UNITED
      STATES


SECURITIES
      AND EXCHANGE
      COMMISSION


Washington,
      D.C.  20549





FORM
      10-KSB


(Mark
                One)S
              ANNUAL
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934For
                  the fiscal year ended September 30, 2007 ̈
              TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934For
                  the transition period from ______ to ______Commission
                  File Number 000-32875




ALLOY
      STEEL INTERNATIONAL,
      INC.


(Name
      of
      small business issuer in its charter)





Delaware
            98-0233941(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)42
                Mercantile WayP.O.
                Box 3087 Malaga D C 6945Western
                Australia(Address
                of principal executive offices)Issuer’s
                telephone number:  +61 (8) 9248 3188Securities
                registered under Section 12(b) of the Exchange Act:
            NoneSecurities
                registered under Section 12(g) of the Exchange Act:
            Common
                stock, $0.01 par value





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





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





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





The
      issuer’s revenues for the fiscal year ended September 30, 2007 was
      $8,729,644.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of November
      30, 2007 was $11,017,500.





As
      of
      November 30, 2007, the issuer had a total of 16,950,000 shares of common stock
      outstanding.





Transitional
      Small Business Disclosure Format (check one):





Yes
 ̈                  No
      S





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


Yes:
       ̈                  No:
S










PART
      I




FORWARD-LOOKING
      STATEMENTS




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




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






Item
                1.
            Description
                of
                Business.




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






Overview
      of
      Business




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




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




Arcoplate




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




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




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




1




·
            uneven
                base metal dilution resulting in uneven alloy content;
                and




·
            rough
                surfaces which result in poor material
                flow.




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




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




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




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




·
            brick
                and cement works;




·
            power
                stations;




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




·
            bulldozer
                arms and blades; and




·
            truck
                tray liners and bucket loader
                liners.




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




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




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






3-D
      Pipefitting Cladder
      Process




The
      company has taken a decision to delay the further development of this process
      and accordingly has amortized the carrying value of $90,512 in this year’s
      financial statements.




The
      decision was made in light of the increasing demand for Arcoplate, which,
      coupled with the shortage of skilled labor in Australia, has made it
      impracticable to utilize manpower and factory infrastructure on this
      project.  The company will revisit this in the future.




2




Sales
      and Marketing
      Strategy




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




In
      the
      year ended September 30, 2007, two customers accounted individually for at
      least 46.3% of our annual sales.




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




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






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 yet have intellectual property protection for
      the 3-D Pipefitting 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
      continually engaged in the development of new products and improvements to
      our
      existing products.






Manufacturing
      and
      Supply




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






Government
      Regulation




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




3




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




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






Competition




The
      wear
      plate solutions industry is highly competitive.  We compete in markets
      against larger multi-national companies, all of which are well-established
      and
      may have substantially greater financial and other resources than
      us.  Competitive market conditions could adversely affect our results
      of operations if we were required to reduce product prices to remain
      competitive. 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 30 persons on a full-time basis as of November 30, 2007, including
      two
      executive officers, five administrative personnel, four marketing personnel
      and
      19 manufacturing personnel.  None of our employees are members of a
      labor union.  We consider our relationship with our employees to be
      good.






Item
                2.
            Description
                of
                Property.




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




This
      lease has been extended for a further five years at the current rental of $7,083
      per calendar month until June 2010.






Item
      3.                 Legal
      Proceedings.




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






Item
                4.
            Submission
                of Matters to a Vote
                of Security Holders.






We
      held
      our Annual Meeting of Stockholders on August 8, 2007.




4




PART
      II






Item
                5.
            Market
                for Common Equity and
                Related Stockholders Matters and Small Business Issuer Purchases
                of Equity
                Securities




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




Bid
                  Price Per ShareYear
                  ended September 30, 2007
            
            High
            
            LowOctober
                1 – December 31, 2006
            
            $0.22
            
            $0.11January
                1 – March 31, 2007
            
            $0.60
            
            $0.11April
                1 – June 30, 2007
            
            $0.70
            
            $0.39July
                1 – September 30, 2007
            
            $0.85
            
            $0.30Year
                  ended September 30, 2006
            
            High
            
            LowOctober
                1 – December 31, 2005
            
            $0.52
            
            $0.38January
                1 – March 31, 2006
            
            $0.48
            
            $0.18April
                1 – June 30, 2006
            
            $0.24
            
            $0.31July
                1 – September 30, 2006
            
            $0.20
            
            $0.20




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




As
      of
      November 30, 2007, there were approximately 131 holders of record of our common
      stock.




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




5




Equity
      Compensation
      Plans




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





(1)
      Includes our 2000 Stock Option Plan.




Item
                6.
            Management's
                Discussion and
                Analysis or Plan of
                Operation




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






Overview




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






Plan
      of Operation




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






Results
      of
      Operations






Sales




Alloy
      Steel had sales of $8,729,644 for the year ended September 30, 2007, compared
      to
      sales of $3,386,083 for the year ended September 30, 2006. These sales consist
      solely of the sale of our Arcoplate product.  Substantially all of our
      sales during the periods were denominated in US dollars.  Sales
      denominated in Australian dollars were converted into U.S. dollars at the
      conversion rate of $0.80867 and $0.74705, representing the average foreign
      exchange rate for the years ended September 30, 2007 and 2006
      respectively.  The increase was due primarily to successful marketing
      efforts mainly in the Australian market which led to securing some major supply
      contracts for this year.




6




Costs
      of
      Sales




Alloy
      Steel had cost of sales of $4,385,872 for the year ended September 30, 2007,
      compared to cost of sales of $2,057,385 for the year ended September 30, 2006.
      The gross profit amounted to $4,343,772 compared to $1,328,698 for the year
      ended September 30, 2006. The gross profit percentage increased due to a higher
      selling price being achieved on Australian sales to 49.8% in 2007 from 39.2%
      in
      2006.






Selling,
      General and Administrative
      Expenses




Alloy
      Steel had selling, general and administrative expenses of $2,320,778 for the
      year ended September 30, 2007, compared to $1,763,517 in the year ended
      September 30, 2006. The increase was primarily due to the increased marketing
      and promotional activity of the company during the year ending September 30,
      2007.






