UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 19, 2004
American Construction Company
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(Exact name of registrant specified in charter)
Nevada 333-105903 412079252
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(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
4340 East Charleston Avenue, Phoenix, Arizona 85032
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(Address of principal executive offices) (Zip Code)
Incorp Services Inc.
6075 S. Eastern Avenue
Suite 1, Las Vegas, Nevada, 89119-3146
Tel: (702) 866-2500
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(Name, address and telephone number for Agent for Service)
(480) 695-7283
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report)
ITEM 5.01 CHANGE IN CONTROL OF REGISTRANT.
On October 14, 2004, American Construction Company, a Nevada corporation (the
"Registrant"), Northwest Steel Company, a Nevada corporation ("Merger Sub") and
General Steel Investment Co., Ltd., a British Virgin Islands limited liability
corporation ("General Steel"), as the parent and management company of Tianjin
Da Qiu Zuang Sheet Metal Co., Ltd., a People's Republic of China, limited
liability corporation ("DQ"), both privately-held corporations, entered into an
Agreement and Plan of Merger (the "Agreement")pursuant to which the Registrant,
through its wholly-owned subsidiary, Merger Sub, acquired General Steel, and its
70% ownership in its subsidiary DQ in exchange for shares of the Registrant's
common stock, of which 22,040,000 shares are a new issuance by ACC, and
7,960,000 shares are from certain shareholders of ACC, which in aggregate,
constitute 96% of the total issued and outstanding shares of the Registrant.
(the "Merger"). Under the terms of the Agreement, General Steel will remain a
subsidiary of the Registrant. The transaction contemplated by the Agreement was
intended to be a "tax-free" reorganization pursuant to the provisions of Section
351 and 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
The stockholders of General Steel, as of the closing date of the Merger, now own
approximately 96% of the Registrant's common stock outstanding as of October 15,
2004 (excluding any additional shares issuable upon outstanding options,
warrants and other securities convertible into common stock).
Under Nevada law, NRS 92A.189, the Registrant did not need the approval of its
stockholders to consummate the Merger, as the Registrant owned over 90% of the
Merger Sub's outstanding stock and interests in the Merger Sub's capital and
profits.
For accounting purposes, this transaction was being accounted for as a reverse
merger, since the stockholders of General Steel own a majority of the issued and
outstanding shares of common stock of the Registrant, and the directors and
executive officers of General Steel became the directors and executive officers
of the Registrant. Upon consummation of the Merger the members of the Board of
Directors of the Registrant consisted of Zuo Sheng Yu and Jeff Mabry. No
agreements exist among present or former controlling stockholders of the
Registrant or present or former members of General Steel with respect to the
election of additional members of our board of directors, and to the
Registrant's knowledge, no other agreements exist which might result in a change
of control of the Registrant.
Beneficial Owners
The following table shows the stockholdings of all directors and executive
officers of the Registrant, principal stockholders who own beneficially more
than five percent of the Registrant's issued and outstanding common stock, and
all directors and officers of the Registrant as a group as of October 15, 2004,
after giving effect to the Merger, based on 31,250,000 shares outstanding at
October 14, 2004.
Amount
Title Name and Address of shares Percent
of of Beneficial held by of
Class Owner of Shares Position Owner Class(1)
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Common Yu, Zuo Sheng President/Chairman 23,929,500 76.5%
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All Executive Officers as a Group 23,929,500 76.5%
2
(1) The percentages listed in the Percent of Class column are based upon
31,250,000 issued and outstanding shares of Common Stock.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
Set forth below is certain information concerning the principal terms of the
Merger and the business of the Registrant and General Steel.
Principal Terms of the Merger
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At the Effective Time of the Merger (as defined in the Merger Agreement), Merger
Sub was merged with and into the Registrant. The separate existence of Merger
Sub ceased and General Steel became a wholly owned subsidiary of the Registrant.
