statements.
ALLIED AMERICAN STEEL CORP
(An Exploration Stage Company)
Statements of Stockholders' Equity (deficit)
Inception through December 31, 2012
The accompanying notes are an integral part of these financial statements.
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
Note 1. Nature of Business and Summary of Significant Accounting Policies
The summary of significant accounting policies is presented to assist in the understanding of the financial statements. The financial statements and notes are representations of management. These accounting policies conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied in the preparation of the financial statements.
In the opinion of management, the accompanying balance sheets and related interim statements of operations and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with U.S. GAAP for Allied American Steel Corp. (the “Company”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions.
Nature of business and organization
On April 28, 2011, Royal Union Holding Corporation (“Royal Union”), formerly Zion Nevada Corporation, which was incorporated in the State of Nevada on March 7, 2007, entered into an Agreement and Plan of Merger (the “Merger Agreement”) to merge (the “Merger”) with the Company’s wholly owned subsidiary, Allied American Steel Corp., a Nevada corporation (“Merger Sub”). Upon the consummation of the Merger, the separate existence of the Merger Sub ceased and shareholders of the Company became shareholders of the surviving company named Allied American Steel Corp. The sole purpose of the Merger was to effect the name change from Royal Union Holding Corporation to Allied American Steel Corp. The Company’s principal business objective is as an exploration company focused on the discovery and production of significant iron ore resources and the titanium dioxide resources often associated with iron deposits. Prior to entering into the May 27, 2011 Assignment Agreement (see Note 4), we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). We believe that as a result of such Assignment Agreement we have ceased to be a shell company. The Company’s planned principal operations have commenced, but there has been no significant revenue therefrom, operations have been limited to general administrative operations and exploration, and as a result the Company is considered an exploration stage company as defined by ASC Topic 915 and SEC Industry Guide 7.
Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company is subject to uncertainty of future events, economic, environmental and political factors and changes in the Company's business environment; therefore, actual results could differ from these estimates. Accordingly, accounting estimates used in the preparation of the Company's financial statements will change as new events occur, more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Changes are made in estimates as circumstances warrant. Such changes in estimates and refinement of estimation methodologies are reflected in the statements.
Mineral Properties
The Company accounts for its mining activities in accordance with FASB ASC 930 “Extractive Activities - Mining.” The Company capitalizes the costs to acquire mineral properties. Exploration costs are expensed as incurred and include geological and geophysical work on areas without identified reserves, together with drilling and other related costs. Capitalization of mine development costs that meet the definition of an asset begins once all operating permits have been secured, mineralization is classified as proven and probable reserves and a final feasibility study has been completed. Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. All capitalized costs are amortized using the units-of-production method over the estimated life of the ore body based on recoverable quantities to be mined from proven and probable reserves. Interest expense allocable to the cost of developing mining properties and to construct new facilities is capitalized until assets are ready for their intended use. The Company had no mine development costs at December 31, 2012.
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
Mining facilities and equipment are recorded at cost. Expenditures for facilities and equipment relating to new assets or improvements are capitalized if they extend useful lives or extend functionality. Fixed plant and machinery are amortized using the units-of-production method over the estimated life of the ore body based on recoverable quantities to be produced from estimated proven and probable mineral reserves. Repairs and maintenance costs are charged to expense as incurred, except when these repairs extend the life or functionality of the asset. In these instances, that portion of the expenditure is capitalized and amortized over the period benefited. Depreciation, depletion and amortization is allocated to product inventory cost and then included as a component of operating expense as inventory is sold. As of December 31, 2012, the Company had no facilities and equipment.
As of December 31, 2012, the Company had not established any proven or probable reserves.
Impairment of Long-lived Assets
The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. Impairment on interests in mineral reserves are evaluated by considering criteria such as estimates of future cash flows that are directly associated with the asset, future extractive activity plans for the properties, and the results of geographic and geologic data related to the properties. For the twelve months ended December 31, 2011, the Company had fully impaired its interest in mineral rights.
Cash and cash equivalents
Cash is comprised of cash deposits held at banks. Cash equivalents are financial instruments issued or guaranteed by major financial institutions and governments that have an original maturity date of less than 90 days. Cash equivalents are stated at cost, which approximates market value.
Revenue recognition
The Company has no revenues to date from its operations. Once revenues are generated, management will establish a revenue recognition policy.