Income
      (Loss) Before Income Tax
      Expense (Benefit)




Our
      income before tax expense (benefit) was $1,963,452 for the year ended September
      30, 2007, compared to a loss before income tax expense (benefit) of ($408,721)
      for the year ended September 30, 2006.






Income
      Tax Expense
      (Benefit)




Alloy
      Steel had income tax expense of $654,587 for the year ended September 30, 2007
      compared to an income tax benefit of ($134,695) for the year ended September
      30,
      2006.  The current year’s income tax expense relates to taxes payable
      in Australia.






Net
      Income
      (Loss)




We
      had a
      net income of $1,308,865 or $0.08 per share, for the year ended September 30,
      2007, compared to a net loss of ($274,026) or ($0.02) per share for the year
      ended September 30, 2006.






Liquidity




For
      the
      year ended September 30, 2007, net cash provided by operating activities was
      $1,169,752.  The net income may be reconciled to this amount by an
      adjustment for depreciation and amortization of $168,548, write down of
      intangible assets of $90,512 and a decrease in cash and cash equivalents
      attributable to changes in operating assets and liabilities of $398,173, which
      consisted primarily of an increase in accounts receivable of $1,701,798, which
      was offset by an increase in accounts payable and other current liabilities
      of
      $747,517 and an increase in tax payable of $732,940.




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




As
      of
      September 30, 2007, we had a working capital surplus of $1,026,621.




7




The
      Company is obligated under various contractual commitments over the next five
      years. The following is a summary of the five-year commitments of the Company
      as
      of September 30, 2006:




Total
            Less
                Than 1
                Year
            1-3
                Years
            4-5
                Years
            After
                5
                YearsContractual
                ObligationsLong
                term debt
            258,320
            58,891
            198,724
            705
            -Operating
                leases
            233,750
            85,000
            148,750
            -Total
                contractual obligations
            $492,070
            $143,892
            $347,474
            $705
            -





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






Significant
      Changes in Numbers of
      Employees




We
      anticipate hiring 6 additional manufacturing employees in the next 12
      months.






Critical
      Accounting
      Policies




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




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






Allowance
      for Doubtful
      Accounts




We
      do not
      believe there is a need for a provision for doubtful accounts as of September
      30, 2007.






Inventories




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




8




Long-Lived
      Assets




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






RISK
      FACTORS




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






We
      Have A Limited Operating History
      and We May Not Be Able To Achieve or Maintain Profitability.




We
      have a
      limited operating history.  We may incur significant operating losses
      as we attempt to develop and grow our business.  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 under-capacity,
      and we may be unable to fill customer orders.  Such events could cause
      us to incur substantial operating losses.






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




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






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




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






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




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




9




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




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






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




We
      consume a large amount of electrical power during production.  The
      amount of electrical power consumed during the Arcoplate process represents
      approximately 5% of our overall production costs.  There may be
      fluctuations in the price of electricity due to changes in the regulation of
      utility companies in Australia, and in other jurisdictions where we may engage
      in production.  We cannot assure you that we will be able to continue
      to obtain our energy supplies at current prices, and any material increase
      in
      prices of electricity would adversely affect our business and
      profitability.






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




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






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




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






We
      Have A Limited Customer
      Base.




At
      present, our customer base consists primarily of companies involved in the
      mining and dredging industries.  Our ability to operate depends on
      increasing our customer base and achieving sufficient gross profit
      margins.  We cannot assure you that we will be able to increase our
      customer base or to operate profitably.  If any of our major customers
      stop or delay its purchases of our products, our revenue and profitability
      would
      be adversely affected.  For the year ended September 30, 2007, two
      customers accounted for at least 46.3% of our annual sales.  We
      anticipate that sales of our products to relatively few customers will continue
      to account for a significant portion of our revenue.  If these
      customers cancel or delay their purchase orders, our revenue may
      decline.  We cannot assure you that our current customers will
      continue to place orders with us, that orders by existing customers will
      continue at the levels of previous periods or that we will be able to obtain
      orders from new customers.  Although our financial performance depends
      on large orders from key customers and resellers, we do not have binding
      commitments from any of them.




10




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




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




·
            With
                a price of less than $5.00 per
                share;




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




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




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




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






We
      Face Significant Competition
      Within Our Market.




We
      expect
      competition to persist and intensify in the future. 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.  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.




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




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




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






We
      Have Limited Marketing and Sales
      Capability.




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




·
            Establish
                and develop such a sales force;




11




·
            Gain
                market acceptance for our products;




·
            Obtain
                and retain qualified sales personnel on acceptable terms;
                and




·
            Meet
                our proposed marketing schedules or
                plans.




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






Item
                7.
            Financial
                Statements.




Our
      audited consolidated financial statements for the year ended September 30,
      2007
      appear following Item 14 of this report and are incorporated herein by
      reference.






Item
                8.
            Changes
                In and Disagreements
                with Accountants on Accounting and Financial
                Disclosure.




None.




Item
      8A.        Controls and
      Procedures




(a)    Evaluation
      of disclosure controls and procedures




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




(b)
            Changes
                in internal control over financial
                reporting.




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




Item
      8B.                              Other
      Information




None.




12




PART
      III






Item.
                9
            Directors,
                Executive Officers,
                Promoters and Control Persons; Compliance with Section 16(a) of the
                Exchange Act




Our
      present directors and executive officers are as follows:




Name
            
            Age
            
            PositionGene
                Kostecki
            
            62
            
            President,
                Chief Executive Officer and a DirectorAlan
                C. Winduss
            
            66
            
            Chief
                Financial Officer, Secretary and a
                Director




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




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




Alan
      C. Winduss has served as
      a director and as our Chief Financial Officer and Secretary since June 2000.
      From July 1979 to the present, Mr. Winduss has served as director of Winduss
      & Associates Pty Ltd, an accounting firm in Western Australia, which
      specializes in commercial accounting, corporate finance and
      management.  He intends to devote approximately 70% of his time to his
      duties as one of our executive officers.






