x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
14-1623047
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification
No.)
|
Large Accelerated Filer
¨
|
Accelerated Filer ¨
|
Non-Accelerated
Filer ¨
|
Smaller reporting company
¨
|
(Do not check if a smaller reporting company)
|
Class
of Securities
|
Shares
Outstanding
|
|
Common
Stock, $0.001 par value
|
46,562,955
|
|
2
|
||
2
|
||
20
|
||
35
|
||
36
|
||
37
|
||
37
|
||
37
|
||
37
|
||
37
|
||
37
|
||
37
|
||
37
|
Page
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
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(Unaudited)
|
||||||||||||
December 31,
|
June 30,
|
|||||||||||
Notes
|
2008
|
2008
|
||||||||||
Assets
|
||||||||||||
Current
assets
|
||||||||||||
Cash
and cash equivalents
|
$ | 14,763,665 | $ | 18,568,842 | ||||||||
Accounts
receivable
|
||||||||||||
Trade,
net of allowance for bad and doubtful debts of $4,877,672 and
$1,033,479 at December 31 and June 30, 2008, respectively
|
23,248,541 | 33,783,074 | ||||||||||
Bills
receivable
|
7,634,472 | 4,309,703 | ||||||||||
Other
|
307,992 | 571,746 | ||||||||||
Inventories
|
5
|
18,359,109 | 17,815,087 | |||||||||
Prepaid
expenses
|
108,410 | 58,105 | ||||||||||
Advances
to suppliers, net of allowances of $2,534,410 and $2,522,837 at December
31 and June 30, 2008, respectively
|
30,281,090 | 33,027,365 | ||||||||||
Total
current assets
|
94,703,279 | 108,133,922 | ||||||||||
Property
and equipment
|
||||||||||||
Property,
plant and equipment, net
|
6
|
40,646,361 | 39,199,305 | |||||||||
Construction-in-progress
|
7
|
25,698,608 | 16,476,454 | |||||||||
66,344,969 | 55,675,759 | |||||||||||
Intangible
assets, net
|
2,343,532 | 1,625,690 | ||||||||||
Goodwill
|
99,999 | 99,999 | ||||||||||
Total
assets
|
$ | 163,491,779 | $ | 165,535,370 | ||||||||
Liabilities
and Stockholders' Equity
|
||||||||||||
Current
liabilities
|
||||||||||||
Accounts
payable and accrued liabilities
|
$ | 11,954,266 | $ | 12,047,981 | ||||||||
Advances
from customers
|
8
|
4,014,580 | 6,996,996 | |||||||||
Other
taxes payables
|
3,566,543 | 3,976,239 | ||||||||||
Current
income taxes payable
|
4,271,276 | 4,742,387 | ||||||||||
Short-term
loans
|
9
|
17,457,984 | 17,465,799 | |||||||||
Total
current liabilities
|
41,264,649 | 45,229,402 | ||||||||||
Stockholders'
equity:
|
||||||||||||
Preferred
stock: $0.001 per value, 8,000,000 shares authorized, no shares
outstanding at December 31, and June 30, 2008
|
11
|
|||||||||||
Common
stock: $0.001 par value, 62,000,000 shares authorized, 46,562,955 and
46,472,955 issued and outstanding at December 31, and June 30,
2008
|
11
|
46,563 | 46,473 | |||||||||
Additional
paid-in capital
|
11
|
75,642,383 | 75,372,488 | |||||||||
Accumulated
other comprehensive income
|
10, 046,082 | 9,295,658 | ||||||||||
Retained
earnings
|
36,492,102 | 35,591,349 | ||||||||||
Total
stockholders' equity
|
122,227,130 | 120,305,968 | ||||||||||
Total
liabilities and stockholders' equity
|
$ | 163,491,779 | $ | 165,535,370 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||||||
December 31,
|
December 31,
|
December 31,
|
December 31,
|
|||||||||||||||||
Notes
|
2008
|
2007
|
2008
|
2007
|
||||||||||||||||
Revenues
