Attached files
file | filename |
---|---|
EX-31.1 - GENERAL STEEL HOLDINGS INC | v201561_ex31-1.htm |
EX-32.1 - GENERAL STEEL HOLDINGS INC | v201561_ex32-1.htm |
EX-32.2 - GENERAL STEEL HOLDINGS INC | v201561_ex32-2.htm |
EX-31.2 - GENERAL STEEL HOLDINGS INC | v201561_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
|
||||||||
Notes
receivable
|
(36,702 | ) | 10,826 | |||||
Accounts
receivable
|
(12,190 | ) | (3,938 | ) | ||||
Accounts
receivable - related parties
|
- | (2,709 | ) | |||||
Other
receivables
|
1,323 | 78 | ||||||
Other
receivables - related parties
|
(25,061 | ) | 15,766 | |||||
Inventories
|
(44,861 | ) | (161,833 | ) | ||||
Advances
on inventory purchases
|
(12,921 | ) | 7,918 | |||||
Advances
on inventory purchases - related parties
|
(52,665 | ) | (15,199 | ) | ||||
Accounts
payable
|
12,513 | 26,053 | ||||||
Accounts
payable - related parties
|
30,294 | 8,772 | ||||||
Other
payables and accrued liabilities
|
(3,542 | ) | 10,565 | |||||
Other
payables - related parties
|
18,510 | (2,594 | ) | |||||
Customer
deposits
|
(19,283 | ) | 12,995 | |||||
Customer
deposits - related parties
|
43,045 | 38,245 | ||||||
Taxes
payable
|
811 | (930 | ) | |||||
Distribution
payable to former shareholders
|
- | (4,398 | ) | |||||
Net
cash used in operating activities
|
(103,146 | ) | (7,157 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Acquired
long term investment
|
(1,277 | ) | (6,593 | ) | ||||
Proceeds
from disposal of long-term investment
|
3,678 | - | ||||||
Capital
contributed by noncontrolling interest
|
1,177 | - | ||||||
Payments
made to dividend distribution
|
(3,835 | ) | - | |||||
Dividend
receivable
|
938 | 1,775 | ||||||
Deposits
due to sales representatives
|
(4,028 | ) | 31,113 | |||||
Cash
proceeds from sales of equipment
|
306 | 6,253 | ||||||
Advance
on equipment purchases
|
(12,698 | ) | 1,895 | |||||
Equipments
purchase and intangible assets
|
(56,906 | ) | (103,572 | ) | ||||
Net
cash used in investing activities
|
(72,645 | ) | (69,129 | ) | ||||
CASH
FLOWS FINANCING ACTIVITIES:
|
||||||||
Restricted
cash
|
9,281 | (66,830 | ) | |||||
Notes
receivable - restricted
|
(12,530 | ) | - | |||||
Borrowings
on short term loans - bank
|
224,425 | 161,806 | ||||||
Payments
on short term loans - bank
|
(198,770 | ) | (77,074 | ) | ||||
Borrowings
on short term loan - others
|
128,115 | 104,495 | ||||||
Payments
on short term loans - others
|
(137,413 | ) | (83,759 | ) | ||||
Borrowings
on short term loan - related parties
|
91,202 | 2,932 | ||||||
Payments
on short term loans - related parties
|
(11,783 | ) | - | |||||
Borrowings
on short term notes payable
|
573,413 | 545,164 | ||||||
Payments
on short term notes payable
|
(531,850 | ) | (471,126 | ) | ||||
Net
cash provided by financing activities
|
134,090 | 115,608 | ||||||
EFFECTS
OF EXCHANGE RATE CHANGE IN CASH
|
1,361 | 72 | ||||||
(DECREASE)
INCREASE IN CASH
|
(40,340 | ) | 39,394 | |||||
CASH,
beginning of period
|
82,118 | 14,895 | ||||||
CASH,
end of period
|
$ | 41,778 | $ | 54,289 | ||||
Non-cash
transactions of investing and financing activities:
|
||||||||
Share
issuance for debt settlement
|
$ | 2,404 | $ | - |
The
accompanying notes are an integral part of these consolidated financial
statements.
6
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 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.
Recent
developments
The
Company has formed a new joint venture, Tianwu General Steel Material Trading
Co., Ltd. (“Tianwu JV”) with Tianjin Materials and Equipment Group Corporation.
The contributed capital of Tianwu JV is approximately $2.9 million (or RMB20
million), of which General Steel holds a 60% controlling interest.
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:
Subsidiary
|
Percentage
of
Ownership
|
||||
General
Steel Investment Co., Ltd.
|
British
Virgin Islands
|
100.0
|
%
|
||
General
Steel (China) Co., Ltd. (“GS (China)”)
|
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. (“Longmen Joint Venture”)
|
PRC
|
60.0
|
%
|
||
Maoming
Hengda Steel Company, Ltd. (“Maoming Hengda”)
|
PRC
|
99.0
|
%
|
||
Tianwu
General Steel Material Trading Co., Ltd
|
PRC
|
60.0
|
%
|
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.
7
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Use of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in 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.
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 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 September 30, 2010 and December 31, 2009 amounted to $228.3 million and
$274.2 million, respectively. As of September 30, 2010, $0.6 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’s five major customers are all distributors and collectively represented
approximately 29.2% and 28.5% of the Company’s total sales for the three months
and nine months ended September 30, 2010, respectively. The Company had five
major customers, which represented approximately 27% and 20% of the Company’s
total sales for the three months and nine months ended September 30, 2009,
respectively. None of these five customers accounts for more than 10% of total
sales for the three months and nine months ended September 30, 2010 and 2009.
Five customers accounted for 0% and 20% of total accounts receivable as of
September 30, 2010 and 2009, respectively.
For the
three months and nine months ended September 30, 2010, the Company purchased
approximately 40.2% and 45.6% of its raw materials from five major suppliers,
respectively, of which two of the five vendors account individually more than
10% of the total purchase. The purchase from the five major suppliers represents
approximately 29% and 48% of Company’s total purchase for the three months and
nine months ended September 30, 2009, respectively. The top five vendors
accounted for 16.8% and 20% of total accounts payable as of September 30, 2010
and 2009, respectively.
Revenue
recognition
The
Company follows the accounting principles generally accepted 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, we have no other significant
obligations 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 13% to 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.
8
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
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.
Translation
adjustments included in Accumulated other comprehensive income amounted to $10.9
million and $8.3 million as of September 30, 2010 and December 31, 2009,
respectively. The balance sheet amounts, with the exception of equity at
September 30, 2010 and December 31, 2009, were translated at 6.68 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
nine months ended September 30, 2010 and 2009 were 6.80 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.
|
9
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
|
·
|
Level
3 inputs to the valuation methodology are unobservable and significant to
the fair value.
|
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.
(in
thousands)
|
Carrying
Value as of September 30, 2010
|
Fair
Value Measurements at September 30, 2010 Using Fair Value
Hierarchy
|
|||||||||
(Unaudited)
|
Level
1
|
Level
2
|
Level
3
|
||||||||
Derivative
liabilities
|
$ | 7,049 | $ | 7,049 |
Except
for the 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:
Convertible
Notes
|
||||
(in
thousands)
|
||||
Balance,
December 31, 2009
|
$ | 1,050 | ||
Current
period effective interest charges on notes
|
389 | |||
Current
period payments made for principal and stated interest
|
(217 | ) | ||
Current
period note converted carrying value
|
(1,222 | ) | ||
Balance,
September 30, 2010 (Unaudited)
|
$ | - |
Cash
Cash
includes cash on hand and demand deposits in banks with original maturities of
less than three months.
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 accounts 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.
10
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
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 $67.1 million and $29.2 million outstanding as
of September 30, 2010 and December 31, 2009, respectively.
Restricted
notes receivable represents notes receivable pledged as collateral for
short-term loans from banks. As of September 30, 2010 and December 31, 2009,
restricted notes receivable amounted to $12.8 million and $0,
respectively.
Inventories
Inventories
are stated at the lower of cost or market using the weighted average cost
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 $0.9 million and $2.3 million for the three months ended September
30, 2010 and 2009, respectively. Shipping and handling for the nine months ended
September 30, 2010 and 2009 amounted to $5.9 million and $4.2 million,
respectively.
Intangible
assets
All land
in the People’s Republic of China is owned by the government. However, the
government grants “land use rights”. GS (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. Management elected to amortize the land use
rights over the ten-year business term because its initial business license had
a ten-year term. Although GS (China) became a Sino-Foreign Joint Venture in
2004, and obtained a new business license for twenty years, the Company decided
to continue amortizing the land use rights over the original ten-year business
term.
Longmen
Group contributed land use rights for a total amount of $21.8 million to the
Longmen Joint Venture. The contributed land use rights are for 50 years and
expire in 2048 to 2052.
Maoming
Hengda has land use rights amounting to $2.2 million for 50 years that expire in
2054.
Entity
|
Original
Cost
|
Expires
on
|
||||
(in
thousands)
|
||||||
GS
(China)
|
$ | 3,481 |
2050
& 2053
|
|||
Longmen
Joint Venture
|
$ | 21,803 |
2048
& 2052
|
|||
Maoming
Hengda
|
$ | 2,235 |
2054
|
11
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
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 September 30, 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 and 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. For the three and nine months ended September 30, 2010, the
Company impaired long lived assets in the amount of $0 million and $1.7
million.
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.
12
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Longmen
Joint Venture and its subsidiary - Hancheng Tongxing Metallurgy Co., Ltd.
(“Tongxing Metallurgy”) invested in several companies from 2004 to
2009.
Unconsolidated
subsidiary
|
Year
acquired
|
Amount
invested
(In
thousands)
|
%
owned
|
||||||||
Shaanxi
Daxigou Mining Co., Ltd
|
2004
|
$ | 3,856 | 22.0 | |||||||
Shaanxi
Xinglong Thermoelectric Co., Ltd
|
2004
- 2007
|
6,930 | 20.7 | ||||||||
Shaanxi
Longgang Group Xian Steel Co., Ltd
|
2005
|
110 | 10.0 | ||||||||
Huashan
Metallurgical Equipment Co., Ltd.
|
2003
|
|
1,828 | 25.0 | |||||||
Xian
Delong Powder Engineering Materials Co., Ltd.
|
2006
|
988 | 27.0 | ||||||||
Total
(Unaudited)
|
$ | 13,712 |
Total
investment income in unconsolidated subsidiaries amounted to $0.7 million and
$1.0 million for the three months ended September 30, 2010 and 2009,
respectively. Total investment income in unconsolidated subsidiaries amounted to
$4.0 million and $3.6 million for the nine months ended September 30, 2010 and
2009, respectively.
On May
2010, Tongxing Metallurgy disposed its long-term investment in Shaanxi Longmen
Coal Chemical Industry Co., Ltd to an unrelated party for consideration of $8.1
million (RMB 55 million). Tongxing Metallurgy realized a $1.5 million gain on
disposal for the nine months ended September 30, 2010.
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 accounting principles generally accepted 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.
Income
taxes
The
Company accounts for income taxes in accordance with the accounting principles
generally accepted 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 accounting principles generally
accepted 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.
13
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
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.
Noncontrolling
interests
Effective
January 1, 2009, the Company adopted accounting principles generally accepted 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.
14
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
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
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. However, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.
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.
In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The
Company does not expect the adoption of ASU 2010-17 to have a significant impact
on its consolidated financial statements.
In April
2010, the FASB issued Accounting Standard Update 2010-17, “Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition” or ASU 2010-17. This Update provides
guidance on the recognition of revenue under the milestone method, which allows
a vendor to adopt an accounting policy to recognize all of the arrangement
consideration that is contingent on the achievement of a substantive milestone
(milestone consideration) in the period the milestone is achieved. The
pronouncement is effective on a prospective basis for milestones achieved in
fiscal years and interim periods within those years, beginning on or after
June 15, 2010. The adoption of ASU 2010-17 does not have a significant
impact on the Company’s consolidated financial statements.
15
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
In July
2010, the FASB issued Accounting Standards Update 2010-20 which amend
“Receivables” (Topic 310). ASU 2010-20 is intended to provide additional
information to assist financial statement users in assessing an entity’s risk
exposures and evaluating the adequacy of its allowance for credit losses. The
disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period are effective for interim
and annual reporting periods beginning on or after December 15, 2010. The
amendments in ASU 2010-20 encourage, but do not require, comparative disclosures
for earlier reporting periods that ended before initial adoption. However, an
entity should provide comparative disclosures for those reporting periods ending
after initial adoption. The Company does not expect the adoption of ASU 2010-20
to have a significant impact on its consolidated financial
statements.
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, net
Accounts
receivable, including related party receivables, net of allowance for doubtful
accounts consists of the following:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Accounts
receivable
|
$ | 21,605 | $ | 9,015 | ||||
Less:
allowance for doubtful accounts
|
(390 | ) | (490 | ) | ||||
Net
accounts receivable
|
$ | 21,215 | $ | 8,525 |
Movement
of allowance for doubtful accounts is as follows:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Beginning
balance
|
$ | 490 | $ | 401 | ||||
Charge
to expense
|
- | 246 | ||||||
Less
Write-off
|
(109 | ) | (157 | ) | ||||
Exchange
rate effect
|
9 | - | ||||||
Ending
balance
|
$ | 390 | $ | 490 |
16
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Note
4 – Inventories
Inventories
consist of the following:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Supplies
|
$ | 13,888 | $ | 12,235 | ||||
Raw
materials
|
168,769 | 134,874 | ||||||
Finished
goods
|
68,101 | 60,978 | ||||||
Total
inventories
|
$ | 250,758 | $ | 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. For the three and nine months
ended September 30, 2010, no inventory has been written off and included in cost
of goods sold.
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 $90.1 million and $31.4 million as of
September 30, 2010 and December 31, 2009, respectively.