Board
      Composition




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




Each
      officer is elected by, and serves at the discretion of, our board of
      directors.  There are no family relationships among any of our
      directors, officers or key employees.






Control
      by Officers and
      Directors




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






Compliance
      With Section 16(a) of
      the Exchange Act




Section
      16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
      requires our directors and executive officers, and persons who beneficially
      own
      more than ten percent of a registered class of our equity securities, to file
      with the Securities and Exchange Commission (the “Commission”) initial reports
      of ownership and reports of changes in ownership of our common stock and other
      equity securities.  Officers, directors, and persons who beneficially
      own more than ten percent of a registered class of our equity securities are
      required by the regulations of the Commission to furnish us with copies of
      all
      Section 16(a) forms they file.  To our knowledge, based solely on
      review of the copies of such reports furnished to us, during the fiscal year
      ended September 30, 2007, our officers, directors, and greater than ten percent
      beneficial owners complied with all Sections 16(a) filing requirements
      applicable to them.




13




Item
                10.
            Executive
                Compensation.




The
      following table sets forth the annual cash compensation for services rendered
      by
      our Chief Executive Officer for the fiscal year ended September 30, 2007. No
      other executive officer earned or secured more than $100,000 in salary and
      bonus
      for services rendered during the fiscal year ended September 30,
      2007:




SUMMARY
                COMPENSATION
                TABLEAnnual
                  CompensationName
                  and
                  Position
            
            Year
            
            Salary
            
            Bonus
            
            Long-Term
                  Compensation
            
            All
                  Other
                  CompensationGene
                Kostecki
            
            2007
            
            $150,000
            
            $0
            
            —
            
            —President
                and Chief
            
            2006
            
            $150,000
            
            $0
            
            —
            
            —Executive
              Officer
            
            2005
            
            $150,000
            
            $0
            
            —
            
            —




Stock
      Option Plan




In
      May
      2000, we adopted the 2000 Stock Option Plan.  The purpose of the plan
      is to enable us to attract, retain and motivate key employees, directors, and
      consultants, by providing them with stock options.  Options granted
      under the plan may be either incentive stock options, as defined in Section
      422A
      of the Internal Revenue Code of 1986, or non-qualified stock
      options.  We have reserved 2,000,000 shares of common stock for
      issuance under the plan.  As of November 30 2006, no options had been
      granted pursuant to the plan.




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






Employment
      Agreements




The
      current employment agreements in place with Mr. Gene Kostecki, our President
      and
      Chief Executive Officer, or Mr. Alan Winduss, our Chief Financial Officer and
      Secretary have expired but were automatically renewed as neither party gave
      notice of non renewal as required before expiry. New agreements are expected
      to
      be finalized by December 31, 2007.






Limitations
      of Liability and
      Indemnification of Directors and Officers




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




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






Item
                11.
            Security
                Ownership of Certain
                Beneficial Owners and
                Management.




The
      following table sets forth, as of November 30 2007, the number and percentage
      of
      outstanding shares of common stock beneficially owned by:




14




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




·
            each
                of our executive officers and directors;
                and




·
            all
                of our officers and directors as a
                group.




Except
      as
      otherwise noted, the persons named in this table, based upon information
      provided by these persons, have sole voting and investment power with respect
      to
      all shares of common stock owned by them.  The number of shares of
      common stock outstanding used in calculating the percentage for each listed
      person includes the shares of common stock underlying options or warrants held
      by such person that are exercisable within 60 days of November 30, 2007, but
      excludes shares of common stock underlying options or warrants held by any
      other
      person.  Unless otherwise indicated, the address of each beneficial
      owner is c/o Alloy Steel, 42 Mercantile Way Malaga, P.O. Box 3087 Malaga D
      C
      6945, Western Australia.




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




Item
                12.
            Certain
                Relationships and
                Related Transactions.




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




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




Alloy
      Steel Australia (Int.) Pty Ltd. paid rent of $85,000, for commercial premises
      it
      occupied during the year, to Raglan Securities Pty Ltd., a company controlled
      by
      Gene Kostecki.




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




At
      September 30, 2007 we had a non-interest bearing loan of approximately $99,000
      payable to an entity controlled by Mr Gene Kostecki. The loan has no stated
      repayment terms and was repaid in full on October 31, 2007.






Item
                13.
            Exhibits




Exhibit
                  No.
            
            Description3.1
            
            Certificate
                of Incorporation*3.2
            
            By-laws*4.1
            
            Specimen
                Certificate*10.1
            
            2000
                Stock Option Plan*10.2
            
            License
                Agreement, dated May 4, 2000, between Alloy Steel and Kenside Investments,
                Ltd.*




15




Exhibit
              No.
            
            Description10.3
            
            Employment
                Agreement, dated October 2, 2000, between Alloy Steel and Gene
                Kostecki*10.4
            
            Employment
                Agreement, dated October 2, 2000, between Alloy Steel and Alan
                Winduss*10.5
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Berryhill
                Investments, Ltd.*10.6
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Chartreuse
                Nominees Pty. Ltd.*10.7
            
            Amended
                and Restated Consulting Agreement, dated October 2, 2000, between
                Alloy
                Steel and Persia Consulting Group, Inc.*10.8
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Ragstar
                Investments, Ltd.*10.9
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss
                Pty. Ltd.*10.10
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Ames Nominees
                Pty. Ltd.*10.11
            
            Lease
                Agreement, dated July 1, 2000, between Alloy Steel and Raglan Securities
                Pty. Ltd.*10.12
            
            Asset
                Purchase Agreement, dated October 2, 2000 between Alloy Steel and
                Collier
                Unit Trust*10.13
            
            Equipment
                Purchase Agreement, dated October 2, 2000, between Alloy Steel and
                Collier
                Unit Trust*10.14
            
            Asset
                Purchase Agreement, dated October 2, 2000, by and among Alloy Steel
                and
                Gene Kostecki and Alan Winduss*10.15
            
            Amendment
                dated July 1, 2004, to Employment Agreement between Alloy Steel and
                Gene
                Kostecki*10.16
            
            Amendment
                dated July 1, 2004, to Employment Agreement between Alloy Steel and
                Alan
                Winduss*31.1
            
            Certification
                of the Chief Executive Officer required by Rule 13a-14(a) or Rule
                15d-14(a)**31.2
            
            Certification
                of the Chief Financial Officer required by Rule 13a-14(a) or Rule
                15d-14(a)**32.1
            
            Certification
                of the Chief Executive Officer required by Rule 13a-14(b) or Rule
                15d-14(b) and 18 U.S.C. 1350**32.2
            
            Certification
                of the Chief Financial Officer required by Rule 13a-14(b) or Rule
                15d-14(b) and 18 U.S.C. 1350**





* Previously filed. See Exhibit Index.


