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EX-31.1 - GENERAL STEEL HOLDINGS INCv201561_ex31-1.htm
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EX-31.2 - GENERAL STEEL HOLDINGS INCv201561_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 September 30, 2010

or

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

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 ¨
 
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 ¨
 
Accelerated filer x
 
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
 
Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No x
 
As of November 8, 2010, 54,678,083 shares of common stock, par value $0.001 per share, were issued and outstanding.
 



 
Table of Contents
 
     
Page
Part I.  FINANCIAL INFORMATION
   
       
Item 1.
Financial Statements.
 
  3
       
 
Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009.
 
  3
 
  
   
 
Consolidated Statements of Operation and Other Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2010 and 2009 (Unaudited).
 
  4
 
  
   
 
Consolidated Statements of Changes In Equity (Unaudited).
 
  5
 
  
   
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited).
 
  6
       
 
Notes to Consolidate Financial Statements (Unaudited).
 
  7
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
  37
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 
  56
       
Item 4.
Controls and Procedures.
 
  56
       
Part II. OTHER INFORMATION
   
       
Item 1.
Legal Proceedings.
 
  56
       
Item 6.
Exhibits.
 
  57
       
Signatures
   
  58
 
 
2

 
 
PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.
 
GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES
 
             
 CONSOLIDATED BALANCE SHEETS
 
AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009
(In thousands, except per share data)
 
             
ASSETS
 
   
September 30,
 
December 31,
 
   
2010
   
2009
 
   
(Unaudited)
       
CURRENT ASSETS:
           
Cash
  $ 41,778     $ 82,118  
Restricted cash
    186,523       192,041  
Notes receivable
    67,132       29,185  
Restricted notes receivable
    12,752       -  
Accounts receivable, net
    21,215       8,525  
Other receivables, net
    14,881       7,729  
Other receivables - related parties
    54,983       32,670  
Inventories
    250,758       208,087  
Advances on inventory purchase
    42,139       28,407  
Advances on inventory purchase - related parties
    48,007       2,995  
Prepaid expense
    4,358       691  
Prepaid value added tax
    17,500       19,488  
Deferred tax assets
    8,900       3,341  
Total current assets
    770,926       615,277  
                 
PLANT AND EQUIPMENT, net
    584,948       555,111  
                 
OTHER ASSETS:
               
Advances on equipment purchase
    20,435       8,419  
Investment in unconsolidated subsidiaries
    13,712       20,022  
Long-term deferred expense
    608       2,069  
Intangible assets, net of accumulated amortization
    23,568       23,733  
Note issuance cost
    -       406  
Plant and equipment to be disposed
    2,443       3,026  
Total other assets
    60,766       57,675  
                 
TOTAL ASSETS
  $ 1,416,640     $ 1,228,063  
                 
LIABILITIES AND EQUITY
 
                 
CURRENT LIABILITIES:
               
Short term notes payable
  $ 302,113     $ 254,608  
Accounts payable
    174,012       158,126  
Accounts payable - related parties
    65,756       48,151  
Short term loans - bank
    178,122       148,968  
Short term loans - others
    100,707       110,358  
Short term loans - related parties
    92,814       11,751  
Other payables and accrued liabilities
    13,922       16,222  
Other payable - related parties
    22,615       3,706  
Customer deposit
    190,691       208,765  
Customer deposit - related parties
    47,809       3,791  
Deposit due to sales representatives
    45,845       49,544  
Taxes payable
    2,195       6,921  
Distribution payable to former shareholders
    13,071       16,434  
Total current liabilities
    1,249,672       1,037,345  
                 
CONVERTIBLE NOTES PAYABLE, net of debt discount of $0 and $2,250
 
as of September 30, 2010 and December 31, 2009, respectively
    -       1,050  
                 
DERIVATIVE LIABILITIES
    7,049       23,340  
                 
Total liabilities
    1,256,721       1,061,735  
                 
COMMITMENTS AND CONTIGENCIES                 
                 
EQUITY:
               
