Attached files

file filename
EX-31.1 - GENERAL STEEL HOLDINGS INCv184110_ex31-1.htm
EX-10.2 - GENERAL STEEL HOLDINGS INCv184110_ex10-2.htm
EX-10.4 - GENERAL STEEL HOLDINGS INCv184110_ex10-4.htm
EX-32.2 - GENERAL STEEL HOLDINGS INCv184110_ex32-2.htm
EX-10.3 - GENERAL STEEL HOLDINGS INCv184110_ex10-3.htm
EX-32.1 - GENERAL STEEL HOLDINGS INCv184110_ex32-1.htm
EX-10.1 - GENERAL STEEL HOLDINGS INCv184110_ex10-1.htm
EX-31.2 - GENERAL STEEL HOLDINGS INCv184110_ex31-2.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number 001-33717

General Steel Holdings, Inc.
(Exact name of registrant as specified in its charter)

Nevada
 
41-2079252
(State or other Jurisdiction of
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
   

Room 2315, Kuntai International Mansion Building,
Yi No. 12, Chaoyangmenwai Ave.
Chaoyang District, Beijing, China 100020
(Address of Principal Executive Office, Including Zip Code)

+86(10)58797346
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).  Yes  o No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer x
 
Non-accelerated filer o
(Do not check if a
smaller reporting
company)
 
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No x
 
As of May 7, 2010, 51,855,695 shares of common stock, par value $0.001 per share, were issued and outstanding.
 


 

 

Table of Contents

   
Page
Part I: FINANCIAL INFORMATION
3
     
Item 1.
Financial Statements.
  3
     
 
Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009.
3
     
 
Consolidated Statements of Operation and Other Comprehensive Income for the Three Months Ended March 31, 2010 and 2009 (Unaudited).
4
     
 
Consolidated Statements of  Changes In Equity (Unaudited).
5
     
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (Unaudited).
6
     
 
Notes  to Consolidated Financial Statements (Unaudited).
7
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
39
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
58
     
Item 4.
Controls and Procedures.
58
     
Part II. OTHER INFORMATION
59
     
Item 1.
Legal Proceedings.
59
     
Item 6.
Exhibits.
59
     
Signatures
 
60

 
2

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.
 

CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2010 AND DECEMBER 31, 2009
(In thousands, except per share data)
 
   
March 31,
   
December 31,
 
   
2010
   
2009
 
   
(Unaudited)
       
             
ASSETS
           
             
CURRENT ASSETS:
           
Cash
  $ 91,032     $ 82,118  
Restricted cash
    226,712       192,041  
Notes receivable
    24,423       29,185  
Restricted notes receivable
    24,225       -  
Accounts receivable, net of allowance for doubtful accounts of $402 and $490 as of March 31, 2010 and December 31, 2009, respectively
    22,174       8,525  
Accounts receivable - related party
    4,751       -  
Other receivables, net of allowance for doubtful accounts of $10 and $14 as of March 31, 2010 and December 31, 2009, respectively
    5,571       5,357  
Other receivables - related parties
    28,716       32,670  
Dividend receivable
    3,426       2,372  
Inventories
    237,695       208,087  
Advances on inventory purchase
    34,930       29,099  
Advances on inventory purchase - related parties
    48,791       2,995  
Prepaid value added tax
    11,502       19,488  
Deferred tax assets
    5,722       3,341  
Total current assets
    769,670       615,278  
                 
PLANT AND EQUIPMENT, net
    552,851       555,111  
                 
OTHER ASSETS:
               
Advances on equipment purchase
    12,621       8,419  
Investment in unconsolidated subsidiaries
    20,180       20,022  
Long-term deferred expense
    1,973       2,069  
Intangible assets, net of accumulated amortization
    23,565       23,733  
Note issuance cost
    400       406  
Plant and equipment to be disposed
    2,684       3,026  
Total other assets
    61,423       57,675  
                 
Total assets
  $ 1,383,944     $ 1,228,064  
                 
LIABILITIES AND EQUITY
               
                 
CURRENT LIABILITIES:
               