Note 6 – Plant and equipment,
net
Plant and
equipment consist of the following:
September
30
2010
|
December
31
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Buildings
and improvements
|
$ | 122,420 | $ | 117,625 | ||||
Machinery
|
494,652 | 467,595 | ||||||
Transportation
and other equipment
|
11,729 | 12,824 | ||||||
Construction
in progress
|
54,046 | 31,715 | ||||||
Subtotal
|
682,846 | 629,759 | ||||||
Less
accumulated depreciation
|
(97,899 | ) | (74,648 | ) | ||||
Total
|
$ | 584,948 | $ | 555,111 |
17
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Construction
in progress consisted of the following as of September 30, 2010:
Construction
in progress
|
Value
|
Estimated
completion
|
Estimated
additional
cost
|
|||||
description
|
In
thousands
|
date
|
In
thousands
|
|||||
(Unaudited)
|
(Unaudited)
|
|||||||
Employees
cafeteria
|
$
|
1,806
|
December,
2010
|
3,134
|
||||
3#
lime stone grinding machine
|
2,312
|
November,
2010
|
45
|
|||||
Rebar
production line
|
36,253
|
November,
2010
|
45,510
|
|||||
Steel
scrap cross
|
1,825
|
November,
2010
|
-
|
|||||
Small
Rebar production line
|
8,122
|
December,
2010
|
1,140
|
|||||
Others
|
3,728
|
By
the end of 2011
|
2,140
|
|||||
Total
|
54,046
|
51,969
|
Long
lived assets, including construction in progress are reviewed if events and
changes in circumstances indicate that its carrying amount may not be
recoverable, to determine whether their carrying value has become impaired. The
Company determined that the construction in progress in Maoming Hengda was
impaired as of June 30, 2010. For the three and nine months ended September 30,
2010, $0 million and $1.7 million construction-in-progress has been written off
and included in operating expense.
Depreciation,
including amounts in cost of sales, for the three months ended September 30,
2010 and 2009 amounted to $11.6 million and $10.9 million, respectively, and for
the nine months ended September 30, 2010 and 2009, amount to $30.4 million and
$22.8 million, respectively.
The
Company has fixed assets to be disposed amounting to $2.4 million and $3.0
million as of September 30, 2010 and December 31, 2009,
respectively.
Note 7 – Intangible assets,
net
Intangible
assets consist of the following:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Land
use rights
|
$ | 28,136 | $ | 27,519 | ||||
Software
|
527 | 424 | ||||||
Subtotal
|
28,663 | 27,943 | ||||||
Accumulated
amortization – land use right
|
(4,958 | ) | (4,143 | ) | ||||
Accumulated
amortization – software
|
(137 | ) | (67 | ) | ||||
Subtotal
|
(5,095 | ) | (4,210 | ) | ||||
Intangible
assets, net
|
$ | 23,568 | $ | 23,733 |
18
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
The gross
amount of the intangible assets amounted to $28.7 million and $27.9 million as
of September 30, 2010 and December 31, 2009, respectively. The remaining
weighted average amortization period is 32.2 years.
Total
amortization expense for the three months ended September 30, 2010 and 2009
amounted to $0.3 million and $0.3 million, respectively, and for the nine months
ended September 30, 2010 and 2009, amounted to $0.8 million and $0.7 million,
respectively.
The
estimated aggregate amortization expense for each of the five succeeding years
is as follows:
Years
ended
|
Estimated
Amortization Expense
|
Gross
carrying Amount
|
|||||
(in
thousands)
|
(in
thousands)
|
||||||
September
30, 2011
|
$ | 1,048 | $ | 22,520 | |||
September
30, 2012
|
1,048 | 21,472 | |||||
September
30, 2013
|
730 | 20,742 | |||||
September
30, 2014
|
721 | 20,021 | |||||
September
30, 2015
|
721 | 19,300 | |||||
Thereafter
|
19,300 | - | |||||
Total
|
$ | 23,568 |
Note
8 – Debt
Short-term notes
payable
Short-term
notes payable are lines of credit extended by the banks. The banks in turn issue
the Company a bank 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
is guaranteed by the bank for its complete face value. The banks usually do not
charge interest on these notes but 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. Restricted cash as a guarantee for the notes
payable amounted to $182.4 million and $192.0 million as of September 30, 2010
and December 31, 2009, respectively.
The
Company had the following short-term notes payable:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
GS
(China): Notes payable from banks in China, due various dates from October
2010 to January 2011. Restricted cash required of $8.7 million and $4.0
million as of September 30, 2010 and December 31, 2009, respectively;
guaranteed by third parties.
|
$ | 11,695 | $ | 7,628 | ||||
Longmen
Joint Venture: Notes payable from banks in China, due various dates from
October 2010 to February 2011. Restricted cash of $173.7 million and
$162.3 million as of September 30, 2010 and December 31, 2009,
respectively; some notes are guaranteed by third parties while others are
secured by equipments and land use rights.
|
290,418 | 216,173 | ||||||
Bao
Tou: Notes payable from banks in China, restricted cash of $0 million and
$5.1 million as of September 30, 2010 and December 31, 2009, respectively;
pledged by buildings.
|
10,269 | |||||||
Maoming
Hengda: Notes payable from banks in China, Restricted cash of $0 and $20.6
million as of September 30, 2010 and December 31, 2009,
respectively.
|
- | 20,538 | ||||||
Total
short-term notes payable
|
$ | 302,113 | $ | 254,608 |
19
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Short-term
loans
Short-term
loans represent amounts due to various banks, other companies and individuals,
and related parties normally due within one year. The principles of loans are
due at maturity. However, the loans can be renewed with the banks, related
parties and other parties.
Short
term loans due to banks, related parties and other parties consisted of the
following:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
GS
(China): Loan from banks in China, due various dates from October 2010 to
September 2011. Weighted average interest rate 5.7% per annum; some are
guaranteed by third parties while others are secured by equipment /
inventory.
|
$ | 23,901 | $ | 25,476 | ||||
Longmen
Joint Venture: Loan from banks in China, due various dates from February
2011 to September 2011. Weighted average interest rate 5.5% per annum;
some are guaranteed by third parties or notes receivables while others are
secured by equipment / buildings / land use right /
inventory.
|
154,221 | 123,492 | ||||||
Total
short-term loans - bank
|
$
|
178,122
|
$
|
148,968
|
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Longmen
Joint Venture: Loans from various unrelated companies and individuals, due
various dates from November 2010 to February 2011, and weighted average
interest rates 6.2% per annum.
|
$ | 86,512 | $ | 91,106 | ||||
Maoming
Hengda: Loans from one unrelated parties and one related party, due on
demand, none interest bearing.
|
14,195 | 19,252 | ||||||
Total
short-term loans - others
|
$ | 100,707 | $ | 110,358 |
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Longmen
Joint Venture: Loans from Shangang Company, due on July 2011, and interest
rates 5.3% per annum.
|
$ | 74,850 | $ | - | ||||
Longmen
Joint Venture: Loans from LG Group and its subsidiary, due on July 2011,
and interest rates 5.8% per annum.
|
17,964 | 4,401 | ||||||
Qiu
Steel: Related party loans from Tianjin Heng Ying and Tianjin Da Zhan, due
on 2010. Annual interest rate of 5.0%.
|
- | 7,350 | ||||||
Total
short-term loans - related parties
|
$ | 92,814 | $ | 11,751 |
The
Company had various loans from unrelated companies. The balances amounted to
$100.7 million and $110.4 million as of September 30, 2010 and December 31,
2009, respectively. Of the $100.7 million, $14.2 million loans carry no interest
and the remaining $86.5 million are subject to interest rates ranging from 3.6%
to 8.4%. All short term loans from unrelated companies are due on demand and
unsecured.
20
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Total
interest expenses, excluding capitalized interest, amounted to $3.1 million and
$8.3 million for the three months ended September 30, 2010, and 2009,
respectively, and interest expenses amounted to $12.8 million and $16.1 million
for the nine months ended September 30, 2010 and 2009,
respectively.
Capitalized
interest amounted to $0.5 million and $6.7 million for the three months ended
September 30, 2010 and 2009, respectively, and $1.6 million and $12.8 million
for the nine months ended September 30, 2010 and 2009,
respectively.
Note
9 – Customer deposits
Customer
deposits represent amounts advanced by customers on product orders. The product
normally is shipped within one month after receipt of the advance payment, and
the related sale is recognized in accordance with the Company’s revenue
recognition policy. As of September 30, 2010 and December 31, 2009, customer
deposits amounted to $238.5 million and $212.6 million, including deposits paid
to related parties amounted to $47.8 million and $3.8 million,
respectively.
Note
10 – Deposit due to sales representatives
Longmen
Joint Venture entered into agreements with various entities to act as the
Company’s exclusive sales agent in a specified area. These exclusive
sales agents must meet certain criteria and are required to deposit a certain
amount of money with the Company. In return the sales agents receive exclusive
sales rights to a specified area and discounted prices on products they order.
These deposits bear no interest and are required to be returned to the sales
agent once the agreement has been terminated. The Company had $45.8 million and
$49.5 million in deposits due to sales representatives as of September 30, 2010
and December 31, 2009, respectively.
Note
11 – Convertible notes and derivative liabilities
On
December 13, 2007, the Company entered into a Securities Purchase Agreement (the
“Agreement”) with certain institutional investors (the “Buyers”) issuing $40.0
million in promissory notes (“Notes”) and 1,154,958 warrants. The warrants can
be converted to common stock through May 13, 2013 at an initial exercise price
of $13.51 per share, subject to customary anti-dilution adjustments. On December
24, 2009, the warrant exercise price was reset to $5.00 per share.
The Notes
bear initial interest at 3% per annum, which will be increased each year as
specified in the Agreement, payable semi-annually in cash or shares of the
Company’s common stock. The Notes have a five year term through December 12,
2012. They are convertible into shares of the Company’s common stock, subject to
customary anti-dilution adjustments. The initial conversion price was $12.47
which was reset to $4.25 on May 7, 2009. The Company may redeem the Notes at
100% of the principal amount, plus any accrued and unpaid interest, beginning
December 13, 2008, provided the market price of the common stock is at least
150% of the then applicable conversion price for 30 consecutive trading days
prior to the redemption.
Pursuant
to the generally accepted accounting standards of the United States for
convertible debt and debt issued with stock purchase warrants, the Company
discounted the Notes equal to the fair value of the warrants. The Notes were
further discounted for the fair value of the conversion option. The combined
discount is being amortized to interest expense over the life of the Notes using
the effective interest method.
21
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
The fair
value of conversion option and the warrants were initially calculated using the
Cox Rubenstein Binomial model based on the following variables:
|
·
|
Expected
volatility adjusted to 125%
|
|
·
|
Expected
dividend yield of 0%
|
|
·
|
Risk-free
interest rate of 1.27%
|
|
·
|
Expected
lives of five years
|
|
·
|
Market
price at issuance date of $10.43
|
|
·
|
Strike
price of $12.47 and $13.51, for the conversion option and the warrants,
respectively
|
Pursuant
to accounting principles generally accepted in the United States, the Company
determined that both the warrants and the conversion option embedded in the
Notes meet the definition of a derivative instrument and must be carried as a
liability and recorded at fair value in each reporting period. On
December 13, 2007, the Company recorded $34.7 million as derivative liability,
including $9.3 million for the fair value of the warrants and $25.4 million for
fair value of the conversion option. The initial carrying value of the Notes was
$5.3 million. The financing cost of $5.2 million was recorded as note issuance
cost and is being amortized to interest expense over the term of the Notes using
the effective interest method.
Reset of conversion
price
The
derivative liability related to the embedded conversion option was adjusted as
of May 7, 2009, based on the revised conversion price. As a result of the
reduced conversion price, the derivative liability increased as of May 7, 2009
by $27.1 million, which amount is included in the change in the value of the
derivative liability in the consolidated statement of operations and other
comprehensive income (loss).
Note
conversion
On August
5, 2010, the $3.3 million Notes were converted to 1,208,791 shares of common
stocks. Pursuant to accounting principles generally accepted in the United
States, the Company valued the conversion option on the note conversion date. A
total of $3.5 million of the carrying value and derivative liability had been
reclassified into equity. In connection with such conversion, the Company
incurred the make whole interest expense of $0.7 million and accrued interest of
$0.2 million for the period ended September 30, 2010. All accrued interest and
make-whole interest were settled with 350,885 shares of common
stocks.
$30.0
million of the Notes was converted to 7,045,274 shares of common stock at a
conversion price of $4.2511 in 2009. A total of $32.1 million of the carrying
value and derivative liability had been reclassified into equity. According to
the convertible note agreement, the Company incurred the make whole interest
expense of $8.8 million for the year ended December 31, 2009.
The
carrying value of the Notes was $0 million and $1.1 million as of September 30,
2010 and December 31, 2009, respectively. The effective interest charges on the
Notes totaled $0.1 million and $0.3 million for the three months ended September
30, 2010 and 2009, respectively, and $0.4 million and $2.1 million for the nine
months ended September 30, 2010 and 2009, respectively.
22
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Note
issuance cost was amortized to interest expense for the three months ended
September 30, 2010 and 2009 amounted to $0.003 million and $0.012 million,
respectively. Note issuance cost was amortized to interest expense for the nine
months ended September 30, 2010 and 2009 amounted to $0.016 million and $0.056
million, respectively. A total of $0.4 million Deferred fees remaining
unamortized at the date of conversion are transferred (charged) to equity
(debited to additional paid-in capital).
Reset of warrants exercise
price
On
December 24, 2009, the holders of the existing warrants to purchase 1,154,958
shares of our common stock (See Note 11) entered into warrant reset agreements
whereby the exercise price was reset from $13.51 to $5.00 per share and the
number of shares of common stock issuable upon exercise of warrants was
increased by 2.3775 times from 1,154,958 to 3,900,871. The Company booked $10.1
million derivative loss in 2009 for this reset accordingly.
As of
December 31 2009, the balance of derivative liabilities, including 2009 issued
warrants (see Note 17), was $23.3 million, which consisted of $20.8 million for
the warrants and $2.5 million for the conversion option. As of September 30
2010, the balance of derivative liabilities was $7.0 million.
Note
12 – Supplemental disclosure of cash flow information
Interest
paid amounted to $4.5 million and $4.7 million for the three months ended
September 30, 2010 and 2009, respectively, and for the nine months ended
September 30, 2010 and 2009, amounted to $13.2 million and $9.3 million,
respectively.
Income
tax payments amounted to $0.3 million and $0.6 million for the
three months ended September 30, 2010 and 2009, respectively, and for the nine
months ended September 30, 2010 and 2009, amounted to $1.6 million and $2.4
million, respectively.
Effective
Interest charge on the Notes of $1.1 million was capitalized into construction
in progress for the nine months ended September 30, 2010.
Note
13 - Gain from debt extinguishment and Government grant
Debt
extinguishment
For the
nine months ended September 30, 2009, the Company recorded gain from debt
extinguishment totaling $2.9 million. In 2009, Maoming Hengda, a subsidiary,
entered into a Debt Waiver Agreement with Guangzhou Hengda, pursuant to which
Guangzhou Hengda agreed to waive $2.9 million (RMB 20.0 million) of debt that
Maoming Hengda owes to Guangzhou Hengda. The Company determined that the
subsequent debt settlement does not constitute a contingency at the date of
purchase as defined in the accounting standard - business Combinations and thus
should not result in a reallocation of the purchase price. The waiver is
irrevocable.