|
||||||||||||||||||||
Sales
revenue
|
$ | 17,573,959 | $ | 13,228,321 | $ | 42,924,378 | $ | 40,415,556 | ||||||||||||
Cost
of goods sold
|
14,122,622 | 8,528,852 | 35,520,383 | 28,773,987 | ||||||||||||||||
Gross
profit
|
3,451,337 | 4,699,469 | 7,403,995 | 11,641,569 | ||||||||||||||||
Operating
expenses
|
||||||||||||||||||||
Selling
expenses
|
1,122,532 | 180,744 | 1,333,830 | 281,449 | ||||||||||||||||
Administrative
expenses
|
578,105 | 846,220 | 1,040,205 | 1,332,596 | ||||||||||||||||
Allowance
for bad and doubtful debts
|
3,829,462 | 25,782 | 3,829,462 | 651,780 | ||||||||||||||||
Depreciation
and amortization expense
|
33,318 | 15,798 | 59,521 | 29,430 | ||||||||||||||||
Total
operating expenses
|
5,563,417 | 1,068,544 | 6,263,018 | 2,295,255 | ||||||||||||||||
Income/(loss)
from operations
|
(2,112,080 | ) | 3,630,925 | 1,140,977 | 9,346,314 | |||||||||||||||
Other
income (expense)
|
||||||||||||||||||||
Other
revenues
|
138,998 | 783,255 | 259,701 | 792,410 | ||||||||||||||||
Interest
and finance costs
|
(320,777 | ) | (316,860 | ) | (648,182 | ) | (759,001 | ) | ||||||||||||
Total
other income (expense)
|
(181,779 | ) | 466,395 | (388,481 | ) | 33,409 | ||||||||||||||
Net
income/(loss) from operations before income tax
|
(2,293,859 | ) | 4,097,320 | 752,496 | 9,379,723 | |||||||||||||||
Provision
for (benefit from) income tax
|
10
|
|||||||||||||||||||
Current
|
(318,878 | ) | 610,869 | (148,257 | ) | 1,116,594 | ||||||||||||||
Deferred
|
— | — | — | (1,064,028 | ) | |||||||||||||||
Total
income tax expense
|
(318,878 | ) | 610,869 | (148,257 | ) | 52,566 | ||||||||||||||
Net
income/(loss)
|
$ | (1,974,981 | ) | $ | 3,486,451 | $ | 900,753 | $ | 9,327,157 | |||||||||||
Basic
earnings/(loss) per share
|
12
|
$ | (0.04 | ) | $ | 0.08 | $ | 0.02 | $ | 0.23 | ||||||||||
Basic
weighted average shares outstanding
|
46,562,955 | 43,031,346 | 46,559,531 | 40,204,745 | ||||||||||||||||
Diluted
earnings/(loss) per share
|
12
|
$ | (0.04 | ) | $ | 0.08 | $ | 0.02 | $ | 0.23 | ||||||||||
Diluted
weighted average shares outstanding
|
46, 562,955 | 43,639,342 | 46,566,423 | 40,809,437 | ||||||||||||||||
The
Components of comprehensive income:
|
||||||||||||||||||||
Net
income/(loss)
|
$ | (1,974,981 | ) | $ | 3,486,451 | $ | 900,753 | $ | 9,327,157 | |||||||||||
Foreign
currency translation adjustment
|
677,905 | 1,179,322 | 750,424 | 2,084,859 | ||||||||||||||||
Comprehensive
income/(loss)
|
$ | (1,297,076 | ) | $ | 4,665,773 | $ | 1, 651,177 | $ | 11,412,016 |
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||
Ordinary Shares
|
Paid-in
|
Comprehensive
|
Retained
|
Stockholders'
|
||||||||||||||||||||
Share
|
Amount
|
Capital
|
Income
|
Earnings
|
Equity
|
|||||||||||||||||||
Balance
at June 30, 2007
|
37,378,141 | $ | 37,378 | $ | 31,867,063 | $ | 2,192,160 | $ | 17,008,238 | $ | 51,104,839 | |||||||||||||
Sale
of common stock
|
7,100,000 | 7,100 | 44,498,650 | — | — | 44,505,750 | ||||||||||||||||||
Syndication
fees
|
— | — | (130,468 | ) | — | — | (130,468 | ) | ||||||||||||||||
Make
good shares
|
2,000,000 | 2,000 | (2,000 | ) | — | — | — | |||||||||||||||||
Exercise
of warrants
|
765,872 | 766 | 1,729,235 | — | — | 1,730,001 | ||||||||||||||||||
Cancellation
of stock
|
(771,060 | ) | (771 | ) | (2,589,992 | ) | — | — | (2,590,763 | ) | ||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | 7,103,498 | — | 7,103,498 | ||||||||||||||||||
Net
income
|
— | — | — | — | 18,583,111 | 18,583,111 | ||||||||||||||||||
Balance
at June 30, 2008
|
46,472,953 | 46,473 | 75,372,488 | 9,295,658 | 35,591,349 | 120,305,968 | ||||||||||||||||||
Exercise
of warrants
|
90,000 | 90 | 269,895 | — | — | 269,985 | ||||||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | 750,424 | — | 750,424 | ||||||||||||||||||
Net
income
|
— | — | — | — | 900,753 | 900,753 | ||||||||||||||||||
Balance
at December 31, 2008 (unaudited)
|
46,562,953 | $ | 46,563 | $ | 75,642,383 | $ | 10, 046,082 | $ | 36,492,102 | $ | 121,227,130 |
2008
|
2007
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
Income
|
$ | 900,753 | $ | 9,327,157 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||
Depreciation
and amortization
|
1,825,544 | 992,570 | ||||||
Allowance for bad and doubtful debts
|
3,829,462 | 651,780 | ||||||
Net
changes in assets and liabilities:
|
||||||||
Accounts
receivable, net
|
3,801,518 | (31,266,517 | ) | |||||
Inventories
|
(461,094 | ) | 5,195,155 | |||||
Deposits
|
— | 15,018 | ||||||
Prepaid
expenses
|
(50,382 | ) | (326,065 | ) | ||||
Advances
to suppliers
|
2,890,245 | 1,549,672 | ||||||
Accounts
payable and accrued liabilities
|
(147,831 | ) | 1,296,194 | |||||
Advances
from customers
|
(3,006,670 | ) | 2,070,883 | |||||
Other
taxes payable
|
(426,823 | ) | 2,747,055 | |||||
Current
income taxes
|
(491,584 | ) | 1,748,480 | |||||
Deferred
income taxes
|
— | (1,064,028 | ) | |||||
Net
cash provided by (used in) operating activities
|
8,663,138 | (7,062,646 | ) | |||||
Cash
flows from investing activities
|
||||||||
Purchases
of property, plant and equipment including construction in
progress
|
(12,954,497 | ) | (5,508,327 | ) | ||||
Net
cash (used in) investing activities
|
(12,954,497 | ) | (5,508,327 | ) | ||||
Cash
flows from financing activities
|
||||||||
Exercise
of common stock warrants
|
269,985 | — | ||||||
Sale
of common stock
|
44,433,222 | |||||||
Advances
from/(to) directors, net
|
— | 2,154,257 | ||||||
Short-term
loans proceeds
|
— | 16,446,667 | ||||||
Repayments
of short-term loans
|
(87,690 | ) | (17,424,050 | ) | ||||
Net
cash provided by financing activities
|
182,295 | 45,610,096 | ||||||
Effect
of exchange rate
|
303,887 | 1,661,126 | ||||||
Net
(decrease)increase in cash
|
(3,805,177 | ) | 34,700,249 | |||||
Cash
and cash equivalents, beginning of period
|
18,568,842 | 5,504,862 | ||||||
Cash and cash equivalents, end of period | $ | 14,763,665 | $ | 40,205,111 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid during the period for interest
|
$ | 648,182 | $ | 759,001 | ||||
Cash
paid during the period for income taxes
|
$ | 364,058 | $ | - |
Plant
and machinery
|
10 years
|
|
Buildings
|
10 years
|
|
Motor
vehicles
|
5 years
|
|
Office
equipment
|
5 years
|
Customers
|
2008 |
% to
sales
|
2007
|
% to
sales
|
||||||||||||
Salzgitter
Mannesmann International GMBH
|
13,651,071 | 32 | — | * | — | * | ||||||||||
Shanghai
Changshuo Stainless Steel Co., Ltd.
|
4,555,411 | 11 | 11,076,780 | 27 | ||||||||||||
Shanghai
Shengdejia Metal Co. Ltd.
|
— | * | — | * | 6,492,562 | 16 |
Suppliers
|
2008
|
% to
consumption
|
2007
|
% to
consumption
|
||||||||||||
BaoSteel
Steel Products Trading Co. Ltd.
|
10,756,193 | 35 | 1,257,169 | 7 | ||||||||||||
Shanghai
Pinyun Steel Co., Ltd
|
6,877,828 | 22 | 3,262,936 | 18 | ||||||||||||
Hangzhou
Relian Company Limited
|
— | * | — | * | 2,291,248 | 12 |
At cost:
|
December 31,
2008
|
June 30,
2008
|
||||||
Raw materials
|
$ | 6,208,271 | $ | 8,376,173 | ||||
Work
in progress
|
1,866,089 | 3,247,093 | ||||||
Finished
goods
|
7,997,314 | 3,918,801 | ||||||
Consumable
items
|
2,287,435 | 2,273,020 | ||||||
$ | 18,359,109 | $ | 17,815,087 |
December 31,
2008
|
June 30,
2008
|
|||||||
Plant
and machinery
|
$ | 25,723,384 | $ | 22,725,528 | ||||
Buildings
|
21,797,217 | 21,685,208 | ||||||
Motor
vehicles
|
527,369 | 379,885 | ||||||
Office
equipment
|
216,391 | 185,161 | ||||||
48,264,361 | 44,975,782 | |||||||
Less:
Accumulated depreciation
|
(7,618,000 | ) | (5,776,477 | ) | ||||
$ | 40,646,361 | $ | 39,199,305 |
December 31,
2008
|
June 30,
2008
|
|||||||
Construction
costs
|
$ | 25,698,608 | $ | 16,476,454 |
December 31,
2008
|
June 30,
2008
|
|||||||
Bank
loan dated August 1, 2008, due in one year with an interest rate of the
Singapore Interbank Offered Rate (“SIBOR”) plus 3% (4.44% at December 31,
2008) (Note 6)
|
5,300,000 | 5,300,000 | ||||||
Bank
loan dated August 1, 2008, due in one year with an interest rate at 115%
of the standard market rate set by the People’s Bank of China for Renminbi
loans, secured by land use rights, buildings, plant and machinery (6.11%
at December 31, 2008) (Note 6)
|
2,904,700 | 2,886,952 | ||||||
Bank
loan dated July 26, 2008, due in one year with an interest rate at 115% of
the standard market rate set by the People’s Bank of China for Renminbi
loans, secured by land use rights, buildings, plant and machinery (6.11%
at December 31, 2008) (Note 6)
|
9,253,284 | 9,278,847 | ||||||
$ | 17,457,984 | $ | 17,465,799 |
Three months ended December 31,
|
Six months ended December 31
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Tax
savings
|
$ | (233,193 | ) | $ | 668,444 | $ | 411,977 | $ | 1,345,100 | |||||||
Benefit
per share
|
||||||||||||||||
Basic
|
$ | (0.01 | ) | $ | 0.01 | $ | 0.01 | $ | 0.07 | |||||||
Diluted
|
$ | (0.01 | ) | $ | 0.01 | $ | 0.01 | $ | 0.07 |
Deferred tax assets and liabilities:
|
December 31
2008
|
June 30,
2008
|
||||||
Book
depreciation in excess of tax depreciation
|
$ | 226,107 | $ | 169,962 | ||||
Temporary
differences resulting from allowances
|
1,844,343 | 573,324 | ||||||
Net
deferred income tax asset
|
$ | 2,070,450 | $ | 743,286 | ||||
Valuation
allowance
|
(2,070,450 | ) | (743,286 | ) | ||||
$ | — | $ | — |
Three months ended
December 31,
|
Six months ended
December 31,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Computed
tax at the federal statutory rate of 34%
|
$ | (779,912 | ) | $ | 1,393,089 | $ | 255,849 | $ | 3,189,106 | |||||||
Less
adjustment to EIT statutory rate of 25% in 2008 and 27% in