Short term notes payable
  $ 323,987     $ 254,608  
Accounts payable
    159,389       158,126  
Accounts payable - related parties
    52,300       48,151  
Short term loans - bank
    174,655       148,968  
Short term loans - others
    113,351       110,358  
Short term loans - related parties
    -       11,751  
Other payables and accrued liabilities
    15,808       16,222  
Other payable - related parties
    20,989       3,706  
Customer deposit
    220,623       208,765  
Customer deposit - related parties
    40,083       3,791  
Deposit due to sales representatives
    65,843       49,544  
Taxes payable
    5,676       6,921  
Distribution payable to former shareholders
    14,519       16,434  
Total current liabilities
    1,207,223       1,037,345  
                 
CONVERTIBLE NOTES PAYABLE, net of debt discount of $2,188 and $2,250 as of March 31, 2010 and December 31, 2009, respectively
    1,112       1,050  
                 
DERIVATIVE LIABILITIES
    19,401       23,340  
                 
Total liabilities
    1,227,736       1,061,735  
                 
COMMITMENT AND CONTINGENCIES
               
                 
EQUITY:
               
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively
    3       3  
Common Stock, $0.001 par value, 200,000,000 shares authorized, 51,855,695 and 51,618,595 shares  issued and outstanding as of March 31, 2010 and December 31, 2009, respectively
    52       52  
Paid-in-capital
    96,585       95,588  
Statutory reserves
    6,162       6,162  
Accumulated deficits
    (21,919 )     (16,410 )
Accumulated other comprehensive income
    8,037       8,336  
Total shareholders' equity
    88,920       93,731  
                 
NONCONTROLLING INTERESTS
    67,288       72,598  
                 
Total equity
    156,208       166,329  
                 
Total liabilities and equity
  $ 1,383,944     $ 1,228,064  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
3

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except per share data)
 
   
Three months ended March 31,
 
   
2010
   
2009
 
REVENUES
  $ 317,628     $ 262,414  
                 
REVENUES - RELATED PARTIES
    135,395       60,379  
                 
TOTAL REVENUES
    453,023       322,793  
                 
COST OF REVENUES
    317,576       252,002  
                 
COST OF REVENUES - RELATED PARTIES
    129,714       57,870  
                 
TOTAL COST OF REVENUES
    447,290       309,872  
                 
GROSS PROFIT
    5,733       12,921  
                 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    12,141       9,168  
                 
(LOSS) INCOME FROM OPERATIONS
    (6,408 )     3,753  
                 
OTHER INCOME(EXPENSE)
               
Interest income
    1,120       879  
Finance/interest expense
    (10,963 )     (2,939 )
Change in fair value of derivative liabilities
    3,939       4,115  
Gain from debt extinguishment
    -       2,930  
Government grant
    -       3,520  
Income from equity investments
    1,682       (55 )
Other non-operating (expense) income, net
    (4 )     510  
Total other (expense) income, net
    (4,226 )     8,960  
                 
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST
    (10,634 )     12,713  
                 
PROVISION FOR INCOME TAXES
               
Current
    621       164  
Deferred
    (2,588 )     1,222  
Total (benefit) provision for income taxes
    (1,967 )     1,386  
                 
NET (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
    (8,667 )     11,327  
                 
Less: Net (Loss) income attributable to noncontrolling interest
    (3,160 )     3,993  
                 
NET (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
    (5,507 )     7,334  
                 
OTHER COMPREHENSIVE INCOME (LOSS)
               
Foreign currency translation adjustments
    (299 )     (177 )
Comprehensive income (loss) attributable to noncontrolling interest
    165       (75 )
                 
COMPREHENSIVE (LOSS) INCOME
  $ (5,641 )   $ 7,082  
                 
WEIGHTED AVERAGE NUMBER OF SHARES
               
Basic & Diluted
    51,652,843       36,285,312  
                 
(LOSS) EARNINGS PER SHARE
               
Basic & Diluted
  $ (0.11 )   $ 0.20  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
4

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share data)
 