**Filed
      herewith.





Item
                14.
            Principal
              Accountant Fees and
              Services.





The
      Board of Directors reviewed all
      services performed for the company by Rothstein Kass & Company, P.C and
      Bentleys MRI, our independent auditors, for the fiscal year ended September
      30,
      2007, within and outside the scope of their quarterly and annual auditing
      function. The company replaced Messrs Rothstein Kass & Company PC as
      independent auditors with Bentleys MRI in September 2007.  Bentleys
      MRI was renamed Grant Thornton (WA) Partnership on November 1, 2007. The
      aggregate fees billed by our independent auditors for each of the last two
      fiscal years are as follows:




2007
            2006Audit
                Fees
            14,870
            53,103Audit-Related
                Fees
            -
            -Tax
                Fees
            -
            -All
                Other Fees
            -
            -




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




16




SIGNATURES





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





Dated:
                January 14, 2008
            ALLOY
              STEEL INTERNATIONAL,
              INC.(Registrant)By:
            /s/
                Gene KosteckiGene
                KosteckiPresident
                and Chief Executive Officer





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




/s/
                  Gene Kosetcki
              Director
                  and President and Chief Executive Officer (Principal Executive
                  Officer)
              January
                  14, 2008Gene
                  Kostecki/s/
                  Alan Winduss
              Director
                  and Chief Financial Officer and Secretary (Principal Financial
                  and
                  Accounting Officer)
              January
                  14, 2008Alan
                  C. Winduss
  17




Alloy
      Steel International, Inc.





Annual
      Report on Form 10-KSB for the


Year
      Ended September 30, 2007





EXHIBIT
      INDEX





Exhibit
                  No.
            
            Description3.1
            
            Certificate
                of Incorporation [Incorporated by reference to Exhibit 3.1 to our
                Registration Statement on Form SB-2, SEC File No. 333-49146, filed
                on
                November 2, 2000, as amended (the “Registration
                Statement”).]3.2
            
            By-laws
                [Incorporated by reference to Exhibit 3.2 to the Registration
                Statement.]4.1
            
            Specimen
                Certificate [Incorporated by reference to Exhibit 4.1 to the Registration
                Statement.]10.1
            
            2000
                Stock Option Plan [Incorporated by reference to Exhibit 10.1 to the
                Registration Statement.]10.2
            
            License
                Agreement, dated May 4, 2000, between Alloy Steel and Kenside Investments,
                Ltd. [Incorporated by reference to Exhibit 10.2 to the Registration
                Statement.]10.3
            
            Employment
                Agreement, dated October 2, 2000, between Alloy Steel and Gene Kostecki
                [Incorporated by reference to Exhibit 10.3 to the Registration
                Statement.]10.4
            
            Employment
                Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss
                [Incorporated by reference to Exhibit 10.4 to the Registration
                Statement.]10.5
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Berryhill
                Investments, Ltd. [Incorporated by reference to Exhibit 10.5 to the
                Registration Statement.]10.6
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Chartreuse
                Nominees Pty. Ltd. [Incorporated by reference to Exhibit 10.6 to
                the
                Registration Statement.]10.7
            
            Amended
                and Restated Consulting Agreement, dated October 2, 2000, between
                Alloy
                Steel and Persia Consulting Group, Inc. [Incorporated by reference
                to
                Exhibit 10.7 to the Registration Statement.]10.8
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Ragstar
                Investments, Ltd. [Incorporated by reference to Exhibit 10.8 to the
                Registration Statement.]10.9
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Alan Winduss
                Pty. Ltd. [Incorporated by reference to Exhibit 10.9 to the Registration
                Statement.]10.10
            
            Consulting
                Agreement, dated October 2, 2000, between Alloy Steel and Ames Nominees
                Pty. Ltd. [Incorporated by reference to Exhibit 10.10 to the Registration
                Statement.]10.11
            
            Lease
                Agreement, dated July 1, 2000, between Alloy Steel and Raglan Securities
                Pty. Ltd. [Incorporated by reference to Exhibit 10.11 to the Registration
                Statement.]10.12
            
            Asset
                Purchase Agreement, dated October 2, 2000 between Alloy Steel and
                Collier
                Unit Trust [Incorporated by reference to Exhibit 10.12 to the Registration
                Statement.]10.13
            
            Equipment
                Purchase Agreement, dated October 2, 2000, between Alloy Steel and
                Collier
                Unit Trust [Incorporated by reference to Exhibit 10.13 to the Registration
                Statement.]10.14
            
            Asset
                Purchase Agreement, dated October 2, 2000, by and among Alloy Steel
                and
                Gene Kostecki and Alan Winduss [Incorporated by reference to Exhibit
                10.14
                to the Registration Statement.]10.15
            
            Amendment
                dated July 1, 2004, to Employment Agreement between Alloy Steel and
                Gene
                Kostecki.10.16
            
            Amendment
                dated July 1, 2004, to Employment Agreement between Alloy Steel and
                Alan
                Winduss.31.1
            
            Certification
                of the Chief Executive Officer required by Rule 13a-14(a) or Rule
                15d-14(a)31.2
            
            Certification
                of the Chief Financial Officer required by Rule 13a-14(a) or Rule
                15d-14(a)32.1
            
            Certification
                of the Chief Executive Officer required by Rule 13a-14(b) or Rule
                15d-14(b) and 18 U.S.C. 135032.2
            
            Certification
                of the Chief Financial Officer required by Rule 13a-14(b) or Rule
                15d-14(b) and 18 U.S.C. 1350




18




ALLOY
      STEEL INTERNATIONAL,
      INC.