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares
 
issued and outstanding as of September 30, 2010 and December 31, 2009, respectively
    3       3  
Common Stock, $0.001 par value, 200,000,000 shares authorized, 54,678,083
 
and 51,618,595 shares issued and outstanding as of September 30, 2010
 
and December 31, 2009, respectively
    55       52  
Paid-in-capital
    104,510       95,588  
Statutory reserves
    6,341       6,162  
Accumulated deficits
    (26,307 )     (16,411 )
Accumulated other comprehensive income
    10,860       8,336  
Total shareholders' equity
    95,462       93,730  
                 
NONCONTROLLING INTERESTS
    64,457       72,598  
                 
Total equity
    159,919       166,328  
                 
TOTAL LIABILITIES AND EQUITY
  $ 1,416,640     $ 1,228,063  
 
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 (LOSS)
 
(UNAUDITED)
 
(In thousands, except per share data)
 
                         
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
REVENUES
  $ 340,703     $ 361,652     $ 1,041,504     $ 875,374  
                                 
REVENUES - RELATED PARTIES
    119,574       123,100       373,475       341,119  
                                 
    TOTAL REVENUES
    460,277       484,752       1,414,979       1,216,493  
                                 
COST OF REVENUES
    338,931       340,483       1,025,944       822,392  
                                 
COST OF REVENUES - RELATED PARTIES
    105,754       104,534       360,350       318,946  
                                 
    TOTAL COST OF REVENUES
    444,685       445,017       1,386,294       1,141,338  
                                 
GROSS PROFIT
    15,592       39,735       28,685       75,155  
                                 
SELLING, GENERAL AND  ADMINISTRATIVE EXPENSES
    9,562       10,487       35,380       29,219  
                                 
INCOME (LOSS) FROM OPERATIONS
    6,030       29,248       (6,695 )     45,936  
                                 
OTHER INCOME (EXPENSE)
                               
    Interest income
    1,739       826       3,476       2,468  
    Finance/interest expense
    (10,190 )     (4,174 )     (37,617 )     (18,422 )
    Change in fair value of derivative liabilities
    (1,089 )     (616 )     13,579       (23,228 )
    Gain from debt extinguishment
                            2,932  
    Government grant
    1,381       -       1,381       3,433  
    Income from equity investments
    839       963       5,595       3,661  
    Other non-operating income, net
    (350 )     (2,985 )     217       (2,332 )
         Total other expense, net
    (7,670 )     (5,986 )     (13,369 )     (31,488 )
                                 
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES
                         
    AND NONCONTROLLING INTEREST
    (1,640 )     23,262       (20,064 )     14,448  
                                 
PROVISION FOR INCOME TAXES
                               
    Current
    5,332       6,717       860       12,451  
    Deferred
    (5,224 )     (2,925 )     (5,559 )     (5,265 )
           Total provision (benefit) for income taxes
    108       3,792       (4,699 )     7,186  
                                 
NET (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
    (1,748 )     19,470       (15,365 )     7,262  
                                 
Less: Net income (Loss) attributable to noncontrolling interest
    513       9,088       (5,469 )     21,421  
                                 
NET (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
    (2,261 )     10,382       (9,896 )     (14,159 )
                                 
OTHER COMPREHENSIVE INCOME (LOSS)
                               
    Foreign currency translation adjustments
    2,462       (246 )     2,524       (174 )
    Comprehensive income attributable to noncontrolling interest
    1,075       1,440       1,239       334  
                                 
COMPREHENSIVE INCOME (LOSS)
  $ 1,276     $ 11,576     $ (6,133 )   $ (13,999 )
                                 
WEIGHTED AVERAGE NUMBER OF SHARES
                               
    Basic
    53,941,191       44,973,882       52,576,928       40,295,924  
    Diluted
    53,941,191       45,750,152       52,576,928       40,295,924  
                                 
(LOSS) EARNINGS PER SHARE
                               
    Basic
  $ (0.04 )   $ 0.23     $ (0.19 )   $ (0.35 )
    Diluted
  $ (0.04 )   $ 0.22     $ (0.19 )   $ (0.35 )
 
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)
 
                                                                   
   
Preferred stock
   
Common stock
         
Retained earnings / Accumulated deficits
         
Accumulated 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     $ 37,128     $ 4,902     $ 10,093     $ (960 )   $ 8,705     $ 54,330     $ 114,237  
                                                                                         
