Attached files
| file | filename |
|---|---|
| EX-31.1 - GENERAL STEEL HOLDINGS INC | v184110_ex31-1.htm |
| EX-10.2 - GENERAL STEEL HOLDINGS INC | v184110_ex10-2.htm |
| EX-10.4 - GENERAL STEEL HOLDINGS INC | v184110_ex10-4.htm |
| EX-32.2 - GENERAL STEEL HOLDINGS INC | v184110_ex32-2.htm |
| EX-10.3 - GENERAL STEEL HOLDINGS INC | v184110_ex10-3.htm |
| EX-32.1 - GENERAL STEEL HOLDINGS INC | v184110_ex32-1.htm |
| EX-10.1 - GENERAL STEEL HOLDINGS INC | v184110_ex10-1.htm |
| EX-31.2 - GENERAL STEEL HOLDINGS INC | v184110_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 | ||||||