Basic and diluted net loss per share
The Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share,” which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the period.
Diluted EPS excludes all potentially dilutive shares if their effect is anti-dilutive. Shares associated with stock warrants are not included because their inclusion would be antidilutive (i.e., reduce the net loss per share).
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
At December 31, 2012, the Company had outstanding potentially dilutive shares of 893,176.
Share-Based Compensation
Compensation cost relating to share-based payment transactions are recognized under fair value accounting and recorded in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).
The fair value of the warrants is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based on an average of historical volatility of common stock prices of the Company or its peer companies where there is a lack of relevant volatility information of the Company for the length of the expected term. The expected term is derived from estimates and represents the period of time that the warrants granted is expected to be outstanding. The Company uses historical data and management estimates to estimate warrant exercises. The risk-free rate for the expected term is the yield on the zero-coupon U.S. Treasury security with a term comparable to the expected term of the warrant. The Company does not include an estimated dividend yield since it has not paid dividends on its common stock historically.
Fair Value Measurements
The Company applies the fair value hierarchy as established by US GAAP. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value as follows.
• Level 1 - quoted prices in active markets for identical assets or liabilities.
• Level 2 - other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
• Level 3 - significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
The following table summarizes fair value measurements by level at December 31, 2012 for assets and liabilities measured at fair value on a recurring basis:
The following table summarizes fair value measurements by level at December 31, 2011 for assets and liabilities measured at fair value on a recurring basis:
Income taxes
The Company accounts for its income taxes in accordance with ASC Topic 740, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
Recent Accounting Pronouncements
The Company has analyzed all recent accounting pronouncements and believes that none will have a material impact on the financial statements.
Note 2. Going Concern
The Company’s financial statements are prepared using U.S. GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred a net operating loss of $1,354,264 from inception through December 31, 2012. The Company’s planned principal operations have commenced, but there has been no significant revenue. Operations have been limited to general administrative operations and exploration, and the Company remains in the exploration stages, raising substantial doubt about the Company’s ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 3. Prepaid Expense
At December 31, 2012, there were no prepaid expenses. At December 31, 2011, prepaid expenses consisted of $762 of accounting fees, $6,667 of consulting fees, and $3,070 of directors and officers insurance.
Note 4. Option to Purchase Mineral Interests
We do not own any property. We have an option to acquire certain mineral rights.
On May 27, 2011, the Company entered into an Assignment and Sale Agreement (the “Assignment Agreement”) with North American Iron Ore, Inc., a Nevis corporation (“North American”), who became a related party on May 27, 2011, and Canamara Energy Corporation, a British Columbia corporation (“Canamara”). The Assignment Agreement provides the Company with an option to acquire up to a 60% undivided interest in certain mineral claims (the “Mineral Claims” or the “Property”) located in Lyonne Township, Roberval County in the Province of Quebec, free and clear of all claims, liens, charges and encumbrances, save and except for those set forth in the Assignment Agreement, including a 2.5% royalty held by the underlying owner. The Mineral Claims presently represent 48 contiguous claims totaling approximately 2,741 hectares.
To exercise the Option assigned to the Company in the Assignment Agreement, the Company was required to incur expenditures on the Property in the amount of CDN $1,548,346 (approximately US$1,599,000 based on the conversion rate in effect as of September 1, 2011) on or before May 7, 2012. On May 7, 2012 the Company determined not to exercise the Option under the Assignment Agreement. This determination was made on the basis of work performed on the Lake Touladi Property, review of diligence materials and internal discussions with members of our Advisory Board. The Company does not believe the Lake Touladi Property to be a viable resource mine as significant portions of the iron and some of the titanium resources located on the Lake Touladi Property are locked in silicate materials where economic recovery is unlikely. Further, the Company believes that the Lake Touladi Property contains substantially lower grades of titanium compared to similar mining projects in the area. The Company is actively seeking to locate alternate mining opportunities.
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
As of December 31, 2012, the Company has incurred $87,742 of exploration costs on the property on which such Mineral Claims are located.
Under the Assignment Agreement, the Company issued 15,075,175 shares of its restricted common stock. The stock value was based on ASC 505-50-30-6, which evaluates the fair value of the equity instruments issued versus the fair value of goods or services received in share-based payment transactions with nonemployees, whichever is more reliably measurable. The Company determined that the fair value of the equity instruments issued were reliably measurable, and the Company valued the 15,075,175 shares at $0.00833 per share (rounded) for a total of $125,626 based on the per share value of a March 2011 stock transaction which was recorded on the Over-the-Counter Bulletin Board.