                                                   
Accumulated
             
   
Preferred stock
   
Common stock
         
Retained earnings / Accumulated deficits
         
other
             
                           
Paid-in
   
Statutory
         
Contribution
   
comprehensive
   
Noncontrolling
       
   
Shares
   
Par value
   
Shares
   
Par value
   
capital
   
reserves
   
Unrestricted
   
receivable
   
income
   
interest
   
Totals
 
BALANCE, December 31, 2008
    3,092,899     $ 3       36,128,833     $ 36     $ 37,129     $ 4,902     $ 10,092     $ (960 )   $ 8,705     $ 54,330     $ 114,237  
                                                                                         
Net income
                                                    7,335                       3,993       11,328  
Adjustment to statutory reserve
                                            260       (260 )                             -  
Common stock issued for compensation, $1.85
                    109,250       0.11       202                                               202  
Common stock issued for interest payment, $3.66
                    152,240       0.15       558                                               558  
Common stock transferred by CEO for compensation, $6.91
                                    69                                               69  
Foreign currency translation adjustments
                                                                    (177 )     (75 )     (252 )
BALANCE, March 31, 2009, unaudited
    3,092,899     $ 3       36,390,323     $ 36     $ 37,958     $ 5,162     $ 17,167     $ (960 )   $ 8,528     $ 58,248     $ 126,142  
                                                                                         
Net loss attributable to controlling interest
                                                    (32,579 )                             (32,579 )
Net income attributable to noncontrolling interest
                                                                            17,570       17,570  
Disposal of subsidiaries
                                                                            (293 )     (293 )
Distribution of dividend to noncontrolling shareholders
                                                                            (3,305 )     (3,305 )
Adjustment to statutory reserve
                                            1,000       (1,000 )                             -  
Common stock issued for compensation
                    487,400       0.77       1,673                                               1,674  
Common stock issued for interest payments
                    44,065       0.20       187                                               187  
Common stock issued for repayment of debt, $6.00
                    300,000       0.30       1,800                                               1,800  
Notes converted to common stock
                    7,045,274       7.05       32,072                                               32,079  
Make whole shares issued on notes conversion
                    1,795,977       1.80       7,085                                               7,087  
Common stock transferred by CEO for compensation, $6.91
                                    207                                               207  
Reduction of registered capital
                                                            960                       960  
Common stock issued for private placement
                    5,555,556       5.56       14,607                                               14,613  
Foreign currency translation adjustments
                                                                    (192 )     378       186  
                                                                                         
BALANCE, December 31, 2009
    3,092,899     $ 3       51,618,595     $ 52     $ 95,589     $ 6,162     $ (16,412 )   $ -     $ 8,336     $ 72,598     $ 166,328  
                                                                                         
Net loss attributable to controlling interest
                                                    (5,507 )                             (5,507 )
Net loss attributable to noncontrolling interest
                                                                            (3,160 )     (3,160 )
Distribution of dividend to noncontrolling shareholders
                                                                            (1,045 )     (1,045 )
Noncontrolling interest acquired
                                                                            (1,270 )     (1,270 )
Common stock issued for compensation
                    237,100       0.24       927                                               927  
Common stock transferred by CEO for compensation, $6.91
                                    69                                               69  
Foreign currency translation adjustments
                                                                    (299 )     165       (134 )
                                                                                         
BALANCE, March 31, 2010, unaudited
    3,092,899     $ 3       51,855,695     $ 52     $ 96,585     $ 6,162     $ (21,919 )   $ -     $ 8,037     $ 67,288     $ 156,208  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
5

 


CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(In thousands, except per share data)

   
Three months ended March 31,
 
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net (loss) income attributable to controlling interest
  $ (5,507 )   $ 7,334  
Net (loss) income attributable to noncontrolling interest
    (3,160 )     3,993  
Consolidated net (loss) income
    (8,667 )     11,327  
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:
               