Net loss attributable to controlling interest
                                                    (14,159 )                             (14,159 )
Net income attributable to noncontrolling interest
                                                                            21,421       21,421  
Disposal of subsidiaries
                                                                            (293 )     (293 )
Distribution of dividend to noncontrolling shareholders
                                                                            (3,305 )     (3,305 )
Adjustment to statutory reserve
                                            1,925       (1,925 )                                
Common stock issued for compensation
                    323,050       0.32       885                                               885  
Common stock issued for interest payments
                    196,306       0.20       745                                               745  
Common stock issued for repayment of debt
                    300,000       0.30       1,800                                               1,800  
Notes converted to common stock
                    7,045,274       7.05       32,073                                               32,080  
Make whole shares issued on notes conversion
                    1,795,976       1.80       7,085                                               7,087  
Common stock transferred by CEO for compensation
                                    207                                               207  
Reduction of registered capital
                                                            960                       960  
Foreign currency translation adjustments
                                                                    (174 )     334       160  
                                                                                         
BALANCE, September 30, 2009, unaudited
    3,092,899     $ 3       45,789,439     $ 46     $ 79,923     $ 6,827     $ (5,991 )   $       $ 8,531     $ 72,487     $ 161,826  
                                                                                         
Net loss attributable to controlling interest
                                                    (11,085 )                             (11,085 )
Net income attributable to noncontrolling interest
                                                                            142       142  
Adjustment to statutory reserve
                                            (665 )     665                                  
Common stock issued for compensation
                    273,600       0.45       990                                               990  
Common stock transferred by CEO for compensation
                                    69                                               69  
Common stock issued for private placement
                    5,555,556       5.56       14,606                                               14,612  
Foreign currency translation adjustments
                                                                    (195 )     (31 )     (226 )
                                                                                         
BALANCE, December 31, 2009
    3,092,899     $ 3       51,618,595     $ 52     $ 95,588     $ 6,162     $ (16,411 )   $       $ 8,336     $ 72,598     $ 166,328  
                                                                                         
Net loss attributable to controlling interest
                                                    (9,896 )                             (9,896 )
Net loss attributable to noncontrolling interest
                                                                            (5,469 )     (5,469 )
Distribution of dividend to noncontrolling shareholders
                                                                            (3,934 )     (3,934 )
Noncontrolling interest acquired
                                                                            (1,270 )     (1,270 )
Registered capital received from noncontrolling shareholders
                                                                            1,182       1,182  
Adjustment to special reserve
                                            179                               111       290  
Common stock issued for compensation
                    571,650       0.57       1,810                                               1,811  
Common stock issued for repayment of debt
                    928,163       0.93       2,403                                               2,404  
Common stock transferred by CEO for compensation
                                    207                                               207  
Notes converted to common stock
                    1,208,791       1.21       3,544                                               3,545  
Make whole shares issued on notes conversion
                    271,507       0.27       741                                               741  
Common stock issued for interest payments
                    79,377       0.08       217                                               217  
Foreign currency translation adjustments
                                                                    2,524       1,239       3,763  
                                                                                         
BALANCE, September 30, 2010, unaudited
    3,092,899     $ 3       54,678,083     $ 55     $ 104,510     $ 6,341     $ (26,307 )   $       $ 10,860     $ 64,457     $ 159,919  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
5

 
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
             
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
 
(UNAUDITED)
 
(In thousands, except per share data)
 
             
   
Nine months ended September 30,
 
      2,010    
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
             
Net loss attributable to controlling interest
  $ (9,896 )   $ (14,159 )
Net (loss) income attributable to noncontrolling interest
    (5,469 )     21,421  
Consolidated net (loss) income
    (15,365 )     7,262  
Adjustments to reconcile net loss to cash used in operating activities:
               
Depreciation and amortization
    31,175       23,474  
Debt extinguishment
    -       (2,932 )
Impairment of long-lived assets
    1,737       -  
Loss (gain) on disposal of equipment
    1,459       (3,312 )
Stock issued for services and compensation
    2,018       1,092  
Make whole shares interest expense on notes conversion
    1,130       2,754  
Amortization of deferred note issuance cost and discount on convertible notes
    17       56  
Change in fair value of derivative instrument
    (13,579 )     23,228  
Income from investment
    (5,510 )     (3,661 )
Deferred tax assets
    (5,499 )     5,265  
Changes in operating assets and liabilities