The Company evaluated the Assignment Agreement for impairment based on ASC 360-10-35-21 as a result of the Company’s current-period operating loss, history of operating losses, combined with the difficulty of accurately and reliably estimating future cash flows directly associated with the Property, given the stage of development of the Property. As a result, for the year ending December 31, 2011, the Company fully impaired the value of the Assignment Agreement in the amount of $125,626.
Summary
Mineral interests consisted of the following:
Note 5. Commitments and Contingencies
The Company is subject to certain commitments and contingencies related to the Assignment Agreement that is described in Note 4.
Note 6. Stockholders’ Equity and Warrants
The Company’s articles of incorporation provide for the authorization of 50,000,000 shares of preferred stock and 900,000,000 shares of common stock with par values of $0.001. Common stock holders have all the rights and obligations that normally pertain to stockholders of Nevada corporations. The Company has not issued any shares of preferred stock. As of December 31, 2012 and December 31, 2011, the Company had 101,668,351 and 101,543,351 shares of common stock issued and outstanding, respectively. On April 27, 2011, the Company authorized an 18:1 forward split in the form of a dividend of its issued and outstanding common stock which became effective May 19, 2011. The dividend shares were issued on June 1, 2011. These condensed financial statements and notes retroactively reflect the forward split.
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
Pursuant to a Share Purchase Agreement dated February 1, 2011, Shawn Wright sold 180,000,000 of his personally held common shares of Royal Union to Anna Yakoleva (“Yakoleva”). The transaction handed control of the company to Yakoleva, who became the majority shareholder and a related party, owning 81.8% of the Company’s outstanding common stock as of that date.
On March 1, 2011, Royal Union entered into an executive employment agreement with Jes Black. As part of the employment agreement, Royal Union authorized compensation of an annual salary of $84,000 and the one time issuance of 72,000,000 shares of common stock, valued at $212,000, to Mr. Black. The valuation of the stock was determined by recent sales of stock between private parties that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6.
On March 25, 2011, Royal Union and Yakoleva agreed to the cancelation of 138,600,000 shares of Yakoleva’s common stock.
On April 8, 2011, Michael Hesser wrote off his $50,000 deposit for 10,000,000 shares of common stock in the Company, stating that certain conditions were not met and that as a consequence he was not due the aforementioned shares.
On April 28, 2011, Royal Union entered into the Merger Agreement to effect the Merger. Upon the consummation of the Merger, the separate existence of the Merger Sub ceased and shareholders of the Company became shareholders of the surviving company named Allied American Steel Corp. The sole purpose of this merger was to effect the name change to Allied American Steel Corp.
On June 1, 2011, Jes Black, the Company’s principal shareholder and sole executive officer and director cancelled 68,000,000 of the 72,000,000 Company’s shares owned by him in furtherance of the Company’s new business plan and to enhance the Company’s ability to raise future financing.
Warrants
In April 2011, the Company entered into a Securities Purchase Agreement with North American, for the sale of 133,282 units of securities of the Company at $0.75 per unit, for aggregate gross proceeds of $99,962. Each unit consisted of the following: (1) one share of common stock; (2) one warrant, entitling the holder to purchase one share of common stock of the Company at an exercise price of $0.90 per share during a period of three years from issuance. No warrants have been exercised as of December 31, 2012.
The Company calculated the fair value of these warrants to be $700 using the Black Scholes model. The Company used the following assumptions: stock price of $0.0083, an exercise price of $0.90, expected term of 36 months, volatility of 220.54%, and discount rate of 1.280%. The fair value of the warrants is treated as offering costs and it would be a debit and credit entry to additional paid in capital resulting in a null effect in net equity.
In June 2011, The Company entered into a Securities Purchase Agreement with North American, for the sale of 759,894 units of securities of the Company at $0.75 per unit, for aggregate gross proceeds of $569,923. Each unit consisted of the following: (1) one share of common stock; (2) one warrant, entitling the holder to purchase one share of common stock of the Company at an exercise price of $0.90 per share during a period of three years from issuance. No warrants have been exercised as of December 31, 2012.