AND
      SUBSIDIARY





CONSOLIDATED
      FINANCIAL STATEMENTS


AND


REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





SEPTEMBER
      30, 2007







ALLOY
      STEEL INTERNATIONAL, INC. AND
      SUBSIDIARY




INDEX
      TO CONSOLIDATED FINANCIAL
      STATEMENTS


(ITEM
      7)





Report
                of Independent
                Registered Public Accounting Firm
            F-2Consolidated
                Financial
                StatementsConsolidated
                  Balance Sheet September 30, 2007
            F-3Consolidated
                  Statements of Operations Years ended September 30, 2007 and
                  2006
            F-4Consolidated
                  Statements of Stockholders' EquityYears ended September 30, 2007
                  and
                  2006
            F-5Consolidated
                  Statements of Cash Flows Years ended September 30, 2007 and
                  2006
            F-6Notes
                to Consolidated Financial Statements
            F-7
                – 15




F-1




Report
      of Independent
      Registered Public Accounting Firm







To
      the
      Board of Directors and Stockholders of


Alloy
      Steel International, Inc.





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








We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the consolidated financial statements are free of material misstatement. An
      audit includes examining, on a test basis, evidence supporting the amounts
      and
      disclosures in the consolidated financial statements. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audit included consideration of internal
      control over financial reporting as a basis 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
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement
      presentation.  We believe that our audits provide a reasonable basis
      for our opinion.





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





/s/ Grant
                Thornton (WA) PartnershipPerth,
                AustraliaJanuary
                14, 2008




F-2




ALLOY
      STEEL
      INTERNATIONAL, INC. AND SUBSIDIARY


CONSOLIDATED
        BALANCE SHEET
 September
        30, 2007
  
 ASSETSCurrent
                  assetsCash
                  and cash equivalents
              
              $
              484,295Accounts
                  receivable
              
              
              2,488,056Inventories
              
              
              719,760Prepaid
                  expenses and other current assets
              
              
              136,979Total
                  current assets
              
              
              3,829,090Property
                  and equipment,
                  net
              
              
              2,648,155Other
                  assetsOther
              
              
              11,937Deferred
                  tax assets
              
              
              -Intangibles
              
              
              -Total
                  other assets
              
              
              11,937$
              6,489,182LIABILITIES
                  AND STOCKHOLDERS'
                  EQUITYCurrent
                  liabilitiesNotes
                  payable, current portion
              
              $
              58,891Notes
                  payable, officers, current portion
              
              
              62,377Accrued
                  officers' salaries
              
              
              330,078Royalties
                  payable, related party
              
              
              503,617Loan
                  payable, related party
              
              
              77,330Current
                  tax payable
              
              
              533,067Accounts
                  payable and other current liabilities
              
              
              1,237,109Total
                  current liabilities
              
              
              2,802,469Long-term
                  liabilitiesNotes
                  payable, less current portion
              
              
              199,429Notes
                  payable, officers, less current portion
              
              
              58,051Employee
                  entitlement provisions
              
              
              10,928Deferred
                  tax liabilities
              
              
              38,295Total
                  long-term liabilities
              
              
              306,703Commitments
                  and
                  contingenciesStockholders'
                  equityPreferred
                  stock, $.01 par value, authorized 3,000,000shares; issued and outstanding
                  - none
              
              
              -Common
                  stock, $.01 par value, authorized  50,000,000shares; issued and
                  outstanding 16,950,000 shares
              
              
              169,500Capital
                  in excess of par value
              
              
              1,773,382Accumulated
                  deficit
              
              
              330,497Accumulated
                  other comprehensive income
              
              
              1,086,631Total
                  stockholders' equity
              
              
              3,360,010$
              6,469,182
 See
          accompanying notes to consolidated financial statements.


F-3


ALLOY
          STEEL
          INTERNATIONAL, INC. AND SUBSIDIARY
  CONSOLIDATED
          STATEMENTS OF OPERATIONS
 Years
          Ended September 30, 2007 and 2006
 
 Sep-07
                
                
                Sep-06Sales
                
                $
                8,729,644
                
                
                $
                3,386,083Cost
                    of
                    sales
                
                
                4,385,872
                
                
                
                2,057,385Gross
                    profit
                
                
                4,343,772
                
                
                
                1,328,698Selling,
                    general and
                    administrative expenses
                
                
                2,320,778
                
                
                
                1,763,517Profit
                    (Loss) from
                    operations
                
                
                2,022,994
                
                
                
                (434,819
                )Other
                    income
                    (expense)Interest
                    income
                
                
                15,436
                
                
                
                31,887Interest
                    expense
                
                
                (26,900
                )
                
                
                (22,218
                )Insurance
                    recovery
                
                
                21,544
                
                
                
                10,409Sundry
                    Income
                
                
                20,890
                
                
                
                44Writedown
                    of intangible assets
                
                
                (90,512
                )
                
                
                -Profit
                    on disposal of property and equipment
                
                
                -
                
                
                
                5,976(59,542
                )
                
                
                26,098Income
                    (loss) before income tax
                    (expense) benefit
                
                
                1,963,452
                
                
                
                (408,721
                )Income
                    tax (expense)
                    benefit
                
                
                (654,587
                )
                
                
                134,695Net
                    income
                    (loss)
                
                $
                1,308,865
                
                
                $
                (274,026
                )Basic
                    and diluted income (loss)
                    per common share
                
                $
                0.08
                
                
                $
                (0.02
                )Weighted
                    average number of
                    common shares used in computing basic and diluted income (loss)
                    per common
                    share
                
                
                16,950,000
                
                
                
                16,950,000
  See
          accompanying notes to consolidated financial statements.
  F-4
  ALLOY
          STEEL INTERNATIONAL, INC. AND SUBSIDIARY
 CONSOLIDATED
          STATEMENTS OF STOCKHOLDERS' EQUITY
 Years
          Ended September 30, 2006 and 2005
 
 Capital
                    in excess
                
                
                