Depreciation and amortization
    9,586       6,249  
Debt extinguishment
    -       (2,930 )
Bad debt allowance
    (94 )     (3,518 )
Stock issued for services and compensation
    996       271  
Income from investment
    (1,682 )     -  
Amortization of deferred note issuance cost and discount on convertible notes
    68       21  
Change in fair value of derivative instrument
    (3,939 )     (4,115 )
Deferred tax assets
    (2,484 )     989  
Changes in operating assets and liabilities
    -       -  
Accounts receivable
    (13,556 )     (11,764 )
Accounts receivable - related parties
    (4,750 )     -  
Notes receivable
    4,760       20,838  
Other receivables
    256       2,759  
Other receivables - related parties
    (389 )     (1,736 )
Inventories
    (36,689 )     (48,394 )
Advances on inventory purchases
    (5,945 )     10,249  
Advances on inventory purchases - related parties
    (44,257 )     (7,552 )
Accounts payable
    1,556       1,285  
Accounts payable - related parties
    8,699       21,861  
Other payables
    (1,384 )     7,230  
Other payables - related parties
    17,291       8,180  
Accrued liabilities
    1,614       3,883  
Customer deposits
    14,521       6,103  
Customer deposits - related parties
    36,280       (5,121 )
Taxes payable
    9,978       190  
Net cash (used in) provided by operating activities
    (18,231 )     16,305  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquired long term investment
    -       (6,593 )
Dividend receivable
    (1,554 )     -  
Deposits due to sales representatives
    16,894       35,723  
Advance on equipment purchases
    (4,664 )     1,198  
Equipments purchase
    (6,713 )     (41,415 )
Intangible assets purchase
    (103 )     (163 )
Payments to original shareholders
    (3,732 )     -  
Net cash provided by (used in) investing activities
    128       (11,250 )
                 
CASH FLOWS FINANCING ACTIVITIES:
               
Restricted cash
    (34,660 )     (43,802 )
Notes receivable - restricted
    (24,216 )     -  
Borrowings on short term loans - bank
    95,015       51,733  
Payments on short term loans - bank
    (69,336 )     (33,548 )
Borrowings on short term loan - others
    27,945       13,296  
Payments on short term loans - others
    (24,954 )     (7,151 )
Payments on short term loans - others-related parties
    (11,747 )     -  
Borrowings on short term notes payable
    251,725       158,810  
Payments on short term notes payable
    (182,369 )     (120,138 )
Net cash provided by financing activities
    27,403       19,200  
                 
EFFECTS OF EXCHANGE RATE CHANGE IN CASH
    (386 )     (22 )
                 
INCREASE IN CASH
    8,914       24,233  
                 
CASH, beginning of period
    82,118       14,895  
                 
CASH, end of period
  $ 91,032     $ 39,128  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
6

 
 
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Note 1 – Background

General Steel Holdings, Inc. (the “Company”) was incorporated on August 5, 2002 in the state of Nevada. The Company through its 100% owned subsidiary, General Steel Investment, operates a portfolio of steel companies serving various industries in the People’s Republic of China (“PRC”). The Company’s main operation is manufacturing and sales of steel products such as steel rebar, hot-rolled carbon and silicon sheets and spiral-weld pipes.
 
Started on January 1, 2010, one of the Company’s subsidiaries, General Steel (China) Co. Ltd. changed its business model from a direct operations model to a lease operations model which will provide a steady revenue stream in the form of fixed monthly lease revenue.  See note 16 for details of the lease transaction.

Note 2 – Summary of significant accounting policies

Basis of presentation

The consolidated financial statements of the Company reflect the activities of the following directly and indirectly owned subsidiaries:
   
Percentage
 
Subsidiary
 
of Ownership
 
General Steel Investment Co., Ltd.
 
British Virgin Islands
    100.0 %
General Steel (China) Co., Ltd.
 
PRC
    100.0 %
Baotou Steel – General Steel Special Steel Pipe Joint Venture Co., Ltd.
 
PRC
    80.0 %
Yangpu Shengtong Investment Co., Ltd.
 
PRC
    99.1 %
Qiu Steel Investment Co., Ltd. (“Qiu Steel”)
 
PRC
    98.7 %
Shaanxi Longmen Iron and Steel Co. Ltd.
 
PRC
    60.0 %
Maoming Hengda Steel Group Co., Ltd.
 