The Company calculated the fair value of these warrants to be $1,247,800 using the Black Scholes model. The Company used the following assumptions: stock price of $1.71, an exercise price of $0.90, expected term of 36 months, volatility of 220.54%, and discount rate of 0.765%. The fair value of the warrants is treated as offering costs and it would be a debit and credit entry to additional paid in capital resulting in a null effect in net equity.
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
The following is a summary of the status of all of the Company’s stock warrants as of December 31, 2012.
The following is a summary of the status of all of the Company’s stock warrants as of December 31, 2011.
The following tables summarize information about stock warrants outstanding and exercisable at December 31, 2012:
The following tables summarize information about stock warrants outstanding and exercisable at December 31, 2011:
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
Shares Issued Pursuant to Various Consulting Agreements
On June 1, 2011, the Company entered into a consulting agreement with Richard Tschauder to provide consulting services as the Company’s Senior Geologist. As compensation, Mr. Tschauder was to receive $3,333 per month, payable each quarter in advance, plus $550 per day plus expenses for visits to the Company’s Property. The Company was entitled to require that Mr. Tschauder perform site visits three times per calendar year. In addition, Mr. Tschauder was to receive 50,000 shares of the Company’s restricted common stock, 25,000 of which shares were to be issued as soon as practicable following the execution of the consulting agreement and 25,000 of which shares were to be issued as soon as practicable after December 1, 2011. The term of this agreement was for a twelve month period commencing June 1, 2011. 25,000 of these shares were issued in June 2011 and 25,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded cash-based compensation expense in the amount of $31,060 and stock-based compensation expense in the amount of $28,000, for total compensation expense in the amount of $59,060. For the twelve months ended December 31, 2012, the Company recorded compensation expense in the amount of $16,667.
On June 1, 2011, the Company entered into a consulting agreement with Erik Ostensoe to provide consulting services as the Company’s Senior Exploration Advisor. As compensation, Mr. Ostensoe was to receive $2,500 per month, payable each month in advance, plus $550 per day plus expenses for visits to the Company’s Property. The Company was entitled to require that Mr. Ostensoe perform site visits three times per calendar year. In addition, Mr. Ostensoe was to receive 50,000 shares of the Company’s restricted common stock, 25,000 of which shares were to be issued as soon as practicable following the execution of the consulting agreement and 25,000 of which shares were to be issued as soon as practicable after December 1, 2011. The term of this agreement was for a twelve month period commencing June 1, 2011. 25,000 of these shares were issued in June 2011 and 25,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded cash-based compensation expense in the amount of $17,500 and stock-based compensation expense in the amount of $28,000, for total compensation expense in the amount of $45,500. For the twelve months ended December 31, 2012, the Company recorded compensation expense in the amount of $12,500.
On June 22, 2011, the Company entered into a consulting agreement with David Dunn to provide consulting services as the Company’s Advisor. As compensation, Mr. Dunn was to receive $550 per day plus expenses for visits to the Company’s Property. The Company was entitled to require that Mr. Dunn perform site visits three times per calendar year. In addition, Mr. Dunn was to receive 50,000 shares of the Company’s restricted common stock, 25,000 of which shares were to be issued as soon as practicable following the execution of the consulting agreement and 25,000 of which shares were to be issued as soon as practicable after December 22, 2011. The term of this agreement was for a twelve month period commencing June 22, 2011. 25,000 of these shares were issued in June 2011 and 25,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded stock-based compensation expense in the amount of $37,000, for total compensation expense in the amount of $37,000. For the twelve months ended December 31, 2012, the Company recorded compensation expense in the amount of $0.
On June 22, 2011, the Company entered into a consulting agreement with Stewart Jackson to provide consulting services as the Company’s Advisor. As compensation, Mr. Jackson was to receive an upfront cash fee of $5,000 and $550 per day plus expenses for visits to the Company’s Property. The Company was entitled to require that Mr. Jackson perform site visits three times per calendar year. In addition, Mr. Jackson was to receive 100,000 shares of the Company’s restricted common stock, 50,000 of which shares were to be issued as soon as practicable following the execution of the consulting agreement and 50,000 of which shares were to be issued as soon as practicable after December 22, 2011. The term of this agreement was for a twelve month period commencing June 22, 2011. 50,000 of these shares were issued in June 2011 and 50,000 of these shares were issued in March 2012. The valuation of the stock was determined by recent sales of stock that provided the most reliable measure of fair value in accordance with ASC 505-50-30-6. For the twelve months ended December 31, 2011, the Company recorded cash-based compensation expense in the amount of $5,000 and stock-based compensation expense in the amount of $74,000, for total compensation expense in the amount of $79,000. For the twelve months ended December 31, 2012, the Company recorded compensation expense in the amount of $0.