The Certificate of Incorporation of the Registrant in effect immediately prior
to the Effective Time of the Merger remains the Certificate of Incorporation of
the Registrant. The officers of the Registrant at the Effective Time of the
Merger shall resign and Zuo Shen Yu will be a director and president of the
Registrant, and John Chen will be Chief Financial Officer of the Registrant.
John Mabry shall continue as a Director of Registrant.
The shareholders of General Steel exchanged all of the shares of General Steel
for a total 30,000,000 shares of Registrant's common stock for themselves and
their designees, of which 22,040,000 shares are a new issuance by ACC, and
7,960,000 shares are from certain shareholders of ACC, which in aggregate,
constitute 96% of the total issued and outstanding shares of the Registrant.
Description of the Registrant
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The Registrant, is a Nevada corporation, incorporated on August 5, 2002. The
Registrant's subsidiary, Northwest Steel Company, was incorporated on October
12, 2004 in the State of Nevada. The principal business of the Registrant at the
Effective Time of the Merger is the manufacturing of steel products.
An objective of the Registrant became the acquisition of an operating company
with experienced management and the potential for profitable growth in exchange
for its securities. Prior to the Effective Time, Jeff Mabry was the sole
director of the Registrant and, effective as of the Effective Time of the
Merger, shall continue as a director of the Registrant together with Zuo Sheng
Yu.
The shares of common stock of the Registrant are traded on the OTC Bulletin
Board under the symbol "ACNS".
Following the Merger, stockholders of General Steel became stockholders of the
Registrant. Zuo Sheng Yu shall become a director and president of the
Registrant, and John Chen shall become Chief Financial Officer of the
Registrant. Upon consummation of the Merger, General Steel shall become a wholly
owned subsidiary of the Registrant.
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Description of General Steel/DQ
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General Steel Investment Co., Ltd.'s former name was Congenial Limited.
Congenial Limited was incorporated on November 28, 2003 in the British Virgin
Islands. On February 11, 2004, Congenial Limited changed its name to General
Steel Investment Co. Ltd. The primary business of General Steel is to acquire
and manage interests in steel and steel products production entities around the
world. In June of 2004, General Steel acquired a 70% ownership interest in
Taijin Da Qiu Zhuang Sheet Metal Co., Ltd from Tang Pu Capital Automotive
Investment, Ltd., a limited liability corporation incorporated in the People's
Republic of China.
DQ was incorporated in 1998 as a privately owned manufacturer of high quality
hot-rolled steel sheets primarily for use in tractors, agricultural vehicles and
other specialty vehicles. Since 1998, DQ has expanded its operations to six
production lines producing 250,000 tons 0.7-2.0mm hot-rolled carbon steel sheets
per year. It is currently the largest 0.7-2.0mm hot-rolled steel sheet producer
in China, maintaining a 40% market share of all steel plates used in the
production of agricultural vehicles in China. In 2003, its sales revenues were
over 56 million U.S. Dollars, and its total assets were worth more than 37
million U.S. Dollars.
DQ used to be a division of the Wendlar Investment Management Group ("Wendlar"),
a privately held company producing specialty steel products and constructing
real estate developments in China. Wendlar has over twenty years of experience
in the Chinese steel industry, operates three steel production sites, including
DQ, and employs over three thousand workers.
Audited financial statements for DQ for Fiscal Year 2002-2003 are provided below
at Item 9.01. Audited consolidated financial statements for Fiscal Year
2003-2004 will be provided within the required time under the relevant
securities laws.
Growth Strategy
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DQ has historically been engaged in the production of hot-rolled steel plates.
DQ plans to continue to expand its hot-rolled steel plate production capacity
and to enter into new contracts with vehicle manufacturers and other customers.
In addition, DQ has become interested in acquiring the means by which to produce
cold-rolled steel plates. In order to effect this, DQ intends to purchase
cold-rolling facilities from other steel producers overseas and import these
facilities into China. It is anticipated that the acquisition of cold-rolling
processes will enhance DQ"s already successful business.