PRC
    99.0 %

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of all directly and indirectly owned subsidiaries listed above. All material intercompany transactions and balances have been eliminated in consolidation.

Management has included all adjustments, consisting only of normal recurring adjustments, considered necessary to give a fair presentation of operating results for the periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2009 annual report filed on Form 10-K.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the fair value of financial instruments, the useful lives of and impairment for property, plant and equipment, and potential losses on uncollectible receivables. Actual results could differ from these estimates.

 
7

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Concentration of risks

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Cash includes cash on hand and demand deposits in accounts maintained with banks within PRC, Hong Kong and the United States. Total cash (including restricted cash balances) in these banks on March 31, 2010 and December 31, 2009 amounted to $317.5 million and $274.2 million, respectively. As of March 31, 2010, $2.2 million cash in the bank was covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

The Company had five major customers, all distributors, which represented approximately 31% and 30% of the Company’s total sales for the three months ended March 31, 2010 and 2009, respectively. No accounts receivable was due from the five major customers as of March 31, 2010 and 2009, respectively.

For the three months ended March 31, 2010 and 2009, the Company purchased approximately 47% and 24%, respectively, of their raw materials from five major suppliers. Five vendors accounted for 9% and 15% of total accounts payable as of March 31, 2010 and 2009, respectively.

Revenue recognition

The Company follows the generally accepted accounting principles in the United States regarding revenue recognition. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits. Sales revenue represents the invoiced value of goods, net of value-added tax (VAT). All of the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product.

Foreign currency translation and other comprehensive income

The reporting currency of the Company is the US dollar. The Company’s subsidiaries in China use the local currency, Renminbi (RMB), as their functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of changes in equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 
8

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Translation adjustments included in accumulated other comprehensive income amounted to $8.0 million and $8.3 million as of March 31, 2010 and December 31, 2009, respectively. The balance sheet amounts, with the exception of equity at March 31, 2010 and December 31, 2009 were translated at 6.82 RMB and 6.82 RMB to $1.00, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months ended March 31, 2010 and December 31, 2009, were 6.82 RMB and 6.82 RMB respectively. Cash flows are also translated at average translation rates for the period, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

Financial instruments

The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. For short term loans and notes payable, the Company concluded the carrying values are a reasonable estimate of fair value because of the short period of time between the origination and repayment and their stated interest rate approximates current rates available.

The Company analyzes all financial instruments with features of both liabilities and equity, pursuant to which the Company’s warrants were required to be recorded as a liability at fair value and marked to market each reporting period.

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:

 
·
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 
·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 
·
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

The Company’s investment in unconsolidated subsidiaries amounted to $20.2 million as of March 31, 2010. Since there is no quoted or observable market price for the fair value of similar long term investments, the Company then used the level 3 inputs for its valuation methodology. The determination of the fair value was based on the capital investment that the Company contributed and income from investment. The carrying value of the long term investments approximated the fair value as of March 31, 2010.

 
9

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

In December 2007, the Company issued convertible notes totaling $40 million (“Notes”) and 1,154,958 warrants. In December 2009, the Company issued 2,777,778 warrants in connection with a registered direct offering. The aforementioned warrants and the conversion option embedded in the Notes meet the definition of a derivative instrument in the accounting standards. Therefore these instruments are accounted for as derivative liabilities and marked-to-market each reporting period. The change in the value of the derivative liabilities is charged against or credited to income.  The fair value was determined using the Cox Rubenstein Binomial Model, defined in the accounting standard as level 2 inputs, and recorded the change in earnings. As a result, the derivative liabilities are carried on the consolidated balance sheet at their fair value.

As of March 31, 2010, the outstanding convertible note principal amounted to $3.3 million, and the carrying value of the convertible note amounted to approximately $1.1 million. The Company used Level 3 inputs for its valuation methodology for the convertible note, and their fair values are determined using cash flows discounted at relevant market interest rates in effect at the period close since there is no observable market price.