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
On May 7, 2012 the Company determined not to exercise its Option under the Assignment Agreement. This determination was made on the basis of work performed on the Lake Touladi Property, review of diligence materials and internal discussions with members of the Company’s Advisory Board. The Company does not believe the Lake Touladi Property to be a viable resource mine as significant portions of the iron and some of the titanium resources located on the Lake Touladi Property are locked in silicate materials where economic recovery is unlikely. Further, the Company believes that the Lake Touladi Property contains substantially lower grades of titanium compared to similar mining projects in the area. The Company is actively seeking to locate alternate mining opportunities.
Note 7. Related Party Transactions - Not Disclosed Elsewhere
Pursuant to the February 1, 2011 Share Purchase Agreement, on February 2, 2011, Heidi Williams, Shawn Wright, Tammy Hardcastle and Michael Hesser resigned as officers and Jes Black was appointed as the sole officer and director of Royal Union. On March 1, 2011, Mr. Black accepted his appointment as the sole officer and director of Royal Union.
The former officers of Royal Union have forgiven debt owed to them totaling $71,486, all inclusive.
On March 17, 2011 and March 24, 2011, Jes Black loaned the Company $1,750 to pay an accounting bill and $25 to open up a new checking account. These loans are non-interest bearing and due on demand and summarized as follows:
The Company repaid these loans on November 4, 2011.
Beginning on April 1, 2011, Jes Black’s annual salary was increased to $91,000.
On April 8, 2011, pursuant to the Share Purchase Agreement, Shawn Wright forgave the advances he had made to the Company totaling $56,926.
On April 8, 2011, Royal Union, LLC forgave advances it had made to the Company totaling $14,560.
Note 8. Subscription Services
On July 6, 2011 the Company signed an agreement with Vintage Filings, a financial filling and printing company. Vintage Filings will be responsible for the Company’s financial statement XBRL tagging and other HTML filings. The agreement is effective from June 30, 2011 through March 31, 2014 and can be terminated for any reason with a 30 day notice. Subscription expense paid to date is $8,000. There is an option to purchase unlimited HTML of 8-K’s, 10-Q’s and 10-K’s for $2,000 per year. No additional filings have been made to date and no liability incurred.
Note 9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2012 and 2011 are as follows:
ALLIED AMERICAN STEEL CORP.
(An Exploration Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012
Through December 31, 2012, a valuation allowance has been recorded to offset the deferred tax assets, including those related to the net operating losses carryforwards. At December 31, 2012, the Company had $899,304 of federal and state net operating losses carryforwards. The net operating loss carryforwards, if not utilized will begin to expire in 2028.
Reconciliations of the U.S. federal statutory rate to the actual tax rate for the year ended December 31, 2012 and 2011 is as follows:
Tax Uncertainties
Uncertainty in income taxes arise from tax positions taken or expected to be taken in the Company’s tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. The periods subject to examination for the Company’s tax returns are for the years from 2007 to 2012. The Company believes that its income tax filing positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded.
The Company is subject to U.S. federal income tax including state and local jurisdictions. Currently, no federal or state income tax returns are under examination by the respective taxing jurisdictions.
The Company’s accounting policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company has not accrued interest for any periods.
Note 10. Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were issued, and has determined there are no subsequent events to be reported.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
ŸPertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
ŸProvide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
ŸProvide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2012, management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, we believe that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our financial statements as of December 31, 2012.
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of independent directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2012, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
Assuming we are able to secure additional working capital, we will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We also plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee which will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management.
Management believes that the appointment of one or more independent directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of independent directors on our Board.
We anticipate that these initiatives will be implemented in conjunction with the growth of our business.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers
The following table sets forth as of March 31, 2013 the names and ages of our directors and executive officers:
Name
Age
Position with the Company
Date(s) Appointed
Jes Black
Secretary, and Director
CEO, CFO, President, Treasurer,
March 1, 2011
Term of Office
Each of our officers is elected by the Company’s Board of Directors and their terms of office are at the discretion of the Board. Our officers serve until the earlier occurrence of the election of his or her successor at the next meeting of stockholders, death, resignation or removal by the Board of Directors. At the present time, members of the Board of Directors are not compensated for their services to the Board.