Government
grant
Due to
increasing emphasis on energy savings and pollution emission controls, Shaanxi
Province Development and Reform Commission provided incentives for local
companies for energy-saving and/or eliminate of outdated iron and steel
production machineries and equipment. Longmen Joint Venture received $1.4
million (RMB 9.4 million) in government grants for technology transformation for
energy saving for the nine months ended September 30, 2010.
23
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Longmen
Joint Venture received $4.3 million (RMB 29.2 million) in government grants for
compliance in dismantling two blast furnaces for the nine months ended September
30, 2009. The Company wrote off the residual book value of the furnaces
dismantled totaling $0.7 million (RMB 5.0 million), and recorded other income of
$3.4 million for the nine months ended September 30, 2009.
Note
14 – Taxes
Income
tax
Significant
components of the provision for income taxes on earnings and deferred taxes on
net operating losses from operation for the three and nine months ended
September 30, 2010 and 2009 are as follows:
Three
months ended
|
Nine
months ended
|
|||||||||||||||
(In
thousands)
|
September
30,
2010
|
September
30,
2009
|
September
30,
2010
|
September
30,
2009
|
||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
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 |
Significant
components of the provision for income taxes on earnings and deferred taxes on
net operating losses from operation for the nine months ended September 30, 2010
and 2009 are as follows:
According
to Chinese tax regulations, the net operating loss can be carried forward to
offset with operating income for the next five years. Management believes the
deferred tax asset is fully realizable.
The
principal component of the deferred income tax assets is as
follows:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
Beginning
balance
|
$ | 3,341 | $ | 7,487 | ||||
Net
operating loss carry forward (tax assets realized) for
subsidiaries
|
6,183 | (864 | ) | |||||
Effective
tax rate
|
25 | % | 25 | % | ||||
Deferred
tax asset
|
$ | 1,546 | $ | (216 | ) | |||
Long
Gang Headquarter, net operating loss carry-forward (tax asset
realized)
|
26,301 | (26,193 | ) | |||||
Effective
tax rate
|
15 | % | 15 | % | ||||
Deferred
tax asset
|
$ | 3,945 | $ | (3,929 | ) | |||
Exchange
difference
|
68 | (1 | ) | |||||
Totals
|
$ | 8,900 | $ | 3,341 |
24
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Under the Income Tax Laws of the PRC, the Company’s subsidiary, GS (China), is generally subject to an income tax at an effective rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments, unless the enterprise is located in a specially designated region where it allows foreign enterprises a two-year income tax exemption and a 50% income tax reduction for the following three years. GS (China) became a Chinese Sino-foreign joint venture at the time of the merger on October 14, 2004 and it became eligible for the tax benefit. GS (China) is located in Tianjin Costal Economic Development Zone and under the Income Tax Laws of Tianjin City of the PRC; it is eligible for an income tax rate of 25% and 12% for the periods ended September 30, 2010 and December 31, 2009, respectively.
The
Company’s subsidiary, Longmen Joint Venture, is located in the mid-west region
of China. It qualifies for the “Go-West” tax rebate of 15% tax rate promulgated
by the government; therefore, income tax is at 15% deducted rate till December
31, 2010.
Baotou
Steel Pipe Joint Venture is located in Inner Mongolia and is subject to an
income tax at an effective rate of 25%.
Maoming
Hengda is located in Guangdong province and is subject to an income tax at an
effective rate of 25%.
The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the nine months ended September 30, 2010 and 2009 are as
follows:
September
30,
2010
|
September
30,
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
U.S.
Statutory rates
|
34.0 | % | 34.0 | % | ||||
Foreign
income not recognized in the US
|
(34.0 | )% | (34.0 | )% | ||||
China
income taxes
|
25.0 | % | 25.0 | % | ||||
Tax
effect of income not taxable for tax purposes (1)
|
0.7 | % | (1.5 | )% | ||||
Effect
of different tax rate of subsidiaries operating in other
jurisdictions
|
(2.3 | )% | (4.0 | )% | ||||
Total
provision for income taxes
|
23.4 | % | 19.5 | % |
(1)
|
This
represents derivative expenses (income) and stock compensation expenses
incurred by the Company that are not deductible/taxable in the PRC for the
nine months ended September 30, 2010 and
2009.
|
25
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
The
Company has cumulative undistributed earnings of foreign subsidiaries of
approximately $4.8 million as of September 30, 2010, and is included in
consolidated retained earnings and will continue to be indefinitely reinvested
in international operations. Accordingly, no provision has been made for U.S.
deferred taxes related to future repatriation of these earnings, nor is it
practicable to estimate the amount of income taxes that would have to be
provided if we concluded that such earnings will be remitted in the
future.
General
Steel Holdings, Inc. was incorporated in the United States and has incurred net
operating losses for income tax purposes for the nine months ended September 30,
2010 and for the year ended December 31, 2009. The net operating loss carry
forwards for United States income taxes amounted to $1.7 million, which may be
available to reduce future years’ taxable income. These carry forwards will
expire, if not utilized, through 2030. Management believes that the realization
of the benefits from these losses appears uncertain due to the Company’s limited
operating history and continuing losses for United States income tax purposes.
Accordingly, the Company has provided a 100% valuation allowance on the deferred
tax asset benefit to reduce the asset to zero. The valuation allowance as of
September 30, 2010 was $0.6 million. The net change in the valuation allowance
for the nine months ended September 30, 2010 was $0.1 million. Management will
review this valuation allowance periodically and make adjustments as
warranted.
Value added
tax
Enterprises
or individuals who sell commodities, engage in repair and maintenance or import
and export goods in the PRC are subject to a value added tax in accordance with
PRC laws. The value added tax standard rates are 13% to 17% of the gross sales
price. A credit is available whereby VAT paid on the purchases of semi-finished
products or raw materials used in the production of the Company’s finished
products can be used to offset the VAT due on sales of the finished
product.
VAT on
sales and VAT on purchases amounted to $128.1 million and $131.4 million,
respectively, for the three months ended September 30, 2010, $123.1 million and
$106.6 million, respectively, for the three months ended September 30, 2009.
Sales and purchases are recorded net of VAT collected and paid as the Company
acts as an agent for the government. VAT taxes are not impacted by the income
tax holiday.
VAT on
sales and VAT on purchases amounted to $386.7 million and $357.8 million,
respectively, for the nine months ended September 30, 2010 and $302.3 million
and $272.5 million, respectively, for the nine months ended September 30, 2009.
Sales and purchases are recorded net of VAT collected and paid as the Company
acts as an agent for the government. VAT taxes are not impacted by the income
tax holiday.
Taxes
payable consisted of the following:
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
(in
thousands)
|
(in
thousands)
|
|||||||
VAT
taxes payable
|
$ | 1,382 | $ | 3,861 | ||||
Income
taxes payable
|
567 | 1,633 | ||||||
Misc
taxes
|
246 | 1,427 | ||||||
Totals
|
$ | 2,195 | $ | 6,921 |
26
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Note
15 – Earnings per share
The
calculation of earnings per share is as follows:
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
(in
thousands except per share data)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
(Loss)
income attributable to holders of common shares
|
$ | (2,261 | ) | $ | 10,382 | $ | (9,896 | ) | $ | (14,159 | ) | |||||
Add:
Derivative expense
|
- | 812 | - | - | ||||||||||||
Subtract:
Unamortized note issuance cost
|
- | (963 | ) | - | - | |||||||||||
Subtract:
Make whole interest
|
- | (330 | ) | - | - | |||||||||||
(Loss)
income used in diluted computation
|
$ | (2,261 | ) | $ | 9,901 | $ | (9,896 | ) | $ | (14,159 | ) | |||||
Basic
weighted average number of common shares outstanding
|
53,941,191 | 44,973,882 | 52,576,928 | 40,295,924 | ||||||||||||
Diluted
weighted average number of common shares outstanding
|
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 | ) |
There is
no dilutive effect for its earnings per share as the Company incurred net loss
for the three and nine months ended September 30, 2010.
For the
three months ended September 30, 2009, 1,154,958 warrant with exercise price of
$13.51 is excluded from EPS as they are anti-dilutive. The $3.3 million
convertible notes with conversion price of $4.2511 were included in the diluted
earnings per share. For the nine months ended September 30, 2009, the
Company incurred net loss; therefore, there is no dilutive effect for its
earnings per share.
Note
16 – Related party transactions and balances
Related party
transactions
On March
31, 2010, GS (China), a subsidiary in which the Company holds a controlling
interest, entered into a lease agreement with Tianjin Daqiuzhuang Steel Plates
Co., Ltd. (the “Lessee”), whereby GS (China) will lease its facility located at
No. 1, Tonga Street, Daqizhuang Town, Junghai County, Tianjin City to the Lessee
(the “Lease Agreement”). The Lease Agreement provides approximately 776,078
square feet of workshops, lands, equipments and other facilities to the Lessee
and allows the Company to reduce overhead costs while providing a recurring
monthly revenue stream resulting from payments due thereunder. The term of the
Lease Agreement is from January 1, 2010 to December 31, 2011 and the monthly
base rental rate due to GS (China) is approximately $0.2 million (RMB1.68
million). The lessee partially owned by a related party Beijing Wendlar Co.,
Ltd, and is managed by the former general manager of GS (China). For the three
and nine months ended September 30, 2010, GS (China) realized rental income in
the amount of $0.7 million and $2.2 million from the Lessee.
27
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
The
future rental payments to be received associated with the Lease Agreement are as
follow:
Year
ended September 30,
|
Amount
|
|||
(in
thousands)
|
||||
2011
|
$ | 3,018 | ||
2012
|
754 | |||
Thereafter
|
- | |||
Total
|
$ | 3,772 |
The
following chart summarized sales to the related party transactions for the nine
months ended September 30, 2010 and 2009.
Name
of related parties
|
Relationship
|
September
30,
2010
|
September
30
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
Shaanxi
Longmen (Group) Co, Ltd and its subsidiaries (“LG Group”)
|
Noncontrolling
shareholder of Longmen Joint Venture
|
$ | 262,912 | $ | 258,819 | |||||
Tianjin
Hengying Trading Co., Ltd
|
Common
control under CEO
|
33,304 | 24,060 | |||||||
Tianjin
Dazhan Industry Co, Ltd
|
Common
control under CEO
|
29,284 | 15,821 | |||||||
Hancheng
Haiyan Coking
|
Investee
of LG Group
|
29,133 | 37,255 | |||||||
Shaanxi
Steel & Iron Company
|
Majority
shareholder of Longmen Group
|
1,968 | - | |||||||
Beijing
Daishang Trade Co., Ltd.
|
Noncontrolling
shareholder of Longmen Joint Venture’s subsidiary
|
5,471 | 3,588 | |||||||
Tianjin
Daqiuzhuang Steel Plates Co., Ltd.
|
Common
control under CEO
|
8,337 | - | |||||||
Others
|
3,066 | 1,576 | ||||||||
Total
|
$ | 373,475 | $ | 341,119 |
28
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
The
following charts summarize purchases from the related party transactions for the
nine months ended September 30, 2010 and 2009.
Name
of related parties
|
Relationship
|
September
30,
2010
|
September
30,
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
LG
Group
|
Noncontrolling
shareholder of Longmen Joint Venture
|
350,593 | 216,386 | |||||||
Hengying
and Dazhan
|
Common
control under CEO
|
- | 27,615 | |||||||
Jingma
Jiaohua
|
Investee
of Longmen Joint Venture’s subsidiary (unconsolidated)
|
8,441 | 17,097 | |||||||
Hancheng
Haiyan Coking
|
Investee
of LG Group
|
166,895 | 102,567 | |||||||
Beijing
Daishang Trade Co., Ltd.
|
Noncontrolling
shareholder of Longmen Joint Venture’s subsidiary
|
1,119 | 29,920 | |||||||
Others
|
664 | 755 | ||||||||
Total
|
$ | 527,712 | $ | 394,340 |
Related party
balances
a.
|
Other
receivables - related parties:
|
Name
of related parties
|
Relationship
|
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
LG
Group
|
Noncontrolling
shareholder of Longmen Joint Venture
|
$ | - | $ | 19,226 | |||||
Shaanxi
Steel & Iron Company
|
Majority
shareholder of Longmen Group
|
23,000 | - | |||||||
Mao
Ming Sheng Zhe
|
Common
control under CEO
|
16,231 | 3,021 | |||||||
Tianjin
Dazhan Industry Co, Ltd
|
Common
control under CEO
|
15,419 | 10,268 | |||||||
Others
|
333 | 155 | ||||||||
Total
|
$ | 54,983 | $ | 32,670 |
b.
|
Advances
on inventory purchases – related
parties:
|
Name
of related parties
|
Relationship
|
September
30, 2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
LG
Group
|
Noncontrolling
shareholder of Longmen Joint Venture
|
$ | 48,007 | $ | - | |||||
Others
|
- | 2,995 | ||||||||
Total
|
$ | 48,007 | $ | 2,995 |
29
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
c.
|
Accounts
payable - related parties:
|
Name
of related parties
|
Relationship
|
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
Tianjin
Hengying Trading Co., Ltd
|
Common
control under CEO
|
$ | 15,868 | $ | 17,256 | |||||
Tianjin
Dazhan Industry Co., Ltd
|
Common
control under CEO
|
10,596 | 6,047 | |||||||
Tianjin
General Qiugang Pipe
|
Common
control under CEO
|
10,155 | 4,800 | |||||||
Hancheng
Haiyan Coking
|
Investee
of LG Group
|
25,482 | - | |||||||
Henan
Xinmi Kanghua
|
Noncontrolling
shareholder of Longmen Joint Venture’s subsidiary
|
756 | 960 | |||||||
Jingma
Jiaohua
|
Investee
of Longmen Joint Venture’s subsidiary (unconsolidated)
|
1,858 | 1,360 | |||||||
LG
Group
|
Noncontrolling
shareholder of Longmen Joint Venture
|
- | 15,310 | |||||||
Beijing
Daishang Trading Co., Ltd
|
Noncontrolling
shareholder of Longmen Joint Venture’s subsidiary
|
721 | 1,315 | |||||||
Others
|
320 | 1,103 | ||||||||
Total
|
$ | 65,756 | $ | 48,151 |
d.