(in thousands)
 
Carrying Value as of
March 31, 2010
 
Fair Value Measurements at March 31,
2010 Using Fair Value Hierarchy
 
   
(Unaudited)
 
Level 1
 
Level 2
   
Level 3
 
Long-term investments
  $ 20,180             $ 20,180  
Derivative liabilities
  $ 19,401       $ 19,401          
Convertible notes payable
  $ 1,112               $ 750  

Except for the investments, convertible notes payable and derivative liabilities, the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with the accounting standard.

Level 3 Valuation Reconciliation:
 
   
Long term
Investment
 
   
(in thousands)
 
Balance, December 31, 2009
  $ 20,022  
Current period additional investments
    -  
Current period dispositions
    -  
Dividend entitled
    -  
Current period investment gain
    158  
Balance, March 31, 2010 (Unaudited)
  $ 20,180  
 
   
Convertible Notes
 
   
(in thousands)
 
Balance, December 31, 2009
  $ 1,050  
Current period effective interest charges on notes
    150  
Interest paid
    (88 )
Balance, March 31, 2010 (Unaudited)
  $ 1,112  
         
Cash

Cash includes cash on hand and demand deposits in banks with original maturities of less than three months.

 
10

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Restricted cash

The Company has notes payable outstanding with various banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. The notes payable are generally short term in nature due to its short maturity period of six to nine months, thus restricted cash is classified as a current asset.

Accounts receivable and allowance for doubtful accounts

Accounts receivable include trade accounts due from customers and other receivables from cash advances to employees, related parties or third parties. An allowance for doubtful account is established and recorded based on managements’ assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivable on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

Notes receivable

Notes receivable represents trade accounts receivable due from various customers where the customers’ banks have guaranteed the payment of the receivables. The notes are non-interest bearing and normally paid within three to six months. The Company has the ability to submit request for payment to the customer’s bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee. The Company had $24.4 million and $29.2 million outstanding as of March 31, 2010 and December 31, 2009, respectively.

Restricted notes receivable represents notes pledged as collaterals of short term loans from banks. As of March 31, 2010 and December 31, 2009, restricted notes receivable amounted to $24.2 million and $0, respectively.

Inventories

Inventories are stated at the lower of cost or market using the weighted average method. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory and additional cost of goods sold when the carrying value exceeds net realizable value.

Shipping and handling

Shipping and handling for raw materials purchased are included in cost of goods sold. Shipping and handling cost incurred to ship finished products to customers are included in selling expenses. Shipping and handling expenses for finished goods amounted to $2.1 million and $0.6 million for the three months ended March 31, 2010 and 2009, respectively.

Intangible assets

All land in the People’s Republic of China is owned by the government. However, the government grants “land use rights”.   General Steel (China) acquired land use rights in 2001 for a total of $3.5 million. These land use rights are for 50 years and expire in 2050 and 2053. However, General Steel (China)'s initial business license had a ten-year term. Therefore, management elected to amortize the land use rights over the ten-year business term. General Steel (China) became a Sino-Foreign Joint Venture in 2004, and obtained a new business license for twenty years; however, the Company decided to continue amortizing the land use rights over the original ten-year business term.

 
11

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Longmen Group contributed land use rights for a total amount of $21.8 million to the Longmen Joint Venture. The land use rights are for 50 years and expire in 2048 to 2052.

Maoming has land use rights amounting to $2.2 million for 50 years and expires in 2054.

Entity
 
Original Cost
 
Years of Expiration
 
   
(in thousands)
     
General Steel (China) Co., Ltd
  $ 3,481  
2051
 
Longmen Joint Venture
  $ 21,851  
2045 & 2054
 
Maoming Hengda Steel Group Co., Ltd
  $ 2,240  
2054
 

Intangible assets of the Company are reviewed at least annually, more often when circumstances require, determining whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.  As of March 31, 2010, the Company expects these assets to be fully recoverable.

Plant and equipment, net

Plant 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 with a 3%-5% residual value.

The estimated useful lives are as follows:

Buildings and Improvements
10-40 Years
Machinery
10-30 Years
Other equipment
5 Years
Transportation Equipment
5 Years

Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. No depreciation is provided for construction in progress until such time as the assets are completed and are placed into service Maintenance, repairs and minor renewals are charged directly to expense as incurred. Major additions and betterment to buildings and equipment are capitalized. Interest incurred during construction is capitalized into construction in progress. All other interest is expensed as incurred.