Background and Business Experience
The business experience during the past five years of the person presently listed above as an Officer or Director of the Company is as follows:
Jes Black − Mr. Black has years of experience as a director of numerous early-stage companies since 2006, where he helped raise over $15 million in new project finance, and was recently published by Aspatore Books for his contribution to “Venture Capital Exit Strategies.” From 2001 to 2004, Mr. Black developed a strong education in finance and securities while working as a Senior Currency Strategist for MG Financial Group, where he analyzed global currency markets for London operations in New York and was quoted extensively by the Wall Street Journal, Barrons, Financial Times and Reuters. From 2004 to 2007, Mr. Black gained significant management experience serving as the Managing Director of an alternative asset management company, BF Capital, where he managed foreign exchange (currency) positions for individual and corporate accounts. In 2008, after closing the alternative asset management company, Mr. Black’s exit audit was referred to the Business Conduct Committee of the National Futures Association (NFA) for certain omissions relating to compliance standards enforced by the NFA, a self-regulatory body. Mr. Black did not intend to reestablish the company and settled with the NFA by agreeing to not apply for reinstatement for a period of 30 months which ended in August 2010. In 2009, Mr. Black developed a water filtration device and filed for a patent on it in 2010. In 2010, after filing the patent application, he formed Solegria Solutions, Inc. to develop the assets. Mr. Black was appointed as the Company’s sole officer and director due to his extensive experience as a manager and former director as well as in-depth knowledge of business and finance.
Mr. Black brings to our board of directors a wealth of experience derived from his services in various businesses. He has demonstrated strong acumen and ability to exercise sound judgment and has a reputation for integrity, honesty and adherence to ethical standards.
Identification of Significant Employees
We have no significant employees other than Jes Black, our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director.
Family Relationship
We currently do not have any officers or directors of our company who are related to each other.
Audit Committee and Audit Committee Financial Expert
We do not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on our Board of Directors. All current members of our Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities. We have not yet employed an audit committee financial expert on our Board due to the inability to attract such a person.
We intend to establish an audit committee of our board of directors, if and when we expand our business, which will consist of independent directors. The audit committee’s duties will be to recommend to our board of directors the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Code of Ethics
We have adopted a Code of Ethics (the “Code”) that applies to our directors, officers and employees, including our chief executive officer and chief financial officer. A written copy of the Code is available on written request to the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us under Rule 16a-3(e) with respect to the year ended December 31, 2012, we believe that with respect to the year ended December 31, 2012, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities satisfied their Section 16(a) filing requirements.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to all persons who served as our CEO or earned more than $100,000 during the years ended December 31, 2012 and December 31, 2011:
(1) On March 1, 2011, the Company entered into an employment agreement with Jes Black. Pursuant to the terms of the agreement, Mr. Black received a one-time issuance of seventy-two million (72,000,000) shares of the Company’s restricted common stock and an annual salary of $84,000, in consideration of which Mr. Black agreed to act as the Company’s sole officer and director. The agreement is for a term of five (5) years and may be renewed thereafter. On June 1, 2011 Mr. Black cancelled 68,000,000 of the 72,000,000 shares he had received under his employment agreement.
Narrative Disclosure to Summary Compensation Table
There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2012 there were no outstanding equity awards to our executive officers.
Long-Term Incentive Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.
Compensation of Directors
Our directors receive no extra compensation for their service on our board of directors.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially, as of March 31, 2013, by: (i) each of our directors; (ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our outstanding shares of common stock. Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.
(1)The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of March 31, 2013, through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.
(2)Based on 101,668,351 issued and outstanding shares of common stock as of March 31, 2013.
(3)Jes Black acquired 72,000,000 shares pursuant to an Employment Agreement with the Company dated March 1, 2011. 68,000,000 of such shares were cancelled on June 1, 2011.
(4)Anna Yakovleva acquired 180,000,000 shares from Shawn Wright, a former director of the Company, pursuant to a private agreement dated February 1, 2011. Subsequently, on March 25, 2011, the Company and Anna Yakovleva authorized the cancellation of 138,600,000 shares of her common stock. David Craven, the husband of Anna Yakovleva is a director of North American Iron Ore, Inc. Mr. Craven disclaims any beneficial ownership of the Company shares owned by North American Iron Ore, Inc.