                
                
                
                
                
                Accumulated
                    Other
                
                
                TotalCommon
                    Stock
                
                
                of
                    par
                
                
                Accumulated
                
                
                Comprehensive
                
                
                Comprehensive
                
                
                Stockholders'Shares
                
                
                Amount
                
                
                value
                
                
                Deficit
                
                
                Income
                
                
                Income
                
                
                EquityBalances,
                    September 30,  2005
                
                
                16,950,000
                
                
                $
                169,500
                
                
                $
                1,773,382
                
                
                $
                (704,342
                )
                
                
                
                
                $
                577,545
                
                
                $
                1,816,085Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (274,026
                )
                
                $
                (274,026
                )
                
                
                
                
                
                
                (274,026
                )Other
                    comprehensive income, foreign currency translation
                    adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (39,356
                )
                
                
                (39,356
                )
                
                
                (39,356
                )Total
                    comprehensive income - Year ended September 30, 2006
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (313,382
                )Balances,
                    September 30, 2006
                
                
                16,950,000
                
                
                
                169,500
                
                
                
                1,773,382
                
                
                
                (978,368
                )
                
                
                
                
                
                
                538,189
                
                
                
                1,502,703Net
                    Income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,308,865
                
                
                $
                1,308,865
                
                
                
                
                
                
                
                1,308,865Other
                    comprehensive income, foreign currency translation
                    adjustment
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                548,442
                
                
                
                548,442
                
                
                
                548,442Total
                    comprehensive income - Year ended September 30, 2007
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                1,857,307Balances,
                    September 30, 2007
                
                
                16,950,000
                
                
                $
                169,500
                
                
                $
                1,773,382
                
                
                $
                330,497
                
                
                
                
                
                
                $
                1,086,631
                
                
                $
                3,360,010
 See
          accompanying notes to consolidated financial statements.
  F-5
  ALLOY
        STEEL INTERNATIONAL, INC. AND
        SUBSIDIARY
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 Years
          ended September 30, 2007 and 2006
 
 Sep-07
                
                
                Sep-06Cash
                    flows from operating
                    activitiesNet
                    income (loss)
                
                $
                1,308,865
                
                
                $
                (274,026
                )Adjustments
                    to reconcile net income (loss) to net cash provided by(used in)
                    operating
                    activities:Depreciation
                
                
                168,548
                
                
                
                175,631Write
                    down of intangible assets
                
                
                90,512
                
                
                
                -Profit
                    on disposal of property and equipment
                
                
                -
                
                
                
                (5,976
                )Increase
                    (decrease) in cash and cash equivalents attributable to changes
                    in
                    operating assets and liabilities:Accounts
                    receivable
                
                
                (1,701,798
                )
                
                
                61,400Inventories
                
                
                (80,682
                )
                
                
                114,287Income
                    taxes receivable
                
                
                -
                
                
                
                160,792Prepaid
                    expenses and other current assets
                
                
                (96,150
                )
                
                
                (4,346
                )Accrued
                    officer's salaries
                
                
                20,680
                
                
                
                85,302Accounts
                    payable and other current liabilities
                
                
                726,837
                
                
                
                (200,364
                )Income
                    taxes payable
                
                
                732,940
                
                
                
                -Net
                    cash provided by operating
                    activities
                
                
                1,169,752
                
                
                
                112,700Cash
                    flows from investing
                    activitiesPurchase
                    of property and equipment
                
                
                (505,492
                )
                
                
                (121,476
                )Payment
                    on deposit for investment
                
                
                -
                
                
                
                -Proceeds
                    on disposal of property and equipment
                
                
                -
                
                
                
                6,574Net
                    cash used in investing
                    activities
                
                
                (505,492
                )
                
                
                (114,902
                )Net
                    cash used in financing
                    activities, repayment on notes and loan payables(377,946
                )
                
                
                (345,473
                )Effect
                    of foreign exchange rate
                    changes on cash and cash equivalents179,026
                
                
                
                238,710Net
                    increase (decrease) in cash
                    and cash equivalents
                
                
                465,340
                
                
                
                (108,965
                )Cash
                    and cash
                    equivalents, beginning of year
                
                
                18,955
                
                
                
                127,920Cash
                    and cash
                    equivalents, end of year
                
                $
                484,295
                
                
                $
                18,955Supplemental
                    disclosures of
                    cash flow information,
                    cash paid during the
                    years for:Income
                    taxes
                
                $
                (75,866
                )
                
                $
                -Interest
                
                $
                26,900
                
                
                $
                22,218Supplemental
                  disclosures of
                  non-cash investing and financing activities,Equipment
                    acquired under notes payable
                
                $
                28,197
                
                
                $
                244,203
 See
            accompanying notes to consolidated financial
            statements.
  F-6
 ALLOY
          STEEL INTERNATIONAL, INC. AND SUBSIDIARY
  NOTES
          TO CONSOLIDATED FINANCIAL
          STATEMENTS
 
 
 1.           Nature
          of operations
 
 Alloy
          Steel International, Inc. (ASII) and its wholly-owned subsidiary, Alloy
          Steel
          Australia (Int.) Pty Limited (ASAI) (collectively the "Company") manufacture
          and
          distribute Arcoplate, a wear-resistant fused-alloy steel plate, to customers
          throughout the world.
 
 
 2.           Summary
          of significant accounting policies
 
 Basis
          of
          Presentation
 
 The
          Company adheres to accounting principles generally accepted in the United
          States
          of America.  The Company's consolidated financial statements are
          denominated in United States dollars.
 
 Principles
          of
          Consolidation
 
 The
          consolidated financial statements include the accounts of ASII and
          ASAI.  All material intercompany balances and transactions have been
          eliminated in consolidation.
 
 Revenue
          Recognition
 
 The
          Company recognizes revenues when products are shipped and title passes
          to
          customers.  Provisions are established, as appropriate, for
          uncollectible accounts, returns and allowances and warranties in connection
          with
          sales.
 
 Cash
          and Cash
          Equivalents
 
 The
          Company considers all highly-liquid debt instruments purchased with maturities
          of three months or less to be cash equivalents.
 