Long lived assets, including buildings and improvements, equipment and intangible assets are reviewed if events or changes in circumstances indicate that its carrying amount may not be recoverable, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2010, the Company expects these assets to be fully recoverable.

 
12

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Investments in unconsolidated subsidiaries

Subsidiaries in which the Company has the ability to exercise significant influence, but does not have a controlling interest are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock between 20% and 50%, and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. The Company accounts for investments with ownership less than 20% using the cost method.

The Company’s direct subsidiaries, Longmen Joint Venture and indirect subsidiaries, Hancheng Tongxing Metallurgy Co., Ltd. invested in several companies from 2004 to 2009.

 Unconsolidated subsidiary
 
Year
acquired
 
Amount invested
(In thousands)
   
%
owned
 
Shaanxi Daxigou Mining Co., Ltd
 
2004
  $ 2,924       22.0  
Shaanxi Xinglong Thermoelectric Co., Ltd
 
2004-2007
    7,845       20.7  
Shaanxi Longgang Group Xian steel Co., Ltd
 
2005
    107       10.0  
Huashan Metallurgical Equipment Co. Ltd.
 
2003
    1,733       25.0  
Shanxi Longmen Coal Chemical Industry Co., Ltd
 
2009
    6,602       15.0  
Xian Delong Powder Engineering Materials Co., Ltd.
 
2006
    969       27.0  
Total (Unaudited)
      $ 20,180          

Total investment in unconsolidated subsidiaries amounted to $20.2 million and $20.0 million as of March 31, 2010 and December 31, 2009, respectively.

Short-term notes payable

Short-term notes payable are lines of credit extended by banks. The banks in-turn issue the Company a bankers acceptance note, which can be endorsed and assigned to vendors as payments for purchases. The notes payable are generally payable at a determinable period, generally three to six months. This short-term note payable bears no interest and is guaranteed by the bank for its complete face value and usually matures within three to six-month period. The banks usually require the Company to deposit a certain amount of cash at the bank as a guarantee deposit, which is classified on the balance sheet as restricted cash.

Earnings per share

The Company has adopted the generally accepted accounting principles in the United States regarding earnings per share (“EPS”) which requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share.

Basic earnings per share are computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

 
13

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Income taxes

The Company accounts for income taxes in accordance with the generally accepted accounting principles in the United States for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes. The generally accepted accounting principles in the United States for accounting for uncertainty in income taxes clarify the accounting and disclosure for uncertain tax positions.  A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial statements.

The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, net operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

Share-based compensation

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with the accounting standards regarding accounting for stock-based compensation and accounting for equity instruments that are issued to other than employees for acquiring or in conjunction with selling goods or services. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by these accounting standards. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 
14

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Noncontrolling interests

Effective January 1, 2009, the Company adopted generally accepted accounting principles in the United States regarding noncontrolling interest in the consolidated financial statements. Certain provisions of this statement are required to be adopted retrospectively for all periods presented. Such provisions include a requirement that the carrying value of noncontrolling interests (previously referred to as minority interests) be removed from the mezzanine section of the balance sheet and reclassified as equity.

Further, as a result of adopting this accounting standard, net income attributable to noncontrolling interests is now excluded from the determination of consolidated net income. In addition, the foreign currency translation adjustment is allocated between controlling and noncontrolling interests.

Recently issued accounting pronouncements

In December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140.The amendments in this Accounting Standards Update improve financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statement.

In December 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The amendments in this Accounting Standards Update replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require additional disclosures about a reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The Company adopted this standard and has determined the standard does not have material effect on the Company’s consolidated financial statements.

 
15

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

In January 2010, FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary.  Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary.  Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value.  In contrast, an entity is required to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction.  This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets.  This ASU is effective for beginning in the first interim or annual reporting period ending on or after December 31, 2009. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements In January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity.  The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The Company adopted this standard and has determined the standard does not have material effect on the Company’s consolidated financial statements.