|
Short-term
loans - related parties:
|
Name
of related parties
|
Relationship
|
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
LG
Group
|
Noncontrolling
shareholder of Longmen Joint Venture
|
$ | 17,964 | $ | - | |||||
Shaanxi
Steel & Iron Company
|
Majority
shareholder of Longmen Group
|
74,850 | ||||||||
Tianjin
Dazhan Industry Co., Ltd
|
Common
control under CEO
|
- | 3,946 | |||||||
Tianjin
Hengying Trading Co., Ltd
|
Common
control under CEO
|
- | 3,404 | |||||||
Shaanxi
Shenganda Trading Co., Ltd
|
Common
control under LG Group
|
- | 4,401 | |||||||
Total
|
$ | 92,814 | $ | 11,751 |
30
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
e.
|
Other
payables - related parties:
|
Name
of related parties
|
Relationship
|
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
Tianjin
Hengying Trading Co, Ltd
|
Common
control under CEO
|
$ | 12,280 | $ | 2,415 | |||||
Beijing
Wendlar Co., Ltd
|
Common
control under CEO
|
- | 704 | |||||||
Yangpu
Capital Automobile
|
Common
control under CEO
|
1,332 | 587 | |||||||
Tianjin
General Qiugang Pipe
|
Common
control under CEO
|
4,491 | - | |||||||
LG
Group
|
Noncontrolling
shareholder of Longmen Joint Venture
|
3,127 | - | |||||||
Tianjin
Jin Qiu Steel Market
|
Common
control under CEO
|
1,362 | - | |||||||
Others
|
23 | - | ||||||||
Total
|
$ | 22,615 | $ | 3,706 |
f.
|
Customer
deposit – related parties:
|
Name
of related parties
|
Relationship
|
September
30,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||
Tianjin
Dazhan Industry Co., Ltd
|
Common
control under CEO
|
$ | 2,587 | $ | 1,544 | |||||
Hancheng
Haiyan Coking
|
Investee
of LG Group
|
2,754 | 1,316 | |||||||
LG
Group
|
Noncontrolling
shareholder of Longmen Joint Venture
|
41,140 | - | |||||||
Beijing
Shenhua Xinyuan
|
Common
control under CEO
|
1,282 | - | |||||||
Beijing
Daishang Trading Co., Ltd
|
Noncontrolling
shareholder of Longmen Joint Venture’s subsidiary
|
- | 728 | |||||||
Others
|
46 | 203 | ||||||||
Total
|
$ | 47,809 | $ | 3,791 |
31
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
The
Company also guaranteed bank loans of related parties amounting to $40.6 million
and $93.6 million as of September 30, 2010 and December 31, 2009,
respectively.
Note
17 - Equity
2009
Equity Transactions
On March
9, 2009, the Company granted senior management and directors 109,250 shares of
common stock at $1.85 per share, as compensation. The shares were valued at the
quoted market price on the date granted. The Company recorded compensation
expense of $0.2 million.
On
January 15, 2009, the Company granted convertible notes holders 152,240 shares
of common stock at $3.66 per share, as share payments for interest. The shares
were computed as 90% of the arithmetic average of the Weighted Average Price of
the Common Shares on each for the ten consecutive Trading Days immediately
preceding the applicable Interest Date.
From
April to November 2009, the Company issued 487,400 shares of common stock to
management and a consulting firm as compensation. The shares were valued at the
quoted market price on the date granted. The Company recorded compensation
expense of $1.6 million.
On July
15, 2009 and August 21, 2009 the Company granted convertible notes holders
44,065 shares of common stock at price of $4.2511 as cash payments made for
interest.
On May 8,
2009, the Company issued 300,000 shares of common stock to Maoming Hengda’s
debtor, Guangzhou Hengda at $6.00 per share, as cash payments made for settling
other short term loan.
From May
7 to December 31, 2009, $30.0 million of notes was converted to 7,045,274 shares
of common stock at a conversion price of $4.2511. According to the convertible
note agreement, the Company incurred the make whole interest expense of $8.8
million and 1,795,977 shares of common stock were issued. See Note 11 for
details.
On
December 24, 2009, the Company entered into a Securities Purchase Agreement with
certain institutional investors issuing 5,555,556 shares and 2,777,778 warrants
(the “2009 Warrants”). The 2009 Warrants can be converted to common stock from
June 24, 2010 to June 23, 2013 at $5.00 per share. The 2009 Warrants have a
strike price equal to $5.00 and a term of two and a half years. Because the 2009
Warrants are denominated in U.S. dollars and the Company’s functional currency
is the Renminbi, and the 2009 Warrants permit the holder to request cash
buy-back in the event of a Fundamental Transaction, this results in a
significant change in the Company structure and/or equity. The 2009 Warrants do
not meet the requirements of the accounting standards to be indexed only to the
Company’s stock. Accordingly, they are accounted for at fair value as
derivative liabilities each period..
The
initial value of the 2009 Warrants was determined using the Cox-Ross-Rubinstein
binomial model using the following assumptions:
|
·
|
Expected
volatility of 125%
|
|
·
|
Expected
dividend yield of 0%
|
|
·
|
Risk-free
interest rate of 1.28%
|
|
·
|
Expected
lives of two and a half years
|
|
·
|
Market
price at issuance date of $4.57
|
|
·
|
Strike
price of $5.00
|
32
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
The 2009
Warrants were valued at $8.5 million when they were issued on December 24, 2009.
At September 30, 2010 and December 31, 2009, the estimated fair value of the
warrants was $2.0 million and $8.1 million, resulting in a gain of $6.1 million
and $0.4 million, respectively. The gain was recorded in the Company’s
consolidated statement of operations and other comprehensive income
(loss).
The
volatility of the Company’s common stock was based on the Company’s historical
stock prices, the risk free interest rate was based on Treasury Constant
Maturity Rates published by the U.S. Federal Reserve for periods applicable to
the life of the warrants, the dividend yield was based on the Company’s current
and expected dividend policy and the expected term is equal to the contractual
life of the warrants. The value of the warrants was based on the
Company’s common stock price on the date the warrants were issued.
2010
Equity Transactions
On March
19, 2010, the Company granted senior management and directors
237,100 shares of common stock at $3.91 per share as compensation. The
shares were valued at the quoted market price on the date granted. The Company
recorded compensation expense of $0.9 million.
On June
7, 2010, the Company issued 928,163 shares of common stock to one of Maoming
Hengda’s creditor to settle the other short-term loans.
On June
25, 2010, the Company granted senior management and directors 168,650 shares of
common stock at $2.62 per share as compensation. The shares were valued at the
quoted market price on the date granted. The Company recorded compensation
expense of $0.4 million.
On August
4, 2010, $3.3 million of the Notes was converted to 1,208,791 shares of
common stock. According to the Notes agreement, the Company incurred the make
whole interest expense of $0.7 million and accrued interest expense of $0.2
million , 350,885 shares of common stock were issued. See Note 11 for
details.
On
September 28, 2010, the Company granted senior management and directors 165,900
shares of common stock at $2.66 per share as compensation. The shares were
valued at the quoted market price on the date granted. The Company recorded
compensation expense of $0.4 million.
The
Company has the following warrants outstanding:
Outstanding
as of January 1, 2009
|
1,154,958 | |||
Granted
|
5,523,691 | |||
Forfeited
|
- | |||
Exercised
|
- | |||
Outstanding
As of December 31, 2009
|
6,678,649 | |||
Granted
|
- | |||
Forfeited
|
- | |||
Exercised
|
- | |||
Outstanding
As of September 30, 2010 (Unaudited)
|
6,678,649 |
33
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Outstanding
Warrants
|
Exercisable
Warrants
|
|||||||||||||||||||||
Exercise
Price
|
Number
|
Average
Remaining Contractual Life
|
Average
Exercise Price
|
Number
|
Average
Remaining Contractual Life
|
|||||||||||||||||
$ | 5 | 6,678,649 | 2.25 | $ | 5 | 6,678,649 | 2.25 |
Note
18 – Retirement plan
Regulations
in the PRC require the Company to contribute to a defined contribution
retirement plan for all employees. All Joint Venture employees are entitled to a
retirement pension amount calculated based upon their salary at their date of
retirement and their length of service in accordance with a government managed
pension plan. The PRC government is responsible for the pension liability to the
retired staff. The Company is required to contribute 20% of the employees’
monthly base salary. Employees are required to contribute 8% of their base
salary to the plan. Total pension expense incurred by the Company amounted to
$1.2 million and $0.6 million for the three months ended September 30, 2010 and
2009, respectively, $3.4 million and $2.2 million for the nine months ended
September 30, 2010 and 2009, respectively.
Note 19 – Statutory reserves
The laws
and regulations of the People’s Republic of China require that before an
enterprise distributes profits to its partners, it must first satisfy all tax
liabilities, provide for losses in previous years, and make allocations, in
proportions determined at the discretion of the board of directors, to the
statutory reserves. The statutory reserves include the surplus reserve funds and
the enterprise fund and these statutory reserves represent restricted retained
earnings.
Surplus reserve
fund
The
Company is required to transfer 10% of its net income, as determined in
accordance with the PRC accounting rules and regulations, to a statutory surplus
reserve fund until such reserve balance reaches 50% of the Company’s registered
capital.
The
transfer to this reserve must be made before distribution of any dividend to
shareholders. The surplus reserve fund is non-distributable other than during
liquidation and can be used to fund previous years’ losses, if any, and may be
utilized for business expansion or converted into share capital by issuing new
shares to existing shareholders in proportion to their shareholding or by
increasing the par value of the shares currently held by them, provided that the
remaining reserve balance after such issue is not less than 25% of the
registered capital.
Note
20 – Commitment and contingencies
Commitments
Baotou
Steel Pipe Joint Venture has a 5 years rental agreement with Bao Gang Jianan for
buildings. The agreement began on June 2007 for $0.3 million (or RMB1.8 million)
per year.
34
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
As of
September 30, 2010, total future minimum lease payments for the unpaid portion
under an operating lease were as follows:
Year
ended September 30,
|
Amount
|
|||
|
(in
thousands)
|
|||
2011
|
$ | 264 | ||
2012
|
198 | |||
2013
|
- | |||
2014
|
- | |||
2015
|
- | |||
Thereafter
|
663 | |||
Total
|
$ | 1,125 |
Total
rental expense amounted to $0.07 and $0.1 million for the three months ended
September 30, 2010 and 2009, respectively and total rental expense for the nine
months ended September 30, 2010 and 2009, amounted to $0.2 million and $0.3
million, respectively.
Longmen
Joint Venture and Maoming Hengda have $14.9 million contractual
obligations in its construction project as of September 30 2010.
The
Company entered an agreement to build a TRT Electricity Generator (“TRT”) inside
Longmen Joint Venture’s production plant. The Company makes payments for the
cost via scheduled payments after the TRT was put into use in April 2009. The
future payment schedule associated with the arrangement is as
follow:
Year
ended September 30,
|
Amount
|
|||
(in
thousands)
|
||||
2011
|
$ | 2,255 | ||
Thereafter
|
- | |||
Total
|
$ | 2,255 |
Contingencies
As of
September 30, 2010, the Company guaranteed bank loans for related parties and
third parties bank loans, including line of credit, amounting to $68.7
million.
Longmen
Joint Venture had $62.7 million guarantees as of September 30,
2010.
Nature
of
|
Guarantee
|
|
|||
guarantee
|
amount
|
Guaranty
period
|
|||
(In
thousands)
|
|||||
Line
of credit
|
10,462 |
Various
from March 2010 to April 2011
|
|||
Bank
loans
|
41,971 |
Various
from April 2010 to July 2011
|
|||
Notes
payable
|
10,259 |
Various
from February 2010 to December 2010
|
|||
Others
|
40 |
December
2009 to December 2010
|
|||
Total
|
$ | 62,732 |
35
GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2010
(Unaudited)
Maoming
Hengda had $6.0 million in guarantees as of September 30, 2010.
Nature
of
|
Guarantee
|
||||
guarantee
|
amount
|
Guaranty
period
|
|||
(In
thousands)
|
|||||
Bank
loan
|
$ | 5,988 |
Various
from June 2009 to October 2010
|
The
Company has evaluated the debt guarantees and concluded that the likelihood of
having to make payments under the guarantees is remote.
Note
21 – Segments
The
Company sells steel which is used by customers in various
industries. The Company’s chief operating decision-makers (i.e. chief
executive officer and his direct reports) review financial information presented
on a consolidated basis, accompanied by disaggregated information about revenues
by product lines for purposes of allocating resources and evaluating financial
performance. There are no segment managers who are held accountable for
operations, operating results and plans for levels or components below the
consolidated unit level. Based on qualitative and quantitative
criteria established by the accounting standards, the Company considers itself
to be operating within one reportable segment.
The
Company does not have long-lived assets located in foreign countries. In
accordance with the enterprise-wide disclosure requirements of the accounting
standard, the Company’s net revenue from external customers by main product
lines is as follows:
For
the three months ended
|
For
the nine months ended
|
|||||||||||||||
(in
thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Products
|
||||||||||||||||
Re-bar
|
$ | 455,051 | $ | 455,054 | $ | 1,389,239 | $ | 1,112,536 | ||||||||
Hot-Rolled
Sheets
|
- | 14,982 | 8,314 | 41,559 | ||||||||||||
High
Speed Wire
|
1,959 | 10,272 | 7,839 | 54,008 | ||||||||||||
Spiral-Welded
Steel Pipe
|
3,267 | 4,444 | 9,587 | 8,390 | ||||||||||||
Total
sales revenue
|
$ | 460,277 | $ | 484,752 | $ | 1,414,979 | $ | 1,216,493 |
36
ITEM
2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Note
Regarding Forward-Looking Statements
The following discussion of the
financial condition and results of operations should be read in conjunction with
the consolidated financial statements and related notes thereto. The following
discussion contains forward-looking statements. General Steel Holdings, Inc. is
referred to herein as “we” or “our.” The words or phrases “would be,” “will
allow,” “expect to”, “intends to,” “will likely result,” “are expected to,”
“will continue,” “is anticipated,” “estimate,” or similar expressions are
intended to identify forward-looking statements. Such statements include those
concerning our expected financial performance, our corporate strategy and
operational plans. Actual results could differ materially from those projected
in the forward-looking statements as a result of a number of risks and
uncertainties, including: (a) those risks and uncertainties related to general
economic conditions in China, including regulatory factors that may affect such
economic conditions; (b) whether we are able to manage our planned growth
efficiently and operate profitable operations, including whether our management
will be able to identify, hire, train, retain, motivate and manage required
personnel or that management will be able to successfully manage and exploit
existing and potential market opportunities; (c) whether we are able to generate
sufficient revenues or obtain financing to sustain and grow our operations; and
(d) whether we are able to successfully fulfill our primary requirements for
cash which are explained below under “Liquidity and Capital Resources.” Unless
otherwise required by applicable law, we do not undertake, and we specifically
disclaim any obligation, to update any forward-looking statements to reflect
occurrences, developments, unanticipated events or circumstances after the date
of such statement.