 Accounts
          Receivable
 
 The
          Company carries its accounts receivable at cost less an allowance for doubtful
          accounts.  On a periodic basis, the Company evaluates its receivables
          and establishes an allowance for doubtful accounts, based on the history
          of past
          write-offs and collections and current credit conditions.  Accounts
          are written off as uncollectible once the Company has exhausted its collection
          efforts.
 
 Fair
          Value of Financial
          Instruments
 
 The
          fair
          value of the Company's assets and liabilities which qualify as financial
          instruments under Statement of Financial Accounting Standards (“SFAS”) No. 107,
“Disclosures About Fair Value of Financial Instruments,” approximates the
          carrying amounts presented in the accompanying consolidated balance
          sheet.
 
 Inventories
 
 Inventories
          are valued at the lower of cost or net realizable value.  Cost is
          determined principally on the average cost method, which approximates the
          first-in, first-out method.
  F-7
 ALLOY
        STEEL INTERNATIONAL, INC. AND SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS








2.           Summary
      of significant accounting policies (continued)





Impairment
      of Long-Lived
      Assets





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





Property
      and
      Equipment





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





Asset
            Estimated
                Useful
                LivesPlant
                and equipment
            5-20
                yearsFurniture
                and fixtures
            5-7
                yearsVehicles
            3-5
                yearsOffice
                and computer equipment
            3-5
                years





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





Intangibles





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





Advertising





Advertising
      costs are charged to operations as incurred and were approximately $11,000
      and
      $26,000 for the years ended September 30, 2007 and 2006,
      respectively.





Income
      Taxes





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




F-8




ALLOY
        STEEL INTERNATIONAL, INC. AND SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS








2.           Summary
      of significant accounting policies (continued)





Income
      (Loss) Per Common
      Share





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





Use
      of Estimates





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





New
      Accounting
      Pronouncements





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




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


Foreign
      Currency
      Translation





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




F-9





ALLOY
      STEEL INTERNATIONAL, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS





Summary
      of significant accounting
      policies (continued)







3.           Inventories





Inventories
      consist of the following at September 30, 2007:





Raw
                materials
            
            $
            574,084Work
                in progress
            
            
            45,949Finished
                goods
            
            
            99,717$
            719,760








4.           Prepaid
      expenses and other current assets





Prepaid
      expenses and other current assets consist of the following at September 30,
      2007:





Prepaid
                expenses
            
            $
            35,289Deposit
                paid to suppliers
            
            
            101,690$
            136,979








5.           Property
      and equipment





Property
      and equipment consists of the following at September 30, 2007:





Plant
                and equipment
            
            $
            3,445,719Furniture
                and fixtures
            
            
            38,661Vehicles
            
            
            133,469Leasehold
                Improvements
            
            
            27,563Office
                and computer equipment
            
            
            24,6493,670,061Less
                accumulated depreciation
            
            
            1,021,906$
            2,648,155




Depreciation
      expense for the years ended September 30, 2007 and 2006 was approximately
      $170,000 and $175,000, respectively. At September 30, 2007, property and
      equipment included approximately $344,000 and accumulated depreciation included
      approximately $70,000 related to assets acquired under notes
      payable.




F-10




ALLOY
        STEEL INTERNATIONAL, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS








6.           Notes
      payable





Notes
      payable at September 30, 2007 consists of the following:





Note
                payable (a)
            
            
            16,875Note
                payable (b)
            
            
            188,071Note
                payable (c)
            
            
            24,037Note
                payable (d)
            
            
            29,337258,320Less
                current portion
            
            
            58,891$
            199,429








(a)
            The
                note is payable in monthly installments of $382 including interest
                at a
                rate of 7.61% per annum, with a final  payment in March 2010.
                The note is collateralized by the underlying equipment and is guaranteed
                by the officers of the Company.





(b)
            The
                note is payable in monthly installments of $4,449 including interest
                at a
                rate of 7.25% per annum, with a final balloon payment in November
                2010.
                The note is collateralized by the underlying equipment and is guaranteed
                by the officers of the Company.





(c)
            The
                note is payable in monthly installments of $693 including interest
                at a
                rate of 7.61% per annum, with a final balloon payment in February
                2010.
                The note is collateralized by the underlying equipment and is guaranteed
                by the officers of the Company.





(d)
            The
                note is payable in monthly installments of $705 including interest
                at a
                rate of 8.45% per annum, with a final payment in October
                2011.  The note is collateralized by the underlying equipment
                and is guaranteed by the officers of the
                company.





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





Year
                ending September
                30,2008
            
            
            58,8912009
            
            
            63,4272010
            
            
            76,1042011
            
            
            59,1932012
            
            
            705$
            258,320








Due
      to
      cash resources available to the Company, three notes payable existing in the
      prior year and not shown above, were repaid in full by the Company during this
      year.




F-11


ALLOY
        STEEL INTERNATIONAL, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS





7.      Notes
      payable,
      officers





Notes
      payable, officers at September 30, 2006 consists of the following:





Note
                payable (a)
            
            $
            40,682Note
                payable (b)
            
            
            79,746120,428Less
                current portion
            
            
            62,377$
            78,051








(a)
            The
                note is payable in monthly installments of $1,498 including interest
                at a
                rate of 1% per annum, with a final payment in June 2009. The note
                is
                unsecured and is due to an officer of the
                Company.





(b)
            The
                note is payable in monthly installments of $2,936 including interest
                at a
                rate of 1% per annum, with a final payment in June 2009. The note
                is
                unsecured and is due to an officer of the
                Company.





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





Year
                ending September
                30,2008
            
            
            62,3772009
            
            
            58,051$
            120,428







8.           Loan
      payable, related party





As
      of
      September 30, 2007, the Company has a non-interest bearing loan payable to
      a
      related party with no stated repayment terms of approximately
      $77,330.  The loan payable has been repaid in full October 31,
      2007.