In January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.  2)  Activity in Level 3 fair value measurements.  In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).This update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU.

 
16

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

In February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted in February 2010.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These classifications have no effect on net income.

Note 3 – Accounts receivable and allowance for doubtful accounts

Accounts receivable, including related party receivables, net of allowance for doubtful accounts consists of the following:

   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
       
   
(in thousands)
   
(in thousands)
 
Accounts receivable
  $ 22,576     $ 9,015  
Less: allowance for doubtful accounts
    (402 )     (490 )
Net accounts receivable
  $ 22,174     $ 8,525  

Movement of allowance for doubtful accounts is as follows:

   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
       
   
(in thousands)
   
(in thousands)
 
                 
Beginning balance
  $ 490     $ 401  
Charge to expense
    -       246  
Addition from acquisition
    -       -  
Less Write-off
    (88 )     (157 )
Exchange rate effect
    -       -  
Ending balance
  $ 402     $ 490  


 
17

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Note 4 – Inventories

Inventories consist of the following:
   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
       
   
(in thousands)
   
(in thousands)
 
Supplies
  $ 1,201     $ 1,025  
Raw materials
    182,401       146,084  
Finished goods
    54,093       60,978  
Total inventories
  $ 237,695     $ 208,087  

Raw materials consist primarily of iron ore and coke at Longmen Joint Venture. The cost of finished goods includes direct costs of raw materials as well as direct labor used in production. Indirect production costs such as utilities and indirect labor related to production such as assembling, shipping and handling costs are also included in the cost of inventory.

The Company values its inventory at the lower of cost or market, determined on a weighted average method, or net realizable value. As of March 31, 2010, the Company reserved $0.4 million for inventory allowance.

Note 5 – Advances on inventory purchase

Advances on inventory purchases are monies deposited or advanced to outside vendors or related parties on future inventory purchases. Due to the high shortage of steel in China, most of the Company’s vendors require a certain amount of money to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis.

This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which required the deposit to be returned to the Company when the contract ends. The inventory is normally delivered within one month after the monies have been advanced. The total outstanding amount, including advances to related parties, was $83.7 million and $32.1 million as of March 31, 2010 and December 31, 2009, respectively.

Note 6 – Plant and equipment, net

Plant and equipment consist of the following:
   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
       
   
(in thousands)
   
(in thousands)
 
Buildings and improvements
  $ 117,837     $ 117,625  
Machinery
    474,239       467,595  
Transportation and other equipment
    10,337       12,824  
Construction in progress
    34,282       31,715  
Totals
    636,695       629,759  
Less accumulated depreciation
    (83,844 )     (74,648 )
Totals
  $ 552,851       555,111  

 
18

 

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)

Construction in progress consisted of the following as of March 31, 2010:

Construction in progress
 
Value
 
Estimated
completion 
 
Estimated
additional cost
 
description
 
In thousands
 
date
 
In thousands
 
   
(Unaudited)
     
(Unaudited)
 
Longmen employees cafeteria
  $ 1,723  
August, 2010
    2,238  
                   
#3 lime stone grinding machine
    1,983  
June, 2010
    364  
Installation under the Transformation Station 15
    552  
April, 2010
    35  
#4 continuous casting
    4,540  
April, 2010
    888  
                   
Rebar line
    16,307  
September, 2010
    102,667  
                   
Steel scrap cross
    1,282  
April, 2010
    38  
                   
Furnace after the screening system reform
    554  
June, 2010
    620  
Others
    7,341  
by end of 2011
    4,395  
Total
  $ 34,282            

Depreciation, including amounts in cost of sales, for the three months ended March 31, 2010 and 2009 amounted to $9.3 million and $6.0 million, respectively

The Company has fixed assets to be disposed amounting to $2.7 million and $3.0 million as of March 31, 2010 and December 31, 2009, respectively.

Note 7 – Intangible assets, net

Intangible assets consist of the following:
   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
       
   
(in thousands)
   
(in thousands)
 
Land use rights
  $ 27,572     $ 27,519  
Software
    474       424  
Subtotal
    28,046       27,943