Recent
Developments and Third Quarter Highlights
l
|
Gross
margin improved to 3.4% in the third quarter of 2010 from 1.5% in the
second quarter and 1.3% in the first quarter of
2010.
|
l
|
On
July 12, 2010, we formed a new joint venture, Tianwu General Steel
Material Trading Co., Ltd. (“Tianwu GS”) with Tianjin Materials and
Equipment Group Corporation (“TME Group”). The contributed capital of
Tianwu GS is approximately $2.9 million (or RMB20 million), of which
General Steel will hold a 60% controlling interest. Tianwu
GS will source raw materials, including domestic and overseas iron ore,
and is expected to supply approximately 30% to 50% of our iron-ore needs,
amounting to approximately 2 to 3 million metric tons on an annual
basis.
|
l
|
On
September 13, 2010, Tianwu GS entered into an iron ore Sales and Purchase
Contract with Minera Santa Fe, a Chilean iron ore supplier. Pursuant to
the contract, Tianwu GS will receive favorable pricing on the purchase of
138,000 tons of iron ore for the remainder of
2010.
|
l
|
In
November 2010, our Maoming facility plans to bring online a new 400,000
metric ton capacity rebar production line. According to the strategic
alliance agreement Maoming entered with Zhuhai Yueyufeng Iron and Steel
Co., Ltd. (“Yueyufeng”), Maoming will process at least 25,000 metric tons
of rebar for Yueyufeng on a monthly basis for two years.
|
37
Our
continuing growth demonstrates the following strengths:
·
|
our two-pronged growth strategy
of upgrading our existing operations and growing through merger and
acquisition activities has proven successful;
and
|
·
|
we are a direct beneficiary of
the China economic stimulus infrastructure spending
program.
|
Overview
We were
incorporated on August 5, 2002 in the State of Nevada. We are
headquartered in Beijing, China and operate a diverse portfolio of Chinese
steel companies that serve several industries and produce a variety of steel
products including reinforced bars (“rebar”), spiral-weld pipes and high-speed
wire. Our aggregate annual production capacity of steel products is
6.3 million metric tons, the majority of which is rebar. Individual industry
segments have unique demand drivers, such as rural income, infrastructure
construction and energy consumption. Domestic economic conditions drive demand
for all of our products.
Our
vision is to become one of the largest and most profitable non-government owned
steel companies in China.
Our
mission is to acquire Chinese steel companies and increase their profitability
and efficiencies with the application of western management practices and
advanced production technologies, and the infusion of capital
resources.
Our
strategy is to grow through mergers, joint ventures and acquisitions targeting
state-owned enterprise steel companies and selected entities with outstanding
potential. We have executed this strategy in acquiring controlling
interest positions in three joint ventures. Our business currently operates
through four steel-related subsidiaries and we are actively pursuing a plan
to acquire additional assets.
Unless
the context indicates otherwise, as used herein the terms “General Steel”, the
“company”, “we”, “our” and “us” refer to General Steel Holdings,
Inc.
Steel
Related Subsidiaries
We
presently have controlling interests in four steel-related
subsidiaries:
·
|
General
Steel (China) Co., Ltd.;
|
|
·
|
Baotou
Steel - General Steel Special Steel Pipe Joint Venture Co.,
Ltd.;
|
|
·
|
Shaanxi
Longmen Iron and Steel Co., Ltd.; and
|
|
·
|
Maoming
Hengda Steel Company, Ltd.
|
General
Steel (China) Co., Ltd.
General Steel (China) Co., Ltd.,
(“General Steel (China)”), formerly known as Tianjin Daqiuzhuang Metal
Sheet Co., Ltd., started operations in 1988. General Steel (China)’s
core business was manufacturing high quality hot-rolled carbon and silicon steel
sheets mainly used in low-end light industrial applications, including the
production of wiring cabinets, metal security doors, light agricultural vehicles
and other specialty markets.
On March
31, 2010, General Steel (China) entered into a lease agreement whereby General
Steel (China) leased its facility located at No. 1, Tongda Street,
Daqiuzhuang town, Jinghai County, Tianjin municipality, to Tianjin Daqiuzhuang
Steel Plates Co., Ltd. (“Lessee”). The lease provides approximately
776,078 square feet of workshops, land, equipment and other facilities to the
Lessee and reduces overhead costs while providing a recurring monthly revenue
stream resulting from payments due thereunder. The term of the lease
is from January 1, 2010 to December 31, 2011 and the monthly base rental rate
due to General Steel (China) is approximately $246,096 (RMB1.68
million). The former General Manager of General Steel (China)
currently manages Tianjin Daqiuzhuang Steel Plates Co., Ltd. Changing the
business model of this facility from a direct operations model to a leased
operations model reduces overhead costs and provides a steady revenue stream in
the form of fixed monthly lease revenue.
38
Baotou
Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd.
On April
27, 2007, General Steel (China) and Baotou Iron and Steel Group Co., Ltd.
(“Baotou Steel”) entered into an Amended and Restated Joint Venture Agreement
amending the Joint Venture Agreement entered into on September 28, 2005 to
increase General Steel (China)’s ownership interest in the related joint venture
to 80%. The joint venture company’s name is Baotou Steel - General
Steel Special Steel Pipe Joint Venture Co., Ltd. (“Baotou Steel Pipe Joint
Venture”). Baotou Steel Pipe Joint Venture obtained its business
license from government authorities in China on May 25, 2007, and started
regular operations in July 2007. Baotou Steel Pipe Joint Venture has
four production lines capable of producing 100,000 metric tons of double
spiral-weld pipes used mainly in the energy sector primarily to transport oil,
natural gas and steam. These pipes have a diameter ranging from 219mm
to 1240mm, a wall thickness ranging from 6mm to 13mm, and a length ranging from
6m to 12m. Presently, Baotou Steel Pipe Joint Venture sells its
products using an internal sales force to customers in the Inner Mongolia
Autonomous Region and the northwest region of China.
Shaanxi
Longmen Iron and Steel Co., Ltd.
Effective June
1, 2007, through two subsidiaries, General Steel (China) and Tianjin Qiu Steel
Investment Co., Ltd., we entered into a Joint Venture Agreement with Shaanxi
Longmen Iron & Steel Group Co., Ltd. (“Long Steel Group”) to form Shaanxi
Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). Through our two
subsidiaries, we invested a total of approximately $39 million cash and
collectively hold approximately 60% of the Longmen Joint Venture.
Longmen Group, located in Hancheng
city, Shaanxi province, in China’s central region, was founded in 1958 and
incorporated in 2002. Longmen Group operates as a fully-integrated
steel production facility. Less than 10% of steel companies in China
have fully-integrated steel production capabilities.
Currently, Longmen Joint Venture has
five branch offices, five subsidiaries under direct control and six entities in
which it has a non-controlling interest. It employs approximately
6,300 full-time employees. In addition to steel
production, Longmen Joint Venture operates transportation services
through its Changlong Branch, located at Hancheng city, Shaanxi
province. Changlong Branch owns 154 vehicles and provides
transportation services exclusively to Longmen Joint Venture.
Coke Operation: Longmen Joint Venture
owns 22.76% of Hancheng Tongxing Metallurgy Co., Ltd.
(“Tongxing”). Located in Hancheng city, Shaanxi province, Tongxing
produces second grade coke used as part of the fuel for our blast
furnaces. Its annualized coke production capacity is 200,000 metric
tons. Tongxing sells all of its output to Longmen Joint
Venture.
Longmen Joint Venture does not own iron
pelletizing facilities.
Longmen Joint Venture’s products are
categorized within the steel industry as “longs” (referencing their shape) and
are generally considered a regional product because their weight and dimensions
make the products ill-suited for cost-effective long-haul ground
transportation. By our estimates, the provincial market demand for
rebar is six to eight million metric tons per year. Slightly more
than half of this demand comes from Xi’an, the capital of Shaanxi province,
located 200km from Longmen Joint Venture’s main steel production site. We
estimate that we currently provide to the Xi’an market with approximately 72% of
its market for rebar.
An established regional network of
approximately 100 distributors and four sales offices sell Longmen Joint
Venture’s products. All Longmen Joint Venture products are sold under
the registered brand name of “Yulong,” which has strong regional recognition and
brand awareness. Rebar and billet products carry ISO 9001 and 9002
certification and many other products have won national quality
awards. Products manufactured at the facility have been used in the
construction of the Yangtze River Three Gorges Dam, Xi’an International Airport,
the Xi’an city subway system and the Xi Luo Du and the Xiang Jia Ba hydropower
projects.
39
Maoming
Hengda Steel Company Limited
On June 25, 2008, through our
subsidiary Qiu Steel Investment, we paid approximately $7.1 million (RMB50
million) in cash, to purchase 99% of Maoming Hengda Steel Company, Ltd.
(“Maoming”). The total registered capital of Maoming is approximately
$77.8 million (RMB544.6 million).
Maoming’s core business is the
production of high-speed wires and rebar products used in the construction
industry. The Maoming facility is located on 140 hectares
(approximately 346 acres) in Maoming city, Guangdong province. The Maoming
facility has two production lines capable of producing 1.8 million metric tons
of 5.5mm to 16mm diameter high-speed wire and 12mm to 38mm diameter rebar
annually. The products are sold through nine distributors targeting
customers in Guangdong province and the eastern region of Guangxi
province.
To take advantage of stronger market
demand in Shaanxi, in the second quarter of 2009, we relocated the 800,000
metric ton capacity rebar production line from the Maoming facility to Longmen
Joint Venture. In the fourth quarter of 2010, we intend to
relocate the 1,000,000 metric ton capacity high-speed wire production line from
the Maoming facility to Longmen Joint Venture.
On February 3, 2010, Maoming entered
into a strategic alliance agreement with Zhuhai Yueyufeng Iron and Steel Co.,
Ltd. (“Yueyufeng”) whereby Yueyufeng will fund construction of a new 400,000
metric ton capacity rebar production line to operate at the Maoming facility
which we intend to bring online in November 2010. In exchange for the funding,
Maoming will process at least 25,000 metric tons of rebar for Yueyufeng on a
monthly basis for two years.
Production
Capacity Information Summary by Subsidiaries
|
|
General Steel (China)
|
|
Baotou Steel Pipe
Joint Venture
|
|
Longmen Joint Venture
|
|
Maoming
|
Annual
Production Capacity (metric tons)
|
400,000
|
100,000
|
4.8
million
|
1
million
|
||||
Main
Products
|
Hot-rolled
sheet
|
Spiral-weld
pipe
|
Rebar/High-speed
wire
|
High-speed
wire
|
||||
Main
Application
|
Light
industrial applications
|
Energy
transport
|
Infrastructure
and construction
|
Infrastructure
and construction
|
Marketing
and Customers
We sell our products primarily to
distributors, typically collecting payment from these distributors in
advance. Our marketing efforts are mainly directed toward those
customers who have exacting requirements for on-time delivery, customer support
and product quality. We believe that these requirements as well as
product planning are critical factors in our ability to serve this segment of
the market.
Demand
for our Products
Overall, domestic economic growth is an
important demand driver of our products, especially construction and
infrastructure projects, rural income growth and energy demand.
At Longmen Joint Venture, growth in
regional construction and infrastructure projects drives demand for our
products. According to the 12th Five
Year National Economic and Social Development Plan (“NESDP”) (2011-2015),
development of China’s western region is one of the top-five economic priorities
of the PRC. Shaanxi province, where Longmen Joint Venture is located,
has been designated as a focal point for development into the western
region. Our Longmen Joint Venture is 220 km from Xi’an and does not
have a major competitor within a 250 km radius. According to the
information released by the Shaanxi Provincial Development and Reform
Commission, the total fixed assets investment for Shaanxi province was
approximately $21.3 billion (RMB 144.9 billion) for the year ended December
31, 2009, a 73.7% increase over the same period in 2008. There are 235
construction and infrastructure projects under construction in 2010, and among
these 235 projects, 50 of them are scheduled to begin this year. Some of the
major projects include: nine new railways, one new airport, an expansion of the
Xi’an airport, two new ring subway systems and 4 new dams. Currently,
our Longmen Joint Venture supplies construction steel products to many of these
projects including: the Xi’an No. 1 and 2 subway systems and the railway lines
connecting Xi’an to Chengdu and Xi’an to Ankang. We believe there
will be sustained regional demand for several years as the government continues
to drive western region development efforts.
40
At Baotou
Steel Pipe Joint Venture, energy sector growth, which spurs the need to
transport oil, natural gas and steam, drives demand for spiral-weld steel
pipe. Presently, demand is fueled by smaller pipeline projects and
municipal energy infrastructure projects within the Inner Mongolia Autonomous
Region.
At Maoming, infrastructure growth and
business development in Maoming city, the surrounding Guangdong cities and the
eastern region of Guangxi province, drive demand for our construction steel
products. As a second tier city, the industrialization and
urbanization of Maoming is one of the focal points of economic development in
west Guangdong province.
Supply
of Raw Materials
The
primary raw materials we use for steel production are iron ore, coke and steel
billets. Baotou Steel Pipe Joint Venture uses hot-rolled steel coil as
their main raw material. Longmen Joint Venture uses iron ore and coke
as its main raw materials. Maoming uses steel billets as its main raw
material. Iron ore is the main raw material used to produce hot-rolled steel
coil and steel billets. As a result, the prices of iron ore and coke
are the primary raw material cost drivers for our products.
Longmen
Joint Venture accounts for 4.8 million metric tons of our aggregate 6.3
million metric tons annual production capacity. At Longmen Joint
Venture, approximately 95% of production costs are associated with raw
materials, with iron ore being the largest component.
According
to the China Iron and Steel Association, approximately 60% of the China’s
domestic steel industry demand for iron ore must be filled by
imports. At Longmen Joint Venture, we purchase iron ore from four
primary sources: the Mulonggou mine (owned by Longmen Joint Venture), the
Daxigou mine (owned by Longmen Group, our partner in Longmen Joint Venture),
surrounding local mines and from abroad. The Daxigou mine has 300
million metric tons of iron ore reserves. According to the terms of
our Longmen Joint Venture Agreement with the Longmen Group, we have first rights
of refusal for sales from the mine and for its development. We
presently purchase all of the production from this mine.
We
formed Tianwu GS with TME Group to source raw materials, including domestic and
overseas iron ore. TME Group is one of the largest and most diversified
commodity trading groups in China. The new joint venture is expected to supply
approximately 30% to 50% of General Steel’s iron-ore needs, amounting to
approximately 2 to 3 million metric tons on an annual basis and it will afford
both flexibility and quality in our iron ore supply for steel
production.
Coke
Coke,
produced from metallurgical coal (also known as coking coal), is our second most
consumed raw material, after iron ore. It requires approximately
550kg to 600kg of coke to make one metric ton of crude steel.
Our
Longmen Joint Venture facility is located in the center of China’s coal
belt. We source all coke used at Longmen Joint Venture from the town
in which Longmen Joint Venture is located. This ensures dependable
supply and minimal transportation costs.
41
The major
suppliers of our raw materials are as follows (1):
Longmen Joint
Venture
Name of the Major Supplier
|
Raw Material Purchased
|
% of Total Raw
Material Purchased
|
Relationship with
General Steel
|
||||
Shaanxi
Longmen Iron & Steel Group Co., Ltd.
|
Iron
Ore
|
20.5
|
%
|
Related
party
|
|||
Shaanxi
Haiyan Coal Chemical Industry Co., Ltd.
|
Coke
|
12.5
|
%
|
Related
party
|
|||
Shaanxi
Huanghe Material Co., Ltd.
|
Coke
|
6.8
|
%
|
None
|
|||
Baotou
Gengyi Commercial Trade Co., Ltd.
|
Iron
Ore
|
3.0
|
%
|
None
|
|||
Baotou
Bangli Industry Co., Ltd.
|
Iron
Ore
|
2.9
|
%
|
None
|
|||
Total
|
45.7
|
%
|
Baotou Steel Pipe Joint
Venture
Name of the Major Supplier
|
Raw Material
Purchased
|
% of Total Raw
Material
Purchased
|
Relationship with
General Steel
|
||||
Inner
Mongolia Chenggang Material Co., Ltd.
|
Steel
Coil
|
22.2
|
%
|
None
|
|||
Baotou
Shunye Material Co., Ltd.
|
Steel
Coil
|
10.4
|
%
|
None
|
|||
Tianjin
Dazhan Industry Co., Ltd.
|
Steel
Coil
|
8.8
|
%
|
Related
party
|
|||
Tianjin
Shengze Industry & Trade Co., Ltd.
|
Steel
Coil
|
8.0
|
%
|
None
|
|||
Baotou
Yanjia Industry Co., Ltd.
|
Steel
Coil
|
8.0
|
%
|
None
|
|||
Total
|
57.4
|
%
|
Maoming
Name of the Major Supplier
|
Raw Material
Purchased
|
% of Total Raw
Material
Purchased
|
Relationship with
General Steel
|
||||
Maoming
Dazhongmao Petrochem Co., Ltd.
|
Heavy
Oil
|
55.2
|
%
|
None
|
|||
Maoming
Zhenmao Development Co., Ltd.
|
Heavy
Oil
|
33.0
|
None
|
||||
Total
|
88.2
|
%
|
(1)
|
For
purposes of the above tables, the term “Related Party” refers to a company
over whose operating policies we can exercise control or significantly
influence.
|
Industry
consolidation
The
central government has a long-stated goal to consolidate 50% of domestic steel
production among the top ten producers by 2010 and 70% by 2020. In
September 2009, the central government published an industry target to eliminate
80 million metric tons of inefficient capacity from the steel industry by the
end of 2011. Along with this target, the government added new steel
making operational and environmental restrictions and tasked several government
agencies with enforcing these measures.
On July
12, 2010, the Ministry of Industry & Information Technology Commission
issued the Steel Industry Admittance and Operation Qualifications. The new
standard specified requirement of all aspects which include: size of blast
furnace, size of converters, emission of waster water, dust per ton of steel
producing, quantity of coal used for each process of steel making and output
capacity of year 2009. The new policy once again confirms the central government’s
resolution to push forward the consolidation of this fragmented industry of more
than 800 players. While the operational conditions become tougher and
tougher, more small and medium size players will aggressively look for valued
partners which will raise the opportunities of high quality acquisitions for our
company. We believe the directives indirectly strengthen our position
as an industry consolidator by creating quantitative measures we can use to
better qualify potential acquisition targets.
42
Results
of Operations for the Three Months and Nine Months Ended September
30, 2010
Sales
Revenues
Three
months ended September 30, 2010 compared with three months ended September 30,
2009
SALES
REVENUE
|
Three
months ended
|
|||||||||||||||||||||||||||
September
30, 2010
|
September
30, 2009
|
Change
|
Change
|
|||||||||||||||||||||||||
(in
thousands, except metric tons)
|
Volume
|
Revenue
|
%
|
Volume
|
Revenue
|
%
|
Volume
%
|
Revenue
%
|
||||||||||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||||||||||||||
Longmen
Joint Venture
|
867,854
|
|
|
$
|
455,050
|
98.9
|
.%
|
958,401
|
$
|
455,054
|
93.9
|
%
|
(9.4)
|
%
|
0
|
%
|
||||||||||||
Other
|
72,707
|
$
|
5,227
|
1.1
|
%
|
77,675
|
$
|
29,698
|
6.1
|
%
|
(6.4
|
)
%
|
(82.5)
|
%
|
||||||||||||||
Total
Revenue of General Steel
|
940,561
|
|
|
|
460,277
|
100.0
|
%
|
1,036,076
|
484,752
|
100.0
|
%
|
(9.2)
|
%
|
(5.0)
|
%
|
Total Sales Revenue for the three
months ended September 30, 2010 decreased 5.0% to $460.3 million from $484.8
million for the same period last year.
The
decrease in sales revenue compared to the same period last year is predominantly
due to changes in the operating model at General Steel (China). Additionally, we
only executed processing contracts at Maoming which generated less sale
revenue.
Longmen
Joint Venture comprised 98.9% of total sales for the third quarter of 2010. We
operated at about 88% of our total capacity in the third quarter of 2010 which
resulted from stable demand for our construction steel products.
Maoming comprised $2
million, or less than 1% of total sales, for the third quarter of 2010. The
decrease in sales revenue compared to the same period last year is primarily due
to a greater number of processing contracts versus production
contracts. In the third quarter of 2010, Maoming only completed
processing contracts, which generate less sales revenue, whereas in the third
quarter of 2009, it completed both processing and production
contracts.
Baotou
Steel Pipe Joint Venture comprised $3.2 million, or less than 1% of total sales,
for the third quarter of 2010. Sales from Baotou Steel Pipe Joint
Venture decreased in the third quarter of 2010 compared to the same period last
year due to lower shipment volume.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
SALES
REVENUE
|
Nine
months ended
|
|||||||||||||||||||||||||||||||
September
30, 2010
|
September
30, 2009
|
Change
|
Change
|
|||||||||||||||||||||||||||||
(in
thousands, except metric tons)
|
Volume
|
Revenue
|
%
|
Volume
|
Revenue
|
%
|
Volume
%
|
Revenue
%
|
||||||||||||||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||||||||||||||||||
Longmen
Joint Venture
|
2,705,964
|
$
|
1,389,
238
|
98.2
|
%
|
2,451,019
|
$
|
1,112,536
|
91.5
|
%
|
10.4
|
%
|
24.9
|
%
|
||||||||||||||||||
Other
|
280,722
|
$
|
25,741
|
1.8
|
%
|
258,697
|
103,957
|
8.5
|
%
|
8.5
|
%
|
(75.2)
|
%
|
|||||||||||||||||||
Total
Revenue of General Steel
|
2,986,686
|
1,414,979
|
100.0
|
%
|
2,709,716
|
1,216,493
|
100.0
|
%
|
10.2
|
%
|
16.3
|
%
|
Total Sales Revenue for the nine months
ended September 30, 2010 increased 16.3% to $1.41 billion from $1.22 billion for
the same period last year.
43
The
increase in sales revenue compared to the same period last year is predominantly
due to the sales volume increase of 10.2% and a 13.0% increase in the average
selling price of rebar over the total shipment volume at Longmen Joint Venture
from RMB3,096 (approximately US $454) in the first nine months of 2009 to
RMB3,491 (approximately US $513.4) in the first nine months of
2010.
Longmen
Joint Venture comprised 98.2% of total sales for first nine months of 2010. We
operated at about 91% of our total capacity in the first nine months of 2010 as
a result of stable demand for our construction steel products.
Maoming comprised
$7.8 million, or less than 1% of our total sales, for the first nine months of
2010. The decrease in sales revenue compared to the same period last
year is a result of Maoming only completing processing contracts in this period
which generated less sales revenue than production contracts;
however, in the first nine months of 2009, Maoming completed both
processing and production contracts which resulted in higher overall sales
revenue.
Baotou
Steel Pipe Joint Venture comprised $9.6 million, or less than 1% of our total
sales, for the first nine months of 2010. The $1.2 million or 14.3% sales amount
increase is due to higher average selling prices of spiral-weld
pipes.
Gross
Profit
Three
months ended September 30, 2010 compared with three months ended September 30,
2009
GROSS
PROFIT
|
Three
months ended
|
|||||||||||||||||||||||||||
(in
thousands, except metric tons)
|
September
30, 2010
|
September
30, 2009
|
Change
%
|
|||||||||||||||||||||||||
Volume
|
Gross
Profit
|
Margin
%
|
Volume
|
Gross
Profit
|
Margin
%
|
Gross
Profit
|
||||||||||||||||||||||
(Unaudited) |
(Unaudited)
|
|||||||||||||||||||||||||||
Longmen
Joint Venture
|
867,854
|
$
|
16,353
|
3.6
|
%
|
958,401
|
$
|
40,864
|
9.0
|
%
|
(62.2)
|
%
|
||||||||||||||||
Other
|
72,707
|
(761)
|
(14.6)
|
%
|
77,675
|
(1,129)
|
(3.8)
|
%
|
(32.6)
|
%
|
||||||||||||||||||
Total
Gross Profit of General Steel
|
940,561
|
15,592
|
3.4
|
%
|
1,036,076
|
39,735
|
8.2
|
%
|
(60.8)
|
%
|
|
1)
|
Total
revenue decreased $24.5 million from $484.8 million in the third quarter
of 2009 to $460.3 million in the third quarter of 2010 due to the change
in our operating model at General Steel (China). Additionally, we only
executed processing contracts at Maoming which generated less sales
revenue.
|
|
2)
|
The
price of our primary raw materials including iron ore and coke was higher
in the third quarter of 2010 compared to the same period last year which
negatively affected the gross profit
margin.
|
However,
our gross margin improved in the third quarter 2010 to 3.4% compared to 1.5% in
the second quarter and 1.3% in the first quarter of 2010 as the average selling
price of rebar increased in both August and September. Meanwhile, our Longmen
Joint Venture cut production on the less efficient blast furnaces in the third
quarter of 2010, which helped to save production cost and expand gross profit
margin.
Maoming
We have
not realized a gross profit at Maoming due to the relatively low utilization
rate of the products from that facility. In 2010, Maoming only performed
processing contracts, which generated less sales revenue than production
contracts. By comparison, in the third quarter of 2009, Maoming
completed both processing and production contracts.
44
Baotou
Steel
At our
Baotou Steel Pipe Joint Venture, gross margin increased to 2.1% in the third
quarter of 2010 from gross loss of 5.9% in the same period last
year. The increase was due to the higher average selling price of
spiral-weld pipes in the third quarter of 2010 compared to the same period last
year.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
GROSS
PROFIT
|
Nine
months ended
|
|||||||||||||||||||||||||||
(in
thousands, except metric tons)
|
September
30, 2010
|
September
30, 2009
|
Change
%
|
|||||||||||||||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||||||||||||||
Volume
|
Gross
Profit
|
Margin
%
|
Volume
|
Gross
Profit
|
Margin
%
|
Gross
Profit
|
||||||||||||||||||||||
Longmen
Joint Venture
|
2,705,964
|
$
|
30,481
|
2.2
|
%
|
2,451,019
|
$
|
80,259
|
7.2
|
%
|
(62.0)
|
%
|
||||||||||||||||
Other
|
280,722
|
(1,796)
|
(7.0)
|
%
|
258,697
|
(5,104)
|
(4.9)
|
%
|
(64.8)
|
%
|
||||||||||||||||||
Total
Gross Profit of General Steel
|
2,986,686
|
28,685
|
2.0
|
%
|
2,709,716
|
75,155
|
6.2
|
%
|
(61.8)
|
%
|
Gross
profit for the nine months ended September 30, 2010 decreased 61.8% to $28.7
million from $75.2 million for the same period last year. The
decrease is primarily attributable to a drop in gross profit at our Longmen
Joint Venture. The price of our primary raw materials including iron ore and
coke was higher in the first three quarters of 2010 compared to the same period
last year which negatively affected the gross profit margin.
Selling,
General and Administrative Expenses
Three
months ended September 30, 2010 compared with three months ended September 30,
2009
(in
thousands)
|
Three
months ended
|
|||||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
$
|
9,562
|
$
|
10,487
|
(8
|
.8)%
|
||||||
SG&A
EXPENSES AS A PERCENTAGE OF TOTAL REVENUE
|
2.1%
|
2.2%
|
Selling,
general and administrative expenses, such as executive compensation, office
expenses, legal and accounting charges, travel charges, equipment maintenance
and various taxes decreased 8.8% to $9.6 million for the three months ended
September 30, 2010, compared to $10.5 million for the same period of
2009.
Selling,
general and administrative expenses as a percentage of revenue decreased
slightly to 2.1% for the third quarter of 2010 from 2.2% for the same period in
2009.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
(in
thousands)
|
Nine
months ended
|
|||||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
$
|
35,380
|
$
|
29,219
|
21.1
|
%
|
||||||
SG&A
EXPENSES AS A PERCENTAGE OF TOTAL REVENUE
|
2.5%
|
2.4%
|
Selling,
general and administrative expenses, such as executive compensation, office
expenses, legal and accounting charges, travel charges, equipment maintenance
and various taxes increased 21.1% to $35.4 million for the nine months ended
September 30, 2010, compared to $29.2 million for the same period in 2009. The
increase is mainly due to increased transportation and agent charges at Longmen
Joint Venture following shipping volume increases and increased sales deliveries
made to markets in Henan, Hubei and Chongqing for the nine months ended
September 30, 2010.
45
Selling,
general and administrative expenses as a percentage of revenue increased
slightly to 2.5% for the first nine months of 2010 from 2.4% in the same period
in 2009.
Income
from Operations
Three
months ended September 30, 2010 compared with three months ended September 30,
2009
(in
thousands)
|
Three
months ended
|
|||||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||
INCOME
FROM OPERATIONS
|
$
|
6,030
|
$
|
29,248
|
(79.4)
|
% |
Income
from operations for the three months ended September 30, 2010 decreased to $6.0
million from $29.2 million income for the same period last year.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
(in
thousands)
|
Nine
months ended
|
|||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||
(LOSS)
INCOME FROM OPERATIONS
|
$
|
(6,695)
|
$
|
45,936
|
(114.6)
|
% |
Income from operations for the nine
months ended September 30, 2010 decreased to a loss of $6.7 million from an
income of $45.9 million for the same period last year.
The
decrease in income from operations for the three months and nine months ended
September 30, 2010 was due to a decrease in gross profit margin caused by higher
purchase price of iron ore and coke for the first three quarters of 2010 which
adversely affected our gross margin.
Other
Income (Expense)
Three
months ended September 30, 2010 compared with three months ended September 30,
2009
(in
thousands)
|
Three
months ended
|
||||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
|||||||||
(Unaudited)
|
(Unaudited)
|
||||||||||
OTHER
INCOME (EXPENSES)
|
|||||||||||
Interest
income
|
$
|
1,739
|
$
|
826
|
110.5
|
%
|
|||||
Finance/Interest
expense
|
(10,190
|
)
|
(4,174
|
)
|
144.1
|
%
|
|||||
Change
in fair value of derivative liabilities
|
(1,089)
|
(616)
|
76.8
|
%
|
|||||||
Government
grant
|
1,381
|
-
|
100.0
|
%
|
|||||||
Income
from equity investment
|
839
|
963
|
(12.9)
|
%
|
|||||||
Other
non-operating income, net
|
(350)
|
(2,985)
|
(88.3)
|
% | |||||||
Total
other expenses, net
|
$
|
(7,670)
|
$
|
(5,986)
|
28.1
|
%
|
Total
other expenses for the three months ended September 30, 2010 were $7.7 million
compared to $6.0 million for the same period last year.
46
The
difference between the $7.7 million in expenses recorded for the three months
ended September 30, 2010 and the $6 million in expenses recorded for the three
months ended September 30, 2009 was caused by the net effect of a $6 million
increase in finance and interest expenses, the decrease in other non-operating
income and the change in fair value of derivative liabilities.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
(in
thousands)
|
Nine
months ended
|
|||||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||
OTHER
INCOME (EXPENSES)
|
||||||||||||
Interest
income
|
$
|
3,476
|
$
|
2,468
|
40.8
|
%
|
||||||
Finance/Interest
expense
|
(37,617)
|
|
(18,422)
|
|
104.2
|
%
|
||||||
Change
in fair value of derivative liabilities
|
13,579
|
(23,228)
|
(158.5)
|
%
|
||||||||
Gain
from debt extinguishment
|
-
|
2,932
|
(100.0)
|
%
|
||||||||
Government
grant
|
1,381
|
3,433
|
(59.8)
|
%
|
||||||||
Income
from equity investment
|
5,595
|
3,661
|
52.8
|
%
|
||||||||
Other
non-operating income, net
|
217
|
(2,332)
|
(109.3)
|
%
|
||||||||
Total
other expenses, net
|
$
|
(13,369)
|
$
|
(31,488)
|
(57.5)
|
%
|
Total
other expenses for the nine months ended September 30, 2010 were $13.4 million
compared to $31.5 million for the same period last year.
The
difference between the $13.4 million in expenses recorded for the nine months
ended September 30, 2010 and the $31.5 million in expenses recorded for the nine
months ended September 30, 2009 was caused by the net effect of a $19.2 million
increase in finance and interest expenses and a gain of $36.8 million in the
change in fair value of derivative liabilities.
Change
in Fair Value of Derivative Liabilities
According
to GAAP, our December 2007 Notes, December 2007 Warrants and the December 2009
Warrants (as defined below) are considered a derivative and therefore must be
“marked to market.” One of the drivers used to calculate the value of
this derivative is stock price. Changes in our stock price cause gains or losses
to this income statement item.
The
change in fair value of derivative liabilities for the three months ended
September 30, 2010 was a loss of $1.1 million compared to a loss of $0.6
million for the same period last year. The change in fair value of derivative
liabilities for the nine months ended September 30, 2010 was a gain of $13.6
million compared to a loss of $23.2 million for the same period last year.
This gain (loss) was due to a change of stock price of our common stock as of
September 30, 2010 compared to fiscal year-ended December 31, 2009. According to
accounting principles generally accepted in the United States regarding valuing
derivatives, the drop in our share price and the conversion of our convertible
notes resulted in a $1.1 million loss for the three months ended September 30,
2010 and a $13.6 million gain for the nine months ended September 30,
2010.
As of
August 5, 2010, all of the convertible promissory notes issued in connection
with the private placement that closed on December 13, 2007 have now been
converted into common stock.
Net
(Loss) Income before Noncontrolling
Interest
Three
months ended September 30, 2010 compared with three months ended September 30,
2009
(in
thousands)
|
Three
months ended
|
||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
|||||||
(Unaudited)
|
(Unaudited)
|
||||||||
NET
(LOSS) INCOME BEFORE NONCONTROLLING INTEREST
|
$
|
(1,748)
|
$
|
19,470
|
(109.0)%
|
47
Net loss
before noncontrolling interest for the three months ended September 30, 2010
decreased to $1.7 million compare to a net income before noncontrolling interest
of $19.5 million for the same period last year.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
(in
thousands)
|
Nine
months ended
|
|||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
||||||
(Unaudited)
|
(Unaudited)
|
|||||||
NET
(LOSS) INCOME BEFORE NONCONTROLLING INTEREST
|
$
|
(15,365)
|
7,262
|
(311.6
|
)% |
Net loss
before noncontrolling interest for the nine months ended September 30, 2010
decreased to $15.4 million from a net income before noncontrolling interest of
$7.3 million for the same period last year.
Net
(Loss) Income attributable to General Steel Holdings, Inc.
Three
months ended September 30, 2010 compared with three months ended
September 30, 2009
(in
thousands)
|
Three
months ended
|
||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
|||||||
(Unaudited)
|
(Unaudited)
|
||||||||
NET
(LOSS) INCOME BEFORE NONCONTROLLING INTEREST
|
$
|
(1,748)
|
$
|
19,470
|
(109.0
|
)% | |||
LESS:
Net Income attributable to the noncontrolling interest
|
513
|
9,088
|
(94.3
|
)% | |||||
NET
(LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
|
$
|
(2,261)
|
$
|
10,382
|
(121.8
|
)% |
Net loss attributable to General Steel
Holdings, Inc. for the three months ended September 30, 2010 decreased to $2.3
million compared to net income $10.4 million for the same period of
2009.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
(in
thousands)
|
Nine
months ended
|
|||||||||
September
30, 2010
|
September
30, 2009
|
Change
%
|
||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||
NET
(LOSS) INCOME BEFORE NONCONTROLLING INTEREST
|
$
|
(15,365)
|
$
|
7,262
|
(311.6) | % | ||||
LESS:
Net (loss) income attributable to the noncontrolling
interest
|
(5,469)
|
$
|
21,421
|
(125.5) |
%
|
|||||
NET
LOSS ATTRIBUTABLE TO CONTROLLING INTEREST
|
$
|
(9,896)
|
$
|
(14,159)
|
(30.1)
|
%
|
Net loss
attributable to General Steel Holdings, Inc. for the nine months ended September
30, 2010 decreased to $9.9 million compared to a net loss of $14.2 million for
the same period of 2009.
Earnings
per Share
Three
months ended September 30, 2010 compared with three months ended September 30,
2009
(Loss)
earnings per Share
|
Three
months ended
|
|||||||||||
(in
thousands, except earnings per share)
|
September
30, 2010
|
September
30, 2009
|
Change
%
|
|||||||||
(Unaudited)Unaudited
|
(Unaudited)
|
|||||||||||
NET
(LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
|
$
|
(2,261)
|
$
|
10,382
|
(121.8)
|
% | ||||||
WEIGHTED
AVERAGE NUMBER OF SHARES
|
||||||||||||
Basic
|
53,941
|
44,974
|
19.9
|
%
|
||||||||
Diluted
|
53,941
|
45,750
|
17.9
|
%
|
||||||||
(LOSS)
INCOME PER SHARE
|
||||||||||||
Basic
|
$
|
(0.04)
|
$
|
0.23
|
(117.4)
|
% | ||||||
Diluted
|
$
|
(0.04)
|
$
|
0.22
|
(118.2)
|
% |
48
Basic and diluted (loss) earnings
per share for the three months ended September 30, 2010 decreased to a loss
$0.04 compared to basic earnings per share of $ 0.23 and diluted earnings per
share of $0.22 for the same period of 2009.
Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
Earnings
per Share
|
Nine
months ended
|
|||||||||||
(in
thousands, except earnings per share)
|
September
30, 2010
|
September
30, 2009
|
Change
%
|
|||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||
NET
LOSS ATTRIBUTABLE TO CONTROLLING INTEREST
|
$
|
(9,896)
|
$
|
(14,159)
|
(30.1
|
)%
|
||||||
WEIGHTED
AVERAGE NUMBER OF SHARES
|
||||||||||||
Basic
|
52,577
|
40,296
|
30.5
|
%
|
||||||||
Diluted
|
52,577
|
40,296
|
30.5
|
%
|
||||||||
LOSS
PER SHARE
|
||||||||||||
Basic
|
$
|
(0.19)
|
$
|
(0.35)
|
(45.7
|
)%
|
||||||
Diluted
|
$
|
(0.19)
|
$
|
(0.35)
|
(45.7
|
)%
|
Basic and
diluted loss per share for the nine months ended September 30, 2010 decreased to
$0.19 from basic and diluted earnings per share of $0.35 for the same period of
2009.
Income
Taxes
We did not conduct any business and did
not maintain any branch office in the United States during the three months
ended September 30, 2010 and 2009. Therefore, no provision for withholding of
U.S. federal or state income taxes or tax benefits on the undistributed earnings
and/or losses of our company has been made.
General Steel (China) is located in
Tianjin Costal Economic Development Zone and under the Income Tax Laws of
Tianjin City of PRC, and therefore was eligible for an income tax rate of 25%.
General Steel (China) was entitled to a 50% income tax reduction of the special
income tax rate of 25%, which is a rate of 12% for the years ended December 31,
2009 due to its foreign joint venture status. Beginning in 2010, the effective
income tax rate at General Steel (China) is 25%.
Longmen Joint Venture is located in the
mid-west region of China. It qualifies for the “Go-West” tax rate of 15%
promulgated by the government.
Baotou Steel Pipe Joint Venture is
located in Inner Mongolia Autonomous Region and is subject to an effective
income tax rate of 25%.
Maoming is located in Guangdong
province and subject to an effective income tax rate of 25%.
For the three months ended September 30,
2010, we had a total tax provision of $0.1 million. For the nine months ended
September 30, 2010, we had a total tax benefit of $4.7 million.
We have cumulative undistributed
earnings of foreign subsidiaries of approximately $4.8 million as of September
30, 2010. Such earnings are included in consolidated retained earnings and will
continue to be indefinitely reinvested in internal
operations. Accordingly, no provision has been made for U.S. deferred
taxes related to future repatriation of these earnings, nor is it practicable to
estimate the amount of income taxes that would have to be provided if we
concluded that such earnings will be remitted in the future.
49
We were
incorporated in the United States and have incurred net operating losses for
income tax purposes for the nine months ended September 30, 2010 and for the
year ended December 31, 2009. The net operating loss carry forwards for United
States income taxes amounted to $1.7 million which may be available to
reduce future years’ taxable income. These carry forwards will expire, if not
utilized at the end of 2030. Management believes that the realization of the
benefits from these losses appears uncertain due to our limited operating
history and continuing losses for United States income tax purposes.
Accordingly, we have provided a 100% valuation allowance on the deferred tax
asset benefit to reduce the asset to zero. The valuation allowance as of
September 30, 2010 was $0.6 million. The net change in the valuation allowance
for the three months ended September 30, 2010 was $0.1 million. Management will
review this valuation allowance periodically and make adjustments as
warranted.
Noncontrolling
Interest
Noncontrolling
interest mainly consists of Long Steel Group’s 40% interest in Longmen Joint
Venture, Baotou Iron and Steel Group’s 20% interest in Baotou Steel Pipe Joint
Venture, a 1% interest in Maoming by another entity and TME Group’s 40% interest
in Tianwu GS.
Accounts
Receivable
Accounts receivable and accounts
receivable-related party were $21.2 million as of September 30, 2010 compared to
$8.5 million on December 31, 2009. This increase was mainly due to Longmen Joint
Venture’s deliveries made to a major government project which we intend to
collect the payment in the coming months.
We recognize revenue when we ship out
products and pass the titles of the products to our customers and distributors.
We extended short-term credit to our customers and distributors with good
reputations and long-term business relationships. We have not experienced any
bad debt in these accounts. Also, we review our accounts receivable on a regular
basis to determine if the bad debt allowance is adequate and adjust the
allowance amount if needed. We believe the accounts receivable amount is
collectible. Nevertheless, to be conservative and prudent in our management
practice, as of September 30, 2010, we reserved $0.4 million for bad debt
allowance based on our reasonable estimate.
Inventories
We had an inventory balance of $250.8
million as of September 30, 2010 compared to $208.1 million as of December 31,
2009. Such balance is comprised of raw material and finished
products. We increased our stock of raw materials in the second quarter
believing that raw material prices will increase in the upcoming
months.
Liquidity
and capital resources
The steel
business is capital intensive and we utilize leverage greater than our industry
peers which enables us to generate revenue compared to our shareholder equity at
a rate higher than our industry peers. We utilize leverage in the form of credit
from banks, vendor financing, customer deposits and others. This blended form of
financing reduces our reliance on any single source.
Short-term
Notes Payable
As of September 30, 2010, we had $302.1
million in short-term notes payables liabilities, which are secured by
restricted cash of $182.4 million and the assets of the Company. These are lines
of credit extended by banks for a maximum of six months and used to finance
working capital. The short-term notes payables must be paid in full at maturity
and credit availability is continued upon payment at maturity. There are no
additional significant financial covenants.
Short-term notes payable is one of the
lowest cost form of financing available in China. We pay zero interest on this
type of credit. This is a monetary tool used by China’s central bank to inject
liquidity into the Chinese monetary system.
Short-term
Loans – Banks
As of September 30, 2010, we had $178.1
million in short-term bank loans. These are bank loans with a one year maturity
and must be paid in full upon maturity. There are no additional significant
financial covenants tied to these loans. Chinese banks have not been impacted as
heavily by the financial crisis as U.S. banks and we believe our current
creditors will renew their lending to us after our loans mature as they have in
the past.
50
We are able to repay our short-term
notes payables and short term bank loans upon maturity using available capital
resources.
For more details about our debts,
please see note 8 in our notes to the financial statements included in this
report.
Cash-flow
Operating
Activities
Net cash used in operating activities
for the nine months ended September 30, 2010 was $103.1 million compared to $7.2
million in the same period of 2009. This change was mainly due to the
combination of the following factors:
·
|
Some
non-cash items including in net income such as depreciation and
amortization, impairment of long-lived assets, loss (gain) on
disposal of equipment, stock issued for service and compensation,
amortization of deferred note issuance cost and discount on convertible
notes, make whole shares interest expense on notes conversion, change in
fair value of derivative instrument, income from investment and deferred
tax assets, resulted in a cash inflow of $12.9 million.
|
|
·
|
Cash
outflow resulting from the increase in accounts receivable, notes
receivable, other receivables, inventories and advance on inventory
purchase was $183.1 million, compared to an outflow of $153.5 million
during the same period last year.
|
|
·
|
Cash
inflow due to the increase in accounts payable, other payables, customer
deposit and tax payable totaled of $82.3 million compared to an inflow of
$93.1 million during the same period last
year.
|
Overall,
the increase in cash used in operating activities is due to our efforts to
utilize capital resources to build up raw material inventories.
Investing
Activities
Net cash used in investing activities
was $72.6 million for the nine months ended September 30, 2010 compared to $69.1
million in the same period of 2009. This change in cash outflow is mainly due to
a reduction of equipment purchases.
Financing
Activities
Net cash provided by financing
activities was $134.1 million for the nine months ended September 30, 2010
compared to $115.6 million in the same period of 2009.
Shelf
Registration SEC Form S-3
On October 22, 2009, our shelf
registration statement on Form S-3 for an aggregate offering amount of $60
million was declared effective by the Securities and Exchange Commission
(“SEC”). From time to time we may sell common stock, preferred stock, warrants,
debt securities, rights and units in one or more offerings. As
discussed below, in December 2009 we consummated a registered direct offering
using the Form S-3 shelf registration statement to issue common stock and
warrants. We may sell the remaining securities registered on the Form
S-3 shelf registration statement to or through underwriters, directly to
investors, through agents or any combination of the foregoing.
51
Each time we offer securities under our
Form S-3 shelf registration statement, we will file a prospectus supplement with
the SEC containing more specific information about the particular offering. The
prospectus supplements may also add, update or change information contained in
this prospectus. The Form S-3 shelf registration statement may not be used
to offer or sell securities without a prospectus supplement which includes a
description of the method of sale and terms of the offering.
Impact
of Inflation
We are subject to commodity price risks
arising from price fluctuations in the market prices of the raw materials. We
have generally been able to pass on cost increases through price adjustments.
However, the ability to pass on these increases depends on market conditions
influenced by the overall economic conditions in China. We manage our price
risks through productivity improvements and cost-containment measures. We do not
believe that inflation risk is material to our business or our financial
position, results of operations or cash flows.
Compliance
with Environmental Laws and Regulations
Longmen
Joint Venture:
Since 2002, our joint venture partner,
Long Steel Group, has invested $76 million (RMB580 million) in a series of
comprehensive projects to reduce its waste emissions of coal gas, water, and
solid waste. In 2005, Long Steel Group received ISO 14001
certification for its overall environmental management system. Long
Steel Group has received several awards from the Shaanxi provincial government
for its increasing effort in environmental protection.
Long Steel Group has spent more than
$4.3 million (RMB33 million) on a comprehensive waste water recycling and water
treatment system. The 2,000 cubic meter/h treatment capacity system was
implemented at the end of 2005. In 2010, 1.1 metric tons of new water was
consumed per metric ton of steel produced.
Long Steel Group has one 10,000 cubic
meter coke-oven gas tank and one 50,000 cubic meter blast furnace coal gas tank
to collect the residual coal gas produced from its own facility and that of
surrounding enterprises. Long Steel Group also has a thermal power plant with
two 25 Kilowatt dynamos that uses the residual coal gas from the blast furnaces
and converters as fuel to generate power.
Long Steel Group also has several
plants to further process solid waste generated from the steel making process
into useful products such as construction materials, building blocks, porcelain
tiles, curb tops, ornamental tiles, etc. The plants are capable of processing
400,000 metric tons of solid waste and generate revenue of more than $7.3
million (RMB50 million) each year.
Off-balance
Sheet Arrangements
There was no off-balance sheet
arrangements in the fiscal quarter ended September 30, 2010.
Critical Accounting
Policies
Management’s discussion and analysis of
its financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. Our financial
statements reflect the selection and application of accounting policies which
require management to make significant estimates and judgments. See Note 2 to
our consolidated financial statements, “Summary of Significant Accounting
Policies.” Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.
We believe that the following reflect
the more critical accounting policies that currently affect our financial
condition and results of operations.
52
Revenue
Recognition
We follow the accounting principles
generally accepted 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, we have no other significant obligations 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 our products
sold in the PRC are subject to a Chinese value-added tax at a rate of 13% to 17%
of the gross sales price. This VAT may be offset by VAT paid by us on raw
materials and other materials included in the cost of producing the finished
product.
Use
of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in 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 our financial statements include
the useful lives of and impairment for property, plant and equipment, potential
losses on uncollectible receivables and convertible notes. Actual results could
differ from these estimates.
Financial
Instruments
The accounting standard regarding
“Disclosures about fair value of financial instruments” defines financial
instruments and requires disclosure of the fair value of financial instruments
held by us. We consider 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, we 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.
We also analyze all financial
instruments with features of both liabilities and equity under the accounting
standard establishing, “accounting for certain financial instruments with
characteristics of both liabilities and equity,” the accounting standard
regarding “accounting for derivative instruments and hedging activities”
and “accounting for derivative financial instruments indexed to, and potentially
settled in, a company’s own stock.” Additionally, we analyze registration rights
agreements associated with any equity instruments issued to determine if
penalties triggered for late filing should be accrued under accounting
standard establishing “accounting for registration payment
arrangements.”
Fair
Value Measurements
The accounting standards regarding fair
value of financial instruments and related fair value measurement defines
fair value, establishes a three-level valuation hierarchy for disclosures of
fair value measurement and enhances disclosures 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.
In 2007, the conversion feature on the
December 2007 Notes, as well as the December 2007 Warrants and reset
warrants issued in December 2009 issued in conjunction with the
December 2007 Notes was carried at fair value. 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 liability is carried on the balance sheet at its fair
value.
53
On August 5, 2010, the
investors holding the remaining outstanding December 2007 Notes elected to
convert all the amounts due thereunder into our common stock. These were notes
outstanding from our December 13, 2007 private placement. The December 2007
Notes were converted on August 5, 2010 in accordance with their terms resulting
in the issuance of a total of 1,559,675 shares of common Stock in the aggregate
to the remaining investors. As a result of the conversion, we have no
outstanding balance on the December 2007 Notes.
The
December 2007 Warrants, December 2009 Warrants and their conversion feature are
valued by using level 2 inputs to the Binomial Model and determined that the
fair value amounted to approximately $7.0 million due to the decrease in our
common stock price.
Noncontrolling
Interest
Effective January 1, 2009, we
adopted accounting principles generally accepted in the United States regarding
noncontrolling interest in 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 adoption of
this accounting standard, net income attributable to noncontrolling interests is
now excluded from the determination of consolidated net income. In addition,
foreign currency translation adjustment is allocated between controlling and
noncontrolling interests.
Noncontrolling interests were
$64.5 million and $72.6 million as of the September 30, 2010 and
December 31, 2009, respectively.
New
Accounting Pronouncements
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.
We are currently evaluating the impact of this ASU. However, we do not
expect the adoption of this ASU to have a material impact on our
consolidated financial statements.
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.
In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. We do not
expect the adoption of ASU 2010-17 to have a significant impact on our
consolidated financial statements.
54
In April
2010, the FASB issued Accounting Standard Update 2010-17, “Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition” or ASU 2010-17. This Update provides
guidance on the recognition of revenue under the milestone method, which allows
a vendor to adopt an accounting policy to recognize all of the arrangement
consideration that is contingent on the achievement of a substantive milestone
(milestone consideration) in the period the milestone is achieved. The
pronouncement is effective on a prospective basis for milestones achieved in
fiscal years and interim periods within those years, beginning on or after
June 15, 2010. The adoption of ASU 2010-17 does not have a
significant impact on our consolidated financial statements.
In July
2010, the FASB issued Accounting Standards Update 2010-20 which amend
“Receivables” (Topic 310). ASU 2010-20 is intended to provide additional
information to assist financial statement users in assessing an entity’s risk
exposures and evaluating the adequacy of its allowance for credit losses. The
disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period are effective for interim
and annual reporting periods beginning on or after December 15, 2010. The
amendments in ASU 2010-20 encourage, but do not require, comparative disclosures
for earlier reporting periods that ended before initial adoption. However, an
entity should provide comparative disclosures for those reporting periods ending
after initial adoption. We do not expect the adoption of ASU 2010-20 to have a
significant impact on our consolidated financial statements.
Contractual
Obligations and Commercial Commitments
We have certain fixed contractual
obligations and commitments that include future estimated payments. Changes in
our business needs, cancellation provisions, changing interest rates, and other
factors may result in actual payments differing from the estimates. We cannot
provide certainty regarding the timing and amounts of payments. We have
presented below a summary of the most significant assumptions used in our
determination of amounts presented in the tables, in order to assist in the
review of this information within the context of our consolidated financial
position, results of operations, and cash flows.
The following tables summarize our
contractual obligations as of September 30, 2010 and the effect these
obligations are expected to have on our liquidity and cash flows in future
periods.
|
Payment due by period
|
||||||||||||||
|
Less than
|
||||||||||||||
Contractual
obligations
|
Total
|
1
year
|
1-3
years
|
4-
5 years
|
|||||||||||
Dollars
amounts in thousands
|
|||||||||||||||
Bank
loans
|
$
|
178,122
|
$
|
178,122
|
$
|
-
|
$
|
-
|
|||||||
Other
loans
|
193,521
|
193,521
|
-
|
||||||||||||
Notes
payable
|
302,113
|
302,113
|
-
|
-
|
|||||||||||
Deposits
due to sales representatives
|
45,845
|
45,845
|
-
|
||||||||||||
Lease
with Bao Gang Group
|
462
|
264
|
198
|
-
|
|||||||||||
Construction
obligations - Longmen Joint Venture and Maoming Hengda
Steel
|
12,507
|
12,507
|
-
|
||||||||||||
Iron
ore purchase contract by Tianwu
|
8,000
|
8,000
|
|||||||||||||
Total
|
$
|
740,570
|
$
|
740,372
|
$
|
198
|
$
|
-
|
55
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Commodity
Price Risk and Related Risks
In the
normal course of our business, we are exposed to market risk or price
fluctuations related to the purchase, production or sale of steel products over
which we have little or no control. We do not use any derivative commodity
instruments to manage the price risk. Our market risk strategy has generally
been to obtain competitive prices for our products and allow operating results
to reflect market price movements dictated by supply and demand. Based upon a
2009 annual production capacity of 3.8 million metric tons, a $1 change in the
annual average price would change annual pre-tax profits by approximately $3.8
million.
Interest
Rate Risk
We are
subject to interest rate risk since our outstanding debts are short-term and
bear interest at variable interest rates. The future interest expense would
fluctuate in case of any change in the borrowing rates. We do not use swaps or
other interest rate protection agreements to hedge this risk. We believe our
exposure to interest rate risk is not material.
Foreign
Currency Exchange Rate Risk
Our
operating units, General Steel (China), Longmen Joint Venture, Baotou Steel Pipe
Joint Venture and Maoming, are all located in China. They produce and sell all
of their products domestically in the PRC. They are subject to the foreign
currency exchange rate risks due to the effects of fluctuations in the Chinese
Renminbi on revenues and operating costs and existing assets or liabilities. We
have not generally used derivative instruments to manage this risk. Generally, a
ten percent (10%) decrease in Renminbi exchange rate would result in a $1.9
million decrease in net income.
ITEM
4. CONTROLS AND PROCEDURES.
We, with the participation of our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the
design and operation of our disclosure controls and procedures, as defined under
Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act), as of September 30, 2010. Our disclosure
controls and procedures are designed (i) to ensure that information required to
be disclosed by it in the reports that it files or submits under the Exchange
Act are recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (ii) to ensure that
information required to be disclosed in the reports we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure. Based on their evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures were effective as of September 30, 2010 in alerting
management on a timely basis to information required to be included in our
submissions and filings under the Exchange Act.
There were no changes in our internal
control over financial reporting during its most recently completed fiscal
quarter that have materially affected or are reasonably likely to materially
affect its internal control over financial reporting, as defined in Rule
13a-15(f) under the Exchange Act.
PART
II – OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
From time
to time, we are subject to certain legal proceedings, claims and disputes that
arise in the ordinary course of our business. Although we cannot predict the
outcomes of these legal proceedings, we do not believe these actions; in the
aggregate will have a material adverse impact on our financial position, results
of operations or liquidity.
56
ITEM
6. EXHIBITS.
(a)
|
Exhibits
|
31.1
|
Certification
of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, as filed
herewith.
|
|
31.2
|
Certification
of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, as filed
herewith.
|
|
32.1
|
Certification
of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, as filed
herewith.
|
|
32.2
|
Certification
of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, as filed
herewith.
|
57
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
General
Steel Holdings, Inc.
|
|
Date:
November 9, 2010
|
By:
/s/ Zuosheng Yu
|
Zuosheng
Yu
|
|
Chief
Executive Officer and Chairman
|
|
Date:
November 9, 2010
|
By:
/s/ John Chen
|
John
Chen
|
|
Director
and Chief Financial Officer
|
58