4
Industry Overview (From the OECD Report "Recent Steel Market Developments" of
6.29.2004)
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World steel demand has increased steadily since 1999, but this increase has been
accelerating since2002 and represents around 50 million tons more per year. In
2003, world steel consumption increased by 6.6% compared to 2002, and further
increases by 6% in 2004 and 5% in 2005 are expected. This strong surge in steel
consumption is the result of the dramatic acceleration of domestic steel demand
in China where steel consumption that had been growing by an average 2.6% a year
over the period 1995 to 2000 has increased by some 25% a year since 2001 and is
expected to continue to grow at a very rapid pace also in 2004 and 2005. In
comparison, steel consumption in the rest of the world declined by 4.2% in 2001
and since then has grown at an annual rate of 2.1%. In the OECD area, steel
consumption declined by 0.5% in 2003 compared to 2002, reflecting an 8.9%
decrease in North America that offset a 2.6% increase in Europe and a 4.5%
increase in the Asian-Pacific area. For 2004, with better economic conditions in
the area, steel consumption in the OECD is expected to grow by close to 3%, with
the North American market catching most of the increase (+5.7%) and more
moderate growth in Europe (+2.0%) and Asia (+1.3%). This trend is expected to
continue also in 2005. Outside the OECD in 2003, while steel consumption
declined in Africa, it increased by 4.8% in the other Asian economies and by
7.2% in the NIS. Similar developments are expected to take place in 2004, but
probably at a lower pace and the trend should continue in 2005.
World trade in steel in volume increased in 2003 by 2.6% compared with 2002 and
reached a new record level at 247 million tons (excluding intra-EU trade). World
trade in steel accounted for 29.0% of world steel consumption in 2003. Steel
exports from the OECD area remained at the 2002 level of 120 million tons while
imports declined 7.9% from the 2002 level. Most of the exports were redirected
to China. China steel imports in 2003 jumped by 48.0% over the 2002 level and
reached an unprecedented 43.0 million tons. In 2004, world steel trade is
expected to increase, by a further 1.2%. As a result of growing demand, Chinese
steel imports should remain at the very high level reached in 2003 and could
even increase slightly. Similarly, steel imports in the OECD will pick up and
exports should decline modestly. Exports of steel from the NIS are expected to
continue to grow, for the sixth year in a row, and should pass 70 million tons,
representing 28.6% of world exports.
World crude steel production followed the same developments as consumption and
reached a new record level of 964 million tons. In 2004, for the first time in
history steel production is expected to pass the 1 billion tons level and should
reach 1 016 million tons, a 5.3% increase over 2003. This trend will continue in
2005 when production could reach 1 065 million tons. As with consumption, this
is mainly the result of the very rapid expansion of steel production in China.
Steel production in China increased by 93 million tons between 2000 and 2003, at
an annual growth rate of 20%. In the rest of the world, crude steel production
decreased by 3% in 2001 and since then increased at an annual rate of 3.2%. In
the OECD area, steel production increased by 1.6% in 2003 and is expected to
increase at a similar rate in 2004 and in 2005 when production will pass the 500
million ton mark. Production in the NIS increased by 6.1% in 2003 and should
continue to increase by 6% in 2004. In the rest of the world, after the 6%
growth recorded in 2003, steel production should not grow by more than 2% this
year and in 2005.
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In spite of the good developments in the steel market worldwide, problems have
arisen. Steel prices have increased substantially and the industry is now
profitable. However, the margins have been reduced due to the dramatic increase
in prices of raw materials and transportation. There are also some risks of
shortages for scrap and coke. The important increases in prices of most steel
products at the beginning of 2004 have created problems for many steel consuming
industries. While prices for raw materials have been declining since May of this
year, they are expected to remain at relatively high levels for the rest of this
year. Together with the increase in raw material prices, transportation prices
also increased dramatically. Charter rates for large vessels increased fourfold
in one year, from 17 000 $/day in January 2003 to 68 000$/day in early 2004.