2007
|
183,696 | (244,051 | ) | (106,772 | ) | (613,819 | ) | |||||||||
Tax
effect of US losses not deductible in PRC
|
92,894 | 130,275 | 147,510 | 216,768 | ||||||||||||
Income
not subject to tax
|
— | — | — | (330,361 | ) | |||||||||||
Deferred
taxes
|
— | — | — | (1,064,028 | ) | |||||||||||
Benefit
of tax holiday
|
233,193 | (668,444 | ) | (411,977 | ) | (1,345,100 | ) | |||||||||
Others
|
(48,749 | ) | — | (32,867 | ) | — | ||||||||||
Income
tax expense per books
|
$ | (318,878 | ) | $ | 610,689 | $ | (148,257 | ) | $ | 52,566 |
Three months ended
December 31,
|
Six months ended
December 31,
|
||||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||||
Income
tax expense (benefit) for the current year - PRC
|
$ | (318,878 | ) | $ | 610,869 | $ | (148,257 | ) | $ | 1,116,594 | |||||
Deferred
income tax expense (benefit) - PRC
|
— | — | — | (1,064,028 | ) | ||||||||||
Income
tax expense (benefit) per books
|
$ | (318,878 | ) | $ | 610,869 | $ | (148,257 | ) | $ | 52,566 |
Exercise
Price
|
Outstanding
June 30, 2008
|
Granted
|
Expired or
Exercised
|
Outstanding
December 31,
2008
|
Expiration Date
|
||||||||
$ |
3.00
|
448,392
|
-0-
|
(90,000
|
)
|
358,392
|
February 22, 2011
|
||||||
$ |
3.60
|
100,000
|
-0-
|
-0-
|
100,000
|
February 22, 2010
|
|||||||
$ |
8.45
|
1,420,000
|
-0-
|
-0-
|
1,420,000
|
May 5, 2013
|
|||||||
$ |
7.38
|
225,600
|
-0-
|
-0-
|
225,600
|
November 5, 2010
|
|
Income(Loss)
|
Shares
|
Per Share
|
||||||
|
(Numerator)
|
(Denominator)
|
Amount
|
||||||
For
the three months ended December 31, 2008:
|
|||||||||
Net
income (loss)
|
$
|
(1,974,981
|
)
|
||||||
Basic
EPS income (loss) available to common shareholders
|
$
|
(1,974,981
|
)
|
46,562,955
|
$
|
(0.04
|
)
|
||
Effect
of dilutive securities:
|
|||||||||
Diluted
EPS income (loss) available to common shareholders
|
$
|
(1,974,981)
|
46,562,955
|
$
|
(0.04
|
)
|
|||
For
the three months ended December 31, 2007:
|
|||||||||
Net
income
|
$
|
3,486,451
|
|||||||
Basic
EPS income available to common shareholders
|
$
|
3,486,451
|
43,031,346
|
$
|
0.08
|
||||
Effect
of dilutive securities:
|
|||||||||
Warrants
|
607,996
|
||||||||
Diluted
EPS income available to common shareholders
|
$
|
3,486,451
|
43,639,342
|
$
|
0.08
|
Income
|
Shares
|
Per Share
|
|||||||
(Numerator)
|
(Denominator)
|
Amount
|
|||||||
For
the six months ended December 31, 2008:
|
|||||||||
Net
income
|
$
|
900,753
|
|||||||
Basic
EPS income available to common shareholders
|
$
|
900,753
|
46,559,531
|
$
|
0.02
|
||||
Effect
of dilutive securities:
|
|||||||||
Warrants
|
6,892
|
||||||||
Diluted
EPS income available to common shareholders
|
$
|
900,753
|
46,566,423
|
$
|
0.02
|
||||
For
the six months ended December 31, 2007:
|
|||||||||
Net
income
|
$
|
9,327,157
|
|||||||
Basic
EPS income available to common shareholders
|
$
|
9,327,157
|
40,204,745
|
$
|
0.23
|
||||
Effect
of dilutive securities:
|
|||||||||
Warrants
|
604,692
|
||||||||
Diluted
EPS income available to common shareholders
|
$
|
9,327,157
|
40,809,437
|
$
|
0.23
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
|
·
|
R |