9.           Income
      taxes





Income
      (loss) before income tax expense (benefit) for the years ended September 30,
      2007 and 2006 were derived in the following jurisdictions:





2007
            
            
            2006Australia
            
            
            2,181,961
            
            
            
            (293,266
            )US
            
            
            (218,509
            )
            
            
            (115,455
            )1,963,452
            
            
            
            (408,721
            )




F-12





ALLOY
        STEEL INTERNATIONAL, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS





9.           Income
      taxes(continued)





The
      components of income tax expense (benefit) are as follows for the years ended
      September 30, 2007 and 2006:





2007
            
            
            2006CurrentForeign
            
            
            480,960
            
            
            
            (46,725
            )DeferredForeign
            
            
            173,621
            
            
            
            (87,970
            )654,581
            
            
            
            (134,695
            )





As
      of
      September 30, 2007, the Company had US net operating loss carryforwards of
      approximately $1,742,000 expiring through 2025.





The
      components of the deferred tax assets and liabilities consist of the following
      at September 30, 2007 and 2006:





2007
            
            
            2006Deferred
                tax assetsNet
                operating loss carryforwards
            
            
            609,879
            
            
            
            710,534Other
            
            
            42,854
            
            
            
            29,663652,733
            
            
            
            740,197Less
                valuation allowance
            
            
            609,879
            
            
            
            565,08042,854
            
            
            
            175,117Deferred
                tax liabilitiesOther
            
            
            (81,149
            )
            
            
            (39,791
            )Deferred
                tax assets, net
            
            
            (38,295
            )
            
            
            135,326





SFAS
      No.
      109, requires that the Company record a valuation allowance when it is more
      likely than not that some portion or all of the deferred income tax asset will
      not be realized.  The change in the valuation allowance amounted to
      approximately $45,000 and $40,000 for the years ended September 30, 2007 and
      2006, respectively.  The ultimate realization of this deferred income
      tax asset depends on the Company's ability to generate sufficient taxable income
      in future years





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





The
      effective tax rate in 2007 and 2006 differs from the U.S. federal statutory
      rate
      as follows:





2007
            
            
            2006U.S.
                federal statutory rate
            
            
            (35
            %)
            
            
            (35
            %)Change
                in valuation allowance
            
            
            (2
            %)
            
            
            10
            %Change
                in estimated research and development credit
            
            
            -
            
            
            
            -Refund
                related to prior years research and development credit
            
            
            -
            
            
            
            -Over
                accrual from prior year
            
            
            -
            
            
            
            (11
            %)Other
            
            
            4
            %
            
            
            3
            %Effective
                tax rate
            
            
            (33
            %)
            
            
            (33
            %)




F-13





ALLOY
        STEEL INTERNATIONAL, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS




10.           Stock
      options





During
      2000, the Company's Board of Directors (the Committee) adopted, and the
      stockholders approved, the 2000 stock option plan (the Plan) pursuant to which
      500,000 shares of common stock were reserved for issuance upon the exercise
      of
      options granted to key employees, members of the Committee and consultants
      of
      the Company.  Options under the Plan may be incentive stock options,
      nonqualified stock options, or any combination thereof, and the Committee may
      grant options at an exercise price which is not less than the fair market value
      on the date such options are granted. The Plan further provides that the maximum
      period in which stock options may be exercised will be determined by the
      Committee, except that they may not be exercisable after ten years from the
      date
      of grant or five years from the date of grant for any person owning more than
      ten percent of the voting power of all classes of the Company's
      stock.  For the years ending September 30, 2007 and 2006, there were
      no stock options granted or outstanding stock options.








11.           Commitments
      and contingencies





Operating
      Lease





The
      Company leases its office and manufacturing space from a related party for
      approximately $85,000 per annum plus certain expenses (as defined in the
      agreement).  The lease expires on June 30, 2010.





Rent
      expense for the years ended September 30, 2007 and 2006 was approximately
      $85,000 in each year.





Royalty
      Agreements





The
      Company has a licensing agreement with a related party of which relates to
      the
      sale of all products sold in the United States of America.  Under the
      terms of the agreement, the Company is required to pay royalties of 2% on the
      net sales of these products, calculated at the end of each
      quarter.  The agreement expires in 2025 and has three ten-year renewal
      options to extend unless written notice of non-renewal is given by either party
      within 120 days prior to its expiration.  At September 30, 2007,
      approximately $503,000 was payable under this agreement and is included in
      accounts payable and other current liabilities.





Royalty
      expense was approximately $176,000 and $65,000 for the years ended September
      30,
      2007 and 2006, respectively.





Employment
      Agreements





The
      Company has employment agreements with two of its executives, who are principal
      stockholders, requiring the payment of a minimum annual base compensation of
      approximately $80,000 and $150,000, adjusted semi-annually for increases
      approved by the Board of Directors, but not less than the base year amount,
      plus
      incentive compensation based on the executives performance and the Company's
      success.  The agreements were automatically renewed for an additional
      year starting on June 13, 2006, since neither party gave notice of non-renewal
      within 180 days prior to their expiration.  Approximately $170,000 has
      been expensed under these agreements in the years ended September 30, 2007
      and
      2006, and is included in selling, general and administrative
      expenses.




F-14




ALLOY
        STEEL INTERNATIONAL, INC. AND SUBSIDIARY





NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS








12.           Major
      customers, suppliers and geographic information





The
      Company had revenues from two customers and one customer for each of the
      years ended September 30, 2007 and 2006, of approximately $4,048,000 and
      $525,000 respectively.  Accounts receivable due from the respective
      customers were approximately $1,425,000 and nil at September 30, 2007 and
      2006.




2007
              
              
              2006Customer
                  A
              
              
              10.6
              %
              
              
              15.5
              %Customer
                  B
              
              
              35.7
              %
              
              
              -


For
      the
      years ended September 30, 2007 and 2006, the Company purchased approximately
      39%
      and 47% of its inventories from two and three suppliers,
      respectively.








For
      the
      years ended September 30, 2007 and 2006, revenues were derived from the
      following:





2007
            
            
            2006Australia
            
            
            72
            %
            
            
            64
            %Americas
            
            
            14
            %
            
            
            23
            %Other
            
            
            14
            %
            
            
            13
            %100
            %
            
            
            100
            %





F-15