However, recently these freight rates started declining and may continue to do
so in light of the restrictions on lending introduced by the Chinese Government
to slow growth. In recent years, the gap between capacity and production has
been reduced. This reduction has been particularly important in the OECD area,
where steelmaking capacity has recorded a net reduction of 41.5 million tons, or
6.7%; a further net reduction of some 15 million tons is expected by 2005. In
the NIS, most of the obsolete inefficient excess capacity has been closed.
However, with increasing domestic demand and a high level of exports, some new
capacity is expected to come on stream in the near future. In the non-OECD area,
capacity increases are taking place in Brazil, India and the Middle East. But of
course, at world level, China is the country that is expanding its capacity more
quickly. Even if in recent weeks the Chinese Government has decided to reduce,
delay or stop the construction of new steel plants, capacity is expected to
increase by some 100 million tons between 2003 and 2005.
Of course such an increase in capacity leads to increasing demand for raw
materials. Most of the developments in the steel market and particularly all
price movements are now closely linked to developments taking place in China.
Some raw materials markets are more sensitive than others. This is particularly
the case for steel scrap and metallurgical coke. Coke consumption is increasing
rapidly and prices of metallurgical coke jumped from 143 $/ton in 2003 to some
440 $/t at the beginning of 2004. Several steel plants in the world and recently
in India and Ukraine were obliged to cut production as blast furnaces were idled
because of coke shortages. Iron ore prices increased by some 20% in the first
months of 2004 but should continue to rise as demand from China is declining and
the return to almost normal prices can be expected quite soon. On the contrary,
steel scrap prices skyrocketed between July 2003 and February 2004; in some
countries increases of over 180% occurred. As from April 2004 scrap prices
declined by 17.6% from the peak and by mid May a further decrease of 50 $/ton
was recorded as demand was lower. However, it is expected that scrap prices will
remain in the near future at a higher price levels than in previous years.
Compared to the low price level of October 2001, the level reached in January
February was 750% higher).Tensions and difficulties in raw material markets may
well last until the end of 2005, by which time adjustments made by suppliers
will likely help to ease the difficulties.
6
Facilities and Equipment
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DQ owns a factory in Da Qiu Zhuang, Tianjin City, China, which is capable of
producing 250,000 tons of hot-rolled steel plates each year.
Risk Factors
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The actual results of the combined company may differ materially from those
anticipated in these forward-looking statements. The Registrant and General
Steel/DQ will operate as a combined company in a market environment that is
difficult to predict and that involves significant risks and uncertainties, many
of which will be beyond the combined company's control. Additional risks and
uncertainties not presently known to us, or that are not currently believed to
be important to you, if they materialize, also may adversely affect the combined
company.
Risks Related To General Steel/DQ
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From time to time, Hebei Province, like other Northeast China destinations,
experiences weather and climate fluctuations. Natural disasters could impede
operations, damage infrastructure necessary to DQ's operations or adversely
affect the logistical services to and from Province. The occurrence of natural
disasters in Hebei Province could adversely affect General Steel/DQ's business,
results of operations, prospects and financial condition.
Neither DQ's products nor the raw materials required have, in general,
experienced any significant price fluctuations in the past. However, there is no
assurance that raw materials required by General Steel/DQ will not be subject to
any significant price fluctuations or pricing control in the future. The market
prices of these raw materials may also experience significant upward adjustment,
if, for instance, there is a material under-supply or over-demand in the market.
Should this happen, General Steel/DQ's business and results of operations could
be adversely affected.
The Registrant cannot predict General Steel/DQ's future capital needs, and may
not be able to secure additional financing.
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The Registrant will likely need to raise additional funds in the future to fund
General Steel/DQ's operations, to expand its markets and product offerings, or
to respond to competitive pressures or perceived opportunities. We cannot assure
you that additional financing will be available on favorable terms, or at all.
This could adversely affect results of General Steel/DQ.
General Steel/DQ's success to date has been, and its continuing success will be,
substantially dependent on the continued services of its executive officers and
other key personnel, who generally have extensive experience in the steel
manufacturing industry and have been employed by us for substantial periods of
time. The loss of the services of any key employees, or General Steel/DQ's
failure to attract and retain other qualified and experienced personnel on
acceptable terms, could have an adverse effect on its business and results of
operations.
7
Chinese Government Regulations
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Upon completion of the reverse merger, General Steel will become a wholly owned
subsidiary of the Registrant. General Steel currently owns 70% of Taijin Da Qiu
Zhaung Sheet Metal Co. Ltd., a People's Republic of China, limited liability
corporation. The transactions pursuant to the Agreement will not change General
Steel as the 70% holder of DQ, since any change in the holder of DQ would
require approval by the Chinese government.
Risks Related to General Steel/DQ's Industry
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Currently, most of General Steel/DQ's immediate customers are manufacturers
which incorporate General Steel/DQ's products into agricultural and other heavy
vehicles. In the event that the business of some of these manufacturers
decreases and these manufacturers cease to purchase products from General
Steel/DQ, its business and profitability may be adversely affected.
General Steel/DQ sources all of its raw materials from various steel suppliers
in China and abroad. General Steel/DQ is dependent on a stable and reliable
supply of such raw materials in the region. The supply of these raw materials
can therefore be adversely affected by any material change in the success of the
suppliers which may, in turn, have a material adverse impact on the costs of raw
materials and the operations of General Steel/DQ.
Competitors may harm General Steel/DQ's business by operating more effectively
or more efficiently in its market.
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The Steel Plate Manufacturing industry is open to competition from local and
overseas operators engaged in similar businesses and products to those of DQ.
Any increase in competition may have an adverse effect on both the sales and the
pricing of General Steel/DQ's Steel Plate products, which in turn will have an
adverse effect on the profitability of General Steel/DQ.
Changes in the extensive regulations to which DQ is subject could increase its
cost of doing business or affect its ability to grow.
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The governments of General Steel/DQ's exporting countries, including the US,
Japan and other overseas markets such as Europe and Canada, may, from time to
time, consider regulatory proposals relating to raw materials, and environmental
regulation, which, if adopted, could lead to disruptions in supply and/or
increases in operational costs, and hence General Steel/DQ's profitability. To
the extent that General Steel/DQ increases its product prices as a result of
such changes, its sales volume and revenues may be adversely affected.
8
Furthermore, these governments may change certain regulations or impose
additional taxes or duties on certain Chinese imports from time to time. Such
regulations, if effected, may have a material adverse impact on General
Steel/DQ's operations revenue and/or profitability.
There is no assurance of an established public trading market.
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Although the Registrant's common stock trades on the NASD OTC Bulletin Board, a
regular trading market for the securities may not be sustained in the future.
The NASD has enacted recent changes that limit quotations on the OTC Bulletin
Board to securities of issuers that are current in their reports filed with the
Securities and Exchange Commission. The effect on the OTC Bulletin Board of
these rule changes and other proposed changes cannot be determined at this time.
The OTC Bulletin Board is an inter-dealer, Over-The-Counter market that provides
significantly less liquidity than the NASD's automated quotation system (the
"NASDAQ Stock Market"). Quotes for stocks included on the OTC Bulletin Board are
not listed in the financial sections of newspapers as are those for the NASDAQ
Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin
Board may be difficult to obtain and holders of common stock may be unable to
resell their securities at or near their original offering price or at any
price. Market prices for the Registrant's common stock will be influenced by a
number of factors, including:
o the issuance of new equity securities pursuant to this, or a future,
offering;
o changes in interest rates;
o competitive developments, including announcements by competitors of
new products or services or significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;
o variations in quarterly operating results;
o change in financial estimates by securities analysts;
o the depth and liquidity of the market for Registrant's common stock;
o investor perceptions of our company and the technologies industries
generally; and
o general economic and other national conditions.
The Registrant's common stock could be considered a "penny stock."
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The Registrant's common stock could be considered to be a "penny stock" if it
meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated
under Section 15(g) of the Securities Exchange Act of 1934, as amended. These
9
include but are not limited to the following: (i) the stock trades at a price
less than $5.00 per share; (ii) it is NOT traded on a "recognized" national
exchange; (iii) it is NOT quoted on the NASDAQ Stock Market, or even if so, has
a price less than $5.00 per share; or (iv) is issued by a company with net
tangible assets less than $2.0 million, if in business more than a continuous
three years, or with average revenues of less than $6.0 million for the past
three years. The principal result or effect of being designated a "penny stock"
is that securities broker-dealers cannot recommend the stock but must trade in
it on an unsolicited basis.
Broker-dealer requirements may affect trading and liquidity.
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Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor's account.
Potential investors in the Registrant's common stock are urged to obtain and
read such disclosure carefully before purchasing any shares that are deemed to
be "penny stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for holders of the Registrant's
common stock to resell their shares to third parties or to otherwise dispose of
them in the market or otherwise.
Special note regarding forward-looking statements.
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Some of the statements under "Risk Factors" and elsewhere in this Current Report
on Form 8-K constitute forward-looking statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.
10
Although the Registrant believe that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance, or achievements. Moreover, neither the
Registrant nor any other person assumes responsibility for the accuracy and
completeness of such statements. The Registrant is under no duty to update any
of the forward-looking statements after the date of this report.
Management Of The Registrant After The Effective Date Of The Merger
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Directors And Executive Officers
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In connection with the Merger, Zuo Sheng Yu shall become a Director and
President of the Registrant, and John Chen shall become Chief Financial Officer
of the Registrant. John Mabry will continue as a director of Registrant. The
following table sets forth the name and position of each of the Registrant's
directors and executive officers immediately after the Effective Date of the
Merger (October 15, 2004).
Name Position
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Zuo Sheng Yu President/Director
John Chen Chief Financial Officer
Jeff Mabry Director
Mr. Zuo Sheng Yu is President and a Director of Registrant; From April 1986 to
February 1992 , he was president of Da Qiu Zhong Metal sheets manufactory, Tian
Jin China; From February 1992 to December 1999, he was General Manager of Sheng
Da Industrial Company, Tian Jin China; From November 1999 to March 2001, he was
president and Chairman of Board of Directors of Shen Da machinery manufactory
Tian Jing, China; From February 2001, to present, he has been the President and
Chairmen of the Board of directors of Beijing Wendlar Investment Management
Group, Beijing, China; From March 2001 to present, he has been the President and
Chairman of the Board of Directors of Baotou Shen Da Steel Pipe Limited, Inner
Mongolia, China; From March 2001 to present, he has been the President and
Chairman of the Board of Directors of the Shen Da Steel and Iron Mill, He Bei
province, China; From April 2001 to present, he has been the President and
Chairman of Shen Da Industrial Park Real Estate Development Limited; From
December 2002 to present, Mr. Yu has been President and Chairman of Beijing Sou
Lun Real Estate Development Company, Beijing, China; In July,1985, he graduated
from the Sciences and Engineering Institute, Tian Jin, China; In July, 1994, he
received a Bachelor Degree from Institute of Business Management for Officers;
Mr. Yu received the title of "Senior Economist" from the Committee of Science
and Technology of Tian Jin City 1994. In July 1997, he received an MBA degree
from the Graduate School of Tian Jin Party University. In April, 2003, Mr. Zuo
Sheng Yu held a position as a member of the APEC (Asia Pacific Economic
Co-operation).
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Mr. John Chen is the Chief Financial Officer of Registrant. From August 1997 to
July 2003,he was senior accountant of Moore Stephens Wurth Frazer and Torbet,
LLP. Los Angeles, California, USA; He graduated from Norman Bethune University
of Medical Science, Chang Chung City, Ji Ling Province, China in Sep.1992. He
received a B.S. degree in accounting from California State Polytechnic
University, Pomona, California, USA in July 1997.
Mr. Jeff Mabry is a director of the Registrant. He is currently employed with
CDS Insurance Agency, LLC as a broker from June 2002 to present. From May 1995
to August 2001 Mr. Mabry was employed with The Tech Group a manufacturer of
injection molds. Mr. Mabry was Senior Project Engineer responsible for quoting
and managing projects from concept through approved production.From May 1993 to
April 1995 Mr. Mabry was employed with Plastic Design Corp. as a Mold Maker. Mr.
Mabry was responsible for building plastic injection molds for the automotive
and medical uses. Mr. Mabry is a graduate of Arizona State University majoring
in Construction Engineering.
Related Party Transactions
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General Steel Investment Co., Ltd, a British Virgin Islands limited liability
corporation, as the parent and management company owns 70% of Taijin Da Qui
Zhuang Sheet Metal Co., Ltd. Mr. Zuo Sheng Yu owns a 99.99% interest in General
Steel, and will own a proportionate interest in ACC post-merger. In addition Mr.
Yu either owns directly, or has influence over the 30% of DQ shares not owned by
General Steel.
Item 5.03 OTHER EVENTS: CHANGE IN FISCAL YEAR.
Based on the Company's Plan of Merger with General Steel, the Board of Directors
determined to change the Registrant's fiscal year end from January 31 to
December 31. The Registrant will file on Form 10-K the report covering the
period April 30, 2003 to December 31, 2003.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Set forth below are the financial statements and exhibit filed as part of this
report.
(a) Financial statements of business acquired
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(b) Pro Forma Financial Information
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It is impracticable at this time for the Registrant to provide the pro forma
consolidated financial information that are required to be included herein. The
Registrant undertakes to file such required pro forma consolidated financial
information as soon as practicable within the time required under relevant
securities law.
(c) Exhibits
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Description
Exhibit 2.1 Agreement and Plan of Merger
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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 hereunto duly authorized.
American Construction Company.
By: /s/ Zuo Sheng Yu
--------------------------
Name: Zuo Sheng Yu
Title: President
Dated: October 19, 2004
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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The Board of Directors
Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
We have audited the accompanying balance sheets of Tianjin Daqiuzhuang Metal
Sheet Co., Ltd. as of December 31, 2003 and 2002, and the related statements of
income and other comprehensive income, shareholders' equity and cash flows for
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tianjin Daqiuzhuang Metal Sheet
Co., Ltd. as of December 31, 2003 and 2002, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
March 7, 2004, except for Note 10,
As to which the date is June 24, 2004
Walnut, California
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD
BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
ASSETS
------
2003 2002
----------- -----------
CURRENT ASSETS:
Cash $ 1,606,704 $ 2,743,056
Restricted cash 2,096,370 2,149,600
Accounts receivable, trade, net of allowance for doubtful
accounts of $1,043 and $4,682 as of 2003 and 2002,
respectively 455,641 1,555,965
Notes receivable 1,188,854 --
Other receivables - related parties 459,800 459,800
Other receivables 328,271 2,518,421
Inventories 4,801,915 4,092,192
Advances on inventory purchases - related parties 1,021,824 4,258,829
Advances on inventory purchases 7,831,480 1,510,191
Short-term investment 12,100 12,100
----------- -----------
Total current assets 19,802,959 19,300,154
----------- -----------