(5)Includes 893,176 presently exercisable warrants.
Changes in Control
There are no present arrangements involving our securities which may result in a change in control of the Company.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCBB on which shares of Common Stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
According to the NASDAQ definition, Jes Black is not an independent director because he is also an executive officer of the Company.
Related Party Transactions
On May 7, 2012 we determined not to exercise the option under the May 27, 2011 Assignment and Sale Agreement among us, North American Iron Ore, Inc. and Canamara Energy Corporation which provided us with the right to acquire up to a 60% undivided interest in certain mineral claims located in Lyonne Township, Roberval County in the Province of Quebec. (the “Lake Touladi Property”). This determination was made on the basis of work performed on the Lake Touladi Property, review of diligence materials and internal discussions with members of our Advisory Board. We do not believe the Lake Touladi Property to be a viable resource mine as significant portions of the iron and some of the titanium resources located on the Lake Touladi Property are locked in silicate materials where economic recovery is unlikely. Further, we believe that the Lake Touladi Property contains substantially lower grades of titanium compared to similar mining projects in the area.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
During the fiscal year ended December 31, 2012, we incurred approximately $19,069 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2012.
During the fiscal year ended December 31, 2011, we incurred approximately $6,520 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2011.
Audit-Related Fees
The aggregate fees billed during the fiscal years ended December 31, 2012 and 2011 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements was $0 and $0, respectively.
Tax Fees
The aggregate fees billed during the fiscal years ended December 31, 2012 and 2011 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $0 and $0, respectively.
All Other Fees
None.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
In reviewing the agreements included as exhibits to this Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
Ÿshould not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
Ÿhave been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
Ÿmay apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
Ÿwere made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
The following exhibits are included as part of this report:
Exhibit
Number
Description
Filed
3.1
Articles of Incorporation*
Filed with the SEC on June 22, 2007 as part of our Registration Statement on Form SB-2.
3.2
Bylaws*
Filed with the SEC on June 22, 2007 as part of our Registration Statement on Form SB-2.
3.3
Articles of Merger*
Filed with the SEC on May 5, 2011 as part of our Current Report on Form 8-K dated April 27, 2011.
10.1
Employment Agreement with Jes Black effective as of March 1, 2011*
Filed with the SEC on March 31, 2011 as part of our Form 8-K dated February 2, 2011.
Exhibit
Number
Description
Filed
10.2
Yakovleva Share Cancelation Agreement dated March 25, 2011*
Filed with the SEC on April 15, 2011 as part of our Annual Report on Form 10-K for the year ended December 31, 2010.
10.3
Assignment and Sale Agreement dated May 27, 2011 among North American Iron Ore, Inc., Canamara Energy Corporation and the Registrant*
Filed with the SEC on June 3, 2011 as part of our Current Report on Form 8-K dated May 27, 2011.
10.4
Share Cancellation Agreement dated as of June 1, 2011 among Registrant and Jes Black*
Filed with the SEC on June 3, 2011 as part of our Current Report on Form 8-K dated May 27, 2011.
10.5
Services Agreement dated October 21, 2011 between Registrant and Multi-Resources Boreal*
Filed with the SEC on October 27, 2011 as part of our Current Report on Form 8-K dated October 21, 2011.
14.
Code of Ethics*
Filed with the SEC on March 19, 2009 as part of our Annual Report on Form 10-K for the year ended December 31, 2008.
21.1
List of Subsidiaries
Filed herewith.
31.1
Certification of Principal Executive Officer Pursuant to Rule 13a-14**
Filed herewith.
31.2
Certification of Principal Financial Officer Pursuant to Rule 13a-14**
Filed herewith.
32.1
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act**
Filed herewith.
32.2
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act**
Filed herewith.
101.INS
XBRL Instance Document***
Filed herewith.
101.SCH
XBRL Taxonomy Extension Schema Document***
Filed herewith.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document***
Filed herewith.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document***
Filed herewith.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document***
Filed herewith.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document***
Filed herewith.
*Incorporated by reference
** This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
*** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLIED AMERICAN STEEL CORP.
Dated: April 16, 2013 By: /s/ Jes Black
Name: Jes Black
Title: President, Chief Executive, Financial and
Accounting Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: