þ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) |
Colorado
|
14-1623047
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
8th
Floor, Teda Building, 87 Wing Lok Street,
Sheungwan
Hong
Kong, The People’s Republic of China
|
(Address
of principal executive offices)
|
+1-852-8543-8223
|
(Registrant’s
telephone number, including area
code)
|
|
Name
of Exchange
|
|
Title
of
Class
|
On
Which Registered
|
|
Common
Stock, par value $.001
|
The
NASDAQ Capital
Market
|
|
|
PAGE
|
PART
I
|
||
ITEM
1.
|
BUSINESS
|
4
|
ITEM
1A.
|
RISK
FACTORS
|
17
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
34
|
ITEM
2.
|
PROPERTIES
|
34
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
34
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
34
|
|
||
PART
II
|
|
|
|
||
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
35
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
38
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
39
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
51
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
54
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
81
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
81
|
ITEM
9B.
|
OTHER
INFORMATION
|
81
|
|
||
PART
III
|
|
|
|
||
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
82
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
82
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
82
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
82
|
ITEM
14
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
82
|
|
||
PART
IV
|
|
|
|
||
ITEM
15
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
83
|
SIGNATURES
|
FINANCIAL
STATEMENTS
|
EXHIBITS
|
· |
plans
to expand our exports outside of China;
|
· |
plans
to increase our production capacity and the anticipated dates that
such
facilities may commence operations;
|
· |
our
ability to obtain additional funding for our continuing operations
and to
fund our expansion;
|
· |
our
ability to meet our financial projections for any financial
year;
|
· |
our
ability to retain our key executives and to hire additional senior
management;
|
· |
continued
growth of the Chinese economy and industries demanding our
products;
|
· |
our
ability to produce and sell cold-rolled precision steel products
at high
margins;
|
· |
our
ability to secure at acceptable prices the raw materials we need
to
produce our products;
|
· |
political
changes in China that may impact our ability to produce and sell
our
products in our target markets;
|
· |
general
business conditions and competitive factors, including pricing pressures
and product development; and
|
· |
changes
in our relationships with customers and
suppliers.
|
· |
Focus
on Rapidly Growing Niche Segment.
We will continue to focus on niche markets. According to publicly
available information, the demand for precision cold-rolled steel
products
has been growing at a rate of 20% annually over the past five years
in
China. Export demand, coupled with domestic Chinese demand for automobile
parts and components, saw blades, textile needles, microelectronics,
packing and containers, is expected to continue, thereby increasing
demand
for high precision steel products. Moreover, new applications of
steel
products are continually being developed. Our research and development
efforts are focused on advancing processing techniques and production
of
high strength and ultra-thin, cold-rolled precision steel products
to
enhance our product offerings and expand our market
share.
|
· |
Leverage
Our Strengths to Compete Effectively with Imports.
Specialty precision steel is a relatively new industry in China with
the
majority of precision steel imported from Japan, Korea, the European
Union
and the United States. As a result, the average quality and standards
of
China’s high precision steel industry lags behind the international norm.
Our lower cost base allows us to sell our products at an average
of 10%
below our international competitors with shorter delivery time and
in
accordance with customer specifications. We will leverage our lower
operating cost base, our state-of-the-art patented manufacturing
system
and process, and our strategic relationships with our major suppliers
to
produce cold-rolled steel products with quality similar to international
standards at lower cost than international
competitors.
|
· |
Focus
on High Margin Products.
We will continue to manufacture products with high sustainable margins.
We
increased our gross margin from 5.8% in 2004 to 26.4% in 2007. The
average
gross margin of our high carbon steel products are 20-40% and 10-30%
for
our low carbon steel products. We will provide additional services
such as
heat treatment and cutting to further enhance our margins. We believe
these high gross margins are sustainable despite fluctuations in
steel
prices because of the specialty of the end product which allows price
increases of raw material to be passed directly to our
customers.
|
· |
Expand
Manufacturing Capacity.
We will increase our production capacity by adding a third cold-rolled
mill with a design capacity of 150,000 metric tons in 2008. This
will
increase our total production design capacity to approximately 400,000
metric tons. The rolling mill installed in 2006, together with the
third
mill, will produce high carbon, high strength, cold-rolled steel
products
and more complex precision steel products.
|
· |
Compete
Internationally.
We
intend to expand our exports to compete in the international marketplace.
We believe we are the only non-Japanese company able to compete in
the
global marketplace with low carbon precision cold-rolled steel products
in
the thickness range between 0.1 to 0.2 mm. In addition, we are not
aware
of any other company that currently manufactures high strength and
ultra-thin cold-rolled steel with a width of 1400mm. These products
provide us with a unique opportunity to compete in the global
marketplace.
|
· |
Retain
Key Personnel.
The Chinese market is highly competitive for experienced and talented
executives and we will strive to retain our key executives, including
our
Chief Executive Officer, Wo Hing Li, and the General Manager of Chengtong,
Hai Sheng Chen. Their experience in business operations and in Chinese
steel manufacturing, respectively, is critical to our continued growth
and
success.
|
Categories
|
Uses
|
Thickness
|
||
1.
Low carbon steel (cold-rolled, acid wash)
|
Food
packaging, dry batteries, ceiling coverings, electronic devices,
kitchen
tools
|
0.03-7.5mm
|
||
2.
Medium and high carbon steel (cold-rolled, hard-rolled)
|
Automobile
components, grinding pieces, saw blades, weaving needles, spring
and
mechanism components
|
0.03-7.5mm
|
||
3.
Chrome stainless steel
|
Kitchen
tools, automobile components
|
0.5-7.5mm
|
||
4.
Steel services
|
Heat
treatment of hot-rolled steel coils; cutting and slitting
|
Principal
Customers
|
2007
|
%
to sales
|
2006
|
%
to sales
|
|||||||||
Shanghai
Ruixuefeng Metals Co. Ltd
|
12,192,219
|
23
|
4,634,521
|
13
|
|||||||||
Shanghai
Changshuo Steel Company Ltd
|
5,428,110
|
10
|
-*
|
-*
|
|||||||||
China
Railway Materials Shanghai Company
|
3,498,770
|
6
|
-*
|
-*
|
|||||||||
Hangzhou
Relian Company Limited
|
3,323,981
|
6
|
-*
|
-*
|
|||||||||
Sinosteel
Company Limited
|
3,251,450
|
6
|
-*
|
-*
|
|||||||||
Jiangsu
Kaiteer Industrial Stove Co. Ltd
|
-*
|
-*
|
5,212,171
|
15
|
|||||||||
Shanghai
Yiyi Industrial Co. Ltd
|
-*
|
-*
|
4,305,918
|
12
|
|||||||||
Ningbo
Eco and Tech Shuntong Trading Co.
|
-*
|
-*
|
2,042,191
|
6
|
|||||||||
Shanghai
Bayou Industrial Co. Ltd
|
-*
|
-*
|
1,555,204
|
4
|
|||||||||
27,694,530
|
51
|
17,750,005
|
50
|
||||||||||
Others
|
26,265,713
|
49
|
17,131,136
|
50
|
|||||||||
Total
|
53,960,243
|
100
|
34,881,141
|
100
|
· |
one
1100 mm 12-high cold-rolled reversing mill, with a design capacity
of
100,000 metric tons, and
|
· |
one
1400 mm 12-high cold-rolling reversing mill, with a design capacity
of
150,000 metric tons.
|
Suppliers
|
2007
|
2006
|
|||||
Hangzhou
Relian Company Limited
|
8,598,117
|
-*
|
|||||
Shanghai
Pinyun Steel Co., Limited
|
6,355,445
|
-*
|
|||||
BaoSteel
Trading Co. Ltd
|
4,633,054
|
7,138,845
|
|||||
Shanghai
Changshuo Steel Company Ltd
|
3,408,301
|
-*
|
|||||
Shanghai
Bao Gang Dev Co. Ltd
|
2,917,010
|
1,389,221
|
|||||
Ningbo
Dongming Co. Ltd
|
-*
|
5,902,211
|
|||||
Shangahi
Baixing Co. Ltd
|
-*
|
1,642,024
|
|||||
Shanghai
Tianxing Co. Ltd
|
-*
|
1,025,946
|
|||||
25,911,927
|
17,098,247
|
||||||
Total
direct materials consumed
|
33,809,809
|
21,417,919
|
|||||
%
of major suppliers to total consumption
|
77
|
%
|
80
|
%
|
· |
Convention
establishing the World Intellectual Property Organization (WIPO
Convention) (June 4, 1980);
|
· |
Paris
Convention for the Protection of Industrial Property (March 19,
1985);
|
· |
Patent
Cooperation Treaty (January 1, 1994); and
|
· |
The
Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPs)
(November 11, 2001).
|
· |
economic
and political instability in China, including problems related to
labor
unrest,
|
· |
lack
of developed infrastructure,
|
· |
variances
in payment cycles,
|
· |
currency
fluctuations,
|
· |
overlapping
taxes and multiple taxation issues,
|
· |
employment
and severance taxes,
|
· |
compliance
with local laws and regulatory requirements,
|
· |
greater
difficulty in collecting accounts receivable,
and
|
· |
the
burdens of cost and compliance with a variety of foreign laws.
|
· |
environmental
and waste management,
|
· |
our
relationship with our employees, including: wage and hour requirements,
working and safety conditions, citizenship requirements, work permits
and
travel restrictions,
|
· |
property
ownership and use in connection with our leased facilities in China,
and
|
· |
import
restrictions, currency restrictions and restrictions on the volume
of
domestic sales.
|
· |
quality,
|
· |
price
competitiveness,
|
· |
technical
expertise and development capability,
|
· |
innovation,
|
· |
reliability
and timeliness of delivery,
|
· |
product
design capability,
|
· |
operational
flexibility,
|
· |
customer
service, and
|
· |
overall
management.
|
· |
accurately
forecasting demand,
|
· |
predicting
volatility,
|
· |
timing
volume sales to our customers,
|
· |
balancing
our productive resources with product mix, and
|
· |
planning
manufacturing services for new or other products that we intend to
produce.
|
· |
utilization
rates of manufacturing lines,
|
· |
downtime
due to product changeover,
|
· |
impurities
in raw materials causing shutdowns, and
|
· |
maintenance
of contaminant-free operations.
|
· |
Implement
our business model and strategy and adapt and modify them as
needed;
|
· |
Manage
our expanding operations and product
offerings;
|
· |
Maintain
adequate control of our expenses;
|
· |
Anticipate
and adapt to changing conditions in the precision steel markets in
which
we operate as well as the impact of any changes in government regulation;
and
|
· |
Anticipate
mergers and acquisitions involving our competitors, technological
developments and other significant competitive and market
dynamics.
|
· |
changes
in policies by the Chinese government resulting in changes in laws
or
regulations or the interpretation of laws or regulations,
|
· |
confiscatory
taxation,
|
· |
changes
in employment restrictions,
|
· |
restrictions
on imports and sources of supply,
|
· |
import
duties,
|
· |
corruption,
|
· |
currency
revaluation, and
|
· |
the
expropriation of private enterprise.
|
· |
levying
fines;
|
· |
revoking
our business and other licenses;
|
· |
requiring
that we restructure our ownership or operations;
and
|
· |
requiring
that we discontinue any portion or all of our
business.
|
· |
our
ability to obtain additional financing and, if available, the terms
and
conditions of the financing;
|
· |
our
financial position and results of
operations;
|
· |
period-to-period
fluctuations in our operating results;
|
· |
changes
in estimates of our performance by any securities
analysts;
|
· |
substantial
sales of our common stock pursuant to Rule 144 or
otherwise;
|
· |
new
regulatory requirements and changes in the existing regulatory
environment;
|
· |
the
issuance of new equity securities in a future
offering;
|
· |
changes
in interest rates; and
|
· |
general
economic, monetary and other national conditions, particularly in
the U.S.
and China.
|
· |
investors
may have difficulty buying and selling;
|
· |
market
visibility for our common stock may be limited;
and
|
· |
a
lack of visibility for our common stock may have a depressive effect
on
the market for our common stock.
|
Year
Ended June 30, 2007*
|
Year
Ended June 30, 2006
|
|||
Quarter
ended
|
High
|
Low
|
High
|
Low
|
October
31
|
$
7.84
|
$2.51
|
$3.19
|
$2.00
|
December
31
|
$13.73
|
$5.34
|
$4.02
|
$1.49
|
March
31
|
$16.58
|
$5.68
|
$2.97
|
$1.50
|
June
30
|
$
6.66
|
$2.71
|
$8.97
|
$1.65
|
Plan
Category
|
Number
of
securities
issued
upon
exercise of
outstanding
options,
warrants
and
rights
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and
rights
|
Number
of
securities
remaining
available
for future
issuance
under
equity
compensation
plans
(excluding
securities
reflected
in
column (a))
|
(a)
|
(b)
|
(c)
|
|
Equity
compensation
plans
approved by
security
holders
|
0
|
N/A
|
2,165,220
|
Year
Ended June 30,
|
||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||
(In
thousands, except share and per share amounts)
|
||||||||||||||||
Statement
of Operations Data
|
||||||||||||||||
Sales
revenues
|
$
|
53,960
|
$
|
34,881
|
$
|
53,145
|
17,417
|
2,282
|
||||||||
Cost
of goods sold
|
38,926
|
24,892
|
45,562
|
16,410
|
2,229
|
|||||||||||
Gross
profit
|
15,034
|
9,989
|
7,583
|
1,007
|
53
|
|||||||||||
Income(loss)
from continuing operations
|
7,406
|
7,514
|
6,366
|
199
|
(255
|
)
|
||||||||||
Net
income (loss) from discontinued operations
|
831
|
900
|
(341
|
)
|
(369
|
)
|
517
|
|||||||||
Net
income (loss)
|
$
|
8,237
|
$
|
8,415
|
$
|
6,026
|
(170
|
)
|
262
|
|||||||
Income(loss)
per share from continuing operations
|
||||||||||||||||
Basic
|
$
|
0.26
|
$
|
0.31
|
$
|
0.26
|
$
|
0.01
|
$
|
(0.01
|
)
|
|||||
Diluted
|
$
|
0.26
|
$
|
0.31
|
$
|
0.26
|
$
|
0.01
|
$
|
(0.01
|
)
|
|||||
Income(loss)
per share from discontinued operations
|
||||||||||||||||
Basic
|
$
|
0.03
|
$
|
0.04
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
0.02
|
||||
Diluted
|
$
|
0.03
|
$
|
0.04
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
$
|
0.02
|
||||
Net
income(loss)
|
||||||||||||||||
Basic
|
$
|
0.29
|
$
|
0.35
|
$
|
0.25
|
$
|
(0.01
|
)
|
$
|
0.01
|
|||||
Diluted
|
$
|
0.29
|
$
|
0.35
|
$
|
0.25
|
$
|
(0.01
|
)
|
$
|
0.01
|
|||||
Shares
used in per share calculation
|
||||||||||||||||
Basic
|
28,438,313
|
24,283,725
|
24,283,725
|
24,283,725
|
24,283,725
|
|||||||||||
Diluted
|
28,759,553
|
24,283,725
|
24,283,725
|
24,283,725
|
24,283,725
|
|||||||||||
Balance
Sheet Data (at period end)
|
||||||||||||||||
Current
assets
|
$
|
41,339
|
$
|
23,154
|
$
|
13,028
|
$
|
7,468
|
$
|
3,392
|
||||||
Total
assets
|
$
|
82,158
|
$
|
45,571
|
$
|
25,489
|
$
|
12,371
|
$
|
6,619
|
||||||
Working
Capital
|
$
|
14,574
|
$
|
(7,584
|
)
|
$
|
(1,326
|
)
|
$
|
(4,020
|
)
|
$
|
(95
|
)
|
||
Long-term
debt
|
$
|
6,878
|
$
|
3,152
|
$
|
7,713
|
$
|
-
|
$
|
2,415
|
||||||
Total
Stockholder’s equity
|
$
|
51,104
|
$
|
11,681
|
$
|
3,421
|
$
|
883
|
$
|
614
|
· |
Overview
of the Company’s Business
-
This section provides a general description of the Group’s business, as
well as recent developments that have either occurred during the
fiscal
year ended June 30, 2007 and are important in understanding the results
of
operations and financial condition or disclose known
trends.
|
· |
Results
of Operations
-
This section provides an analysis of our results of operations for
the
fiscal year ended June 30, 2007. This discussion includes a brief
description of significant transactions and events that have an impact
on
the comparability of the results being
analyzed.
|
· |
Liquidity
and Capital Resources
-
This section provides an analysis of the Group’s cash flows for the fiscal
year ended June 30, 2007. Included in this section is a discussion
of the
Group’s outstanding debt and the financial capacity available to fund the
Group’s future commitments and
obligations.
|
2007
|
2006
|
|||||||||||||||||||||
Product
category
|
Quantity
(tons)
|
$
Amount
|
%
of sales
|
Quantity
(tons)
|
$
Amount
|
%
of
sales
|
Year-on-year
Qty. Variance
|
|||||||||||||||
Low
carbon cold-rolled
|
37,066
|
22,081,636
|
41
|
22,540
|
11,482,265
|
33
|
14,526
|
|||||||||||||||
Low
carbon acid wash
|
14
|
5,732
|
-
|
-
|
-
|
-
|
14
|
|||||||||||||||
Low
carbon hard rolled
|
1,149
|
782,835
|
1
|
3,238
|
1,652,638
|
5
|
(2,089
|
)
|
||||||||||||||
High-carbon
cold-rolled
|
5,287
|
5,529,717
|
10
|
6,531
|
15,347,852
|
44
|
(1,244
|
)
|
||||||||||||||
High-carbon
hot-rolled
|
11,918
|
9,176,414
|
17
|
9,851
|
6,398,386
|
18
|
2,067
|
|||||||||||||||
High
end cold-rolled
|
865
|
14,618,831
|
27
|
-
|
-
|
-
|
865
|
|||||||||||||||
Sales of Scrap Metal |
851,742
|
2
|
- |
-
|
-
|
|||||||||||||||||
Subcontracting
income
|
10,722
|
922,534
|
2
|
-
|
-
|
-
|
10,722
|
|||||||||||||||
Total
|
67,021
|
53,960,243
|
100
|
%
|
42,160
|
34,881,141
|
100
|
24,861
|
Average
selling prices
|
2007
|
2006
|
Variance
|
||||||||||
$
|
$
|
$
|
%
|
||||||||||
Low-carbon
cold-rolled
|
602
|
521
|
81
|
16
|
%
|
||||||||
Low-carbon
acid wash
|
415
|
-
|
415
|
100
|
%
|
||||||||
Low-carbon
hard rolled
|
689
|
522
|
167
|
32
|
%
|
||||||||
High-carbon
cold-rolled
|
1,057
|
2,279
|
(1,222
|
)
|
(56
|
%)
|
|||||||
High-carbon
hot-rolled
|
778
|
665
|
113
|
17
|
%
|
||||||||
High-end
cold-rolled
|
17,090
|
-
|
17,090
|
100
|
%
|
||||||||
Subcontracting
income
|
87
|
-
|
87
|
100
|
%
|
Year
ended June 30, 2007
|
Year
ended June 30, 2006
|
Variance
|
||||||||||
Market
mix
|
$
|
Qty
|
Unit
cost
|
$
|
Qty
|
Unit
cost
|
Qty
|
%
|
Unit
cost
|
%
|
||
Local
sales
|
49,299,273
|
59,863
|
819
|
34,881,141
|
42,160
|
847
|
17,703
|
42
|
(28)
|
(3)
|
||
Export
sales
|
||||||||||||
Philippines
|
2,919,304
|
4,598
|
635
|
-
|
-
|
-
|
4,598
|
100
|
635
|
100
|
||
Thailand
|
1,741,666
|
2,560
|
680
|
-
|
-
|
-
|
2,560
|
100
|
680
|
100
|
||
Subtotal
|
4,660,970
|
7,158
|
651
|
-
|
-
|
-
|
7,158
|
100
|
651
|
100
|
||
Total
|
53,960,243
|
67,021
|
801
|
34,881,141
|
42,160
|
847
|
24,861
|
59
|
(46)
|
(5)
|
Customers
|
2007
($)
|
%
to sales
|
2006
($)
|
%
to sales
|
Shanghai
Ruixuefeng Metals Co. Ltd
|
12,192,219
|
21
|
4,634,521
|
13
|
Shanghai
Changshuo Steel Company Ltd
|
5,428,110
|
10
|
-*
|
-*
|
China
Railway Materials Shanghai Company
|
3,498,770
|
7
|
-*
|
-*
|
Hangzhou
Relian Company Limited
|
3,323,981
|
6
|
-*
|
-*
|
Sinosteel
Company Limited
|
3,251,450
|
6
|
-*
|
-*
|
Jiangsu
Kaiteer Industrial Stove Co. Ltd
|
-*
|
-*
|
5,212,171
|
16
|
Shanghai
Yiyi Industrial Co. Ltd
|
-*
|
-*
|
4,305,918
|
12
|
Ningbo
Eco and Tech Shuntong Trading Co. Ltd
|
-*
|
-*
|
2,042,191
|
6
|
Shanghai
Bayou Industrial Co. Ltd
|
-*
|
-*
|
1,555,204
|
4
|
27,694,530
|
51
|
17,750,005
|
51
|
|
Others
|
26,265,713
|
49
|
17,131,136
|
49
|
Total
|
53,960,243
|
100
|
34,881,141
|
100
|
2007
|
2006
|
Variance
|
|||||||||||
$
|
$
|
$
|
%
|
||||||||||
Cost
of sales
|
|||||||||||||
-
Raw materials
|
33,809,809
|
21,417,919
|
12,391,890
|
58
|
|||||||||
-
Direct labor
|
635,885
|
415,852
|
220,033
|
53
|
|||||||||
-
Factory overhead
|
4,480,293
|
3,142,658
|
1,337,635
|
43
|
|||||||||
38,925,987
|
24,892,154
|
14,033,833
|
56
|
||||||||||
Cost
per units sold
|
|||||||||||||
Total
units sold
|
67,021
|
42,160
|
24,861
|
59
|
|||||||||
Average
cost per unit sold
|
581
|
590
|
(11
|
)
|
(2
|
)
|
· |
significant
increases in sales of low-carbon cold-rolled steel to 37,066 metric
tons
(compared to 22,540 metric tons for the year ended June 30, 2006)
was
generated at an average selling price of $602 per ton (compared to
$521
for the year ended June 30, 2006)
for the year ended June 30, 2007;
|
· |
sales
of 11,918 metric tons of high-carbon hot-rolled steel (compared to
9,851
metric tons for the year ended June 30, 2006) generated at an average
selling price of $778 per ton (compared to $665 per ton for the year
ended
June 30, 2006) for the year ended June 30, 2007;
and
|
· |
sales
of 865 metric tons of high end cold-rolled steel at (compared to
none for
the year ended June 30, 2006) generated at an average selling price
of
$17,090 per ton for the year ended June 30,
2007.
|
Customers
|
2006
($)
|
%
to sales
|
2005
($)
|
%
to sales
|
Jiangsu
Kaiteer Industrial Stove Co. Ltd
|
5,212,171
|
15
|
14,880,488
|
28
|
Shanghai
Ruixuefeng Metals Co. Ltd
|
4,634,521
|
13
|
4,251,568
|
8
|
Shanghai
Yiyi Industrial Co. Ltd
|
4,305,918
|
12
|
9,034582
|
17
|
Ningbo
Eco and Tech Shuntong Trading Co. Ltd
|
2,042,191
|
6
|
-*
|
-*
|
Shanghai
Bayou Industrial Co. Ltd
|
1,555,204
|
4
|
-*
|
-*
|
BaoSteel
Trading Co. Ltd
|
-*
|
-*
|
6,048,153
|
11
|
Shanghai
Bayou Industrial Co. Ltd
|
-*
|
-*
|
2,579,680
|
5
|
Hangzhou
Xinri Steel Materials Co. Ltd
|
-*
|
-*
|
3,888,720
|
7
|
Huangshi
Dongshan Steel Industry Co. Ltd
|
-*
|
-*
|
3,143,596
|
6
|
Jiashan
Zhongwei Co. Ltd
|
-*
|
-*
|
3,076,274
|
6
|
17,750,005
|
50
|
46,903,061
|
88
|
|
Others
|
17,131,136
|
50
|
6,241,541
|
12
|
Total
|
34,881,141
|
100
|
53,144,602
|
100
|
|
Payments Due By Period
|
|||||||||||||||
(in thousands)
|
Total
|
Fiscal Year
2008
|
Fiscal
Years
2009-2010
|
Fiscal
Years
2011-2012
|
Fiscal Year
2013 and
Beyond
|
|||||||||||
Contractual
obligations:
|
|
|
|
|
|
|||||||||||
Long-Term
Debt Obligations
|
$ |
$
|
19,407,916
|
$
|
8,254,000
|
$
|
—
|
$
|
—
|
|||||||
Construction
Commitments
|
4,414,714
|
—
|
—
|
—
|
||||||||||||
|
$ |
$
|
23,822,630
|
$
|
8,254,000
|
$
|
—
|
$
|
—
|
· |
Functional
Currency and Translating Financial Statements
--
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
of
America. Our functional currency is Chinese Renminbi; however, the
accompanying consolidated financial statements have been expressed
in USD.
The consolidated balance sheets have been translated into USD at
the
exchange rates prevailing at each balance sheet date. The consolidated
statements of operations and cash flows have been translated using
the
weighted-average exchange rates prevailing during the periods of
each
statement.
|
· |
Advances
to Suppliers and from Customers -
As is common practice in China, Chengtong will often make advance
payments
to its suppliers for materials, or receive advance payments from
its
customers. In some cases, the same party may be both a supplier to,
and
customer of, Chengtong. In such cases, Chengtong may make an advance
to a
third party as supplier and receive an advance from the same party
as a
customer. Chengtong’s practice is to offset such amounts against each
other. We have established an allowance for doubtful accounts as
a reserve
against advances made to suppliers to the extent that the related
goods
are not received within ninety (90) days of the advance.
|
· |
Other
Policies
-
Other accounting policies used by the Company are set forth in the
notes
accompanying our financial statements.
|
China
Precision Steel, Inc. and Subsidiaries
|
|||||||
Consolidated
Balance Sheets
|
|||||||
June
30,
|
June
30,
|
||||||
2007
|
2006
|
||||||
Assets
|
|||||||
Current
assets
|
|||||||
Cash
and equivalents
|
$
|
5,504,862
|
$
|
186,955
|
|||
Accounts
receivable
|
|||||||
Trade,
net of allowances of $273,461 and $138,837
|
|||||||
at
June 30, 2007 and 2006, respectively
|
8,242,044
|
13,399,003
|
|||||
Other
|
85,708
|
69,913
|
|||||
Inventory
|
15,723,704
|
6,283,910
|
|||||
Deposits
|
82,758
|
75,575
|
|||||
Advances
to suppliers, net of allowance of $3,502,184 and
|
|||||||
$0
at June 30,
|
11,699,918
|
3,138,759
|
|||||
Total
current assets
|
41,338,994
|
23,154,115
|
|||||
Property
and equipment
|
|||||||
Land
use rights
|
1,124,583
|
-
|
|||||
Property
and equipment, net
|
29,238,227
|
8,664,417
|
|||||
Construction-in-progress
|
10,355,763
|
13,752,954
|
|||||
40,718,573
|
22,417,371
|
||||||
Goodwill
|
99,999
|
-
|
|||||
Total
assets
|
$
|
82,157,566
|
$
|
45,571,486
|
|||
Liabilities
and Stockholders' Equity
|
|||||||
Current
liabilities
|
|||||||
Accounts
payable and accrued liabilities
|
$
|
4,855,932
|
$
|
1,801,466
|
|||
Advances
from customers
|
1,720,812
|
1,859,773
|
|||||
Other
taxes payables
|
816,553
|
862,914
|
|||||
Current
income taxes payable
|
1,892,866
|
-
|
|||||
Deferred
income taxes payable
|
1,064,028
|
1,535,204
|
|||||
Amounts
due to directors
|
408,620
|
5,896,943
|
|||||
Current
portion of long-term debt
|
6,163,445
|
8,918,939
|
|||||
Notes
payable
|
9,842,520
|
9,862,672
|
|||||
Total
current liabilities
|
26,764,776
|
30,737,911
|
|||||
Long-term
debt, net of current portion shown above
|
6,878,714
|
3,152,415
|
|||||
Stockholders'
equity:
|
|||||||
Preferred
stock: $0.001 per value, 8,000,000 shares
|
|||||||
authorized,
no shares outstanding at June 30, 2007 and 2006
|
|||||||
Ordinary
stock: $0.001 par value, 62,000,000 shares
|
|||||||
authorized,
37,378,143 and 24,283,725 issued and
|
|||||||
outstanding
June 30, 2007 and 2006
|
37,378
|
24,284
|
|||||
Additional
paid-in capital
|
31,867,063
|
1,375,716
|
|||||
Accumulated
other comprehensive income
|
2,192,160
|
745,583
|
|||||
Retained
earnings
|
17,008,238
|
9,535,577
|
|||||
Total
stockholders' equity
|
51,104,839
|
11,681,160
|
|||||
Amounts
due from directors
|
(2,590,763
|
)
|
-
|
||||
Total
liabilities and stockholders' equity
|
$
|
82,157,566
|
$
|
45,571,486
|
The
accompanying notes are an integral part of these financial
statements.
|
China
Precision Steel, Inc. and Subsidiaries
|
||||||||||
Consolidated
Statements of Operations
|
||||||||||
For
the Years Ended June 30. 2007, 2006 and 2005
|
2007
|
2006
|
2005
|
||||||||
Revenues
|
||||||||||
Sales
revenues
|
$
|
53,960,243
|
$
|
34,881,141
|
$
|
53,144,601
|
||||
Cost
of goods sold
|
38,925,987
|
24,892,154
|
45,562,070
|
|||||||
Gross
profit
|
15,034,256
|
9,988,987
|
7,582,531
|
|||||||
Operating
expenses
|
||||||||||
Selling
expenses
|
245,695
|
122,220
|
86,592
|
|||||||
Administrative
expenses
|
1,863,994
|
505,764
|
544,171
|
|||||||
Provision
for bad debts
|
3,775,645
|
-
|
-
|
|||||||
Depreciation
and amortization expense
|
44,375
|
40,005
|
142,127
|
|||||||
Total
operating expenses
|
5,929,709
|
667,989
|
772,890
|
|||||||
Income
from continuing operations
|
9,104,547
|
9,320,998
|
6,809,641
|
|||||||
Other
income (expense)
|
||||||||||
Other
revenues
|
103,388
|
-
|
12,077
|
|||||||
Other
expenses
|
(1,362
|
)
|
-
|
-
|
||||||
Interest
and finance costs
|
(312,222
|
)
|
(271,693
|
)
|
(455,277
|
)
|
||||
Total
other income (expense)
|
(210,196
|
)
|
(271,693
|
)
|
(443,200
|
)
|
||||
Net
income from continuing operations
|
||||||||||
before
income tax
|
8,894,351
|
9,049,305
|
6,366,441
|
|||||||
Provision
for (benefit from) income tax
|
||||||||||
Current
|
1,892,866
|
-
|
-
|
|||||||
Deferred
|
(471,176
|
)
|
1,535,204
|
-
|
||||||
Total
income tax expense
|
1,421,690
|
1,535,204
|
-
|
|||||||
Net
income before discontinued operations
|
7,472,661
|
7,514,101
|
6,366,441
|
|||||||
Net
income from discontinued operations
|
831,448
|
900,469
|
(340,586
|
)
|
||||||
Net
income
|
$
|
8,304,109
|
$
|
8,414,570
|
$
|
6,025,855
|
||||
Basic
earnings per share
|
||||||||||
From
continuing operations
|
$
|
0.26
|
$
|
0.31
|
$
|
0.26
|
||||
From
discontinued operations
|
$
|
0.03
|
$
|
0.04
|