PLANT AND EQUIPMENT, net 15,064,160 13,299,060
----------- -----------
OTHER ASSETS:
Intangible assets - land use rights,
net of accumulated amortization 2,564,369 758,267
----------- -----------
Total assets $37,431,488 $33,357,481
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,378,484 $ 434,905
Short-term loans payable 13,806,100 10,623,800
Lines of credit 6,709,450 4,518,140
Other payables - related party -- 1,414,526
Accrued liabilities 268,964 1,355,774
Customer deposits 914,160 2,615,027
Deposits due to sales representatives 862,730 1,226,940
Taxes payable 1,655,842 890,744
----------- -----------
Total current liabilities 25,595,730 23,079,856
----------- -----------
SHAREHOLDERS' EQUITY:
Capital 9,583,200 9,583,200
Paid-in-capital 262,883 262,883
Retained earnings 1,989,675 431,542
----------- -----------
Total shareholders' equity 11,835,758 10,277,625
----------- -----------
Total liabilities and shareholders' equity $37,431,488 $33,357,481
=========== ===========
The accompanying notes are an integral part of this statement.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ ------------
SALES REVENUE $ 56,482,398 $ 44,468,081
COST OF SALES 52,804,197 41,327,984
------------ ------------
GROSS PROFIT 3,678,201 3,140,097
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,532,033 1,539,325
------------ ------------
INCOME FROM OPERATIONS 2,146,168 1,600,772
OTHER INCOME (EXPENSES), NET 179,396 (611,203)
------------ ------------
INCOME FROM OPERATIONS BEFORE PROVISION
FOR INCOME TAXES 2,325,564 989,569
PROVISION FOR INCOME TAXES 767,431 337,178
------------ ------------
NET INCOME 1,558,133 652,391
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment -- --
------------ ------------
COMPREHENSIVE INCOME $ 1,558,133 $ 652,391
============ ============
The accompanying notes are an integral part of this statement.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Retained
Paid-in earnings
Capital capital (deficit) Totals
----------- ----------- ----------- -----------
BALANCE, January 1, 2002 $ 9,583,200 $ 262,883 $ (220,849) $ 9,625,234
Net income 652,391 652,391
----------- ----------- ----------- -----------
BALANCE, December 31, 2002 9,583,200 262,883 431,542 10,277,625
Net income 1,558,133 1,558,133
----------- ----------- ----------- -----------
BALANCE, December 31, 2003 $ 9,583,200 $ 262,883 $ 1,989,675 $11,835,758
=========== =========== =========== ===========
The accompanying notes are an integral part of this statement.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,558,133 $ 652,391
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation 916,003 862,500
Amortization 96,800 96,800
(Increase) decrease in assets:
Accounts receivable, trade 1,100,324 686,508
Other receivables 2,190,150 (464,617)
Inventories (709,723) 80,241
Advances on inventory purchases - related parties 3,237,005 588,876
Advances on inventory purchases (6,321,289) 899,055
Increase (decrease) in liabilities:
Accounts payable 943,579 (685,428)
Other payables - related party (1,414,526) (1,823,669)
Accrued liabilities (1,086,810) (556,416)
Customer deposits (1,700,867) 1,551,742
Deposits due to sales representatives (364,210) (242,000)
Taxes payable 765,098 505,554
----------- -----------
Net cash (used in) provided by operating activities (790,333) 2,151,537
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in notes receivable (1,188,854) 78,650
Increase in short-term investment -- (12,100)
Purchase of equipment (2,681,103) (178,381)
Increase in land use rights (1,902,902) --
----------- -----------
Net cash used in investing activities (5,772,859) (111,831)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase on short-term notes payable 2,191,310 (225,060)
Borrowings (payments) on lines of credit 3,182,300 (48,400)
----------- -----------
Net cash provided by (used in) financing activities 5,373,610 (273,460)
----------- -----------
(DECREASE) INCREASE IN CASH (1,189,582) 1,766,246
CASH, beginning of year 4,892,656 3,126,410
----------- -----------
CASH, end of year $ 3,703,074 $ 4,892,656
=========== ===========
The accompanying notes are an integral part of this statement.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
Background
- ----------
Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (referred to as the Company) was
established on August 18, 2000 in Jinghai county, Tianjin city, Hebei province,
the People's Republic of China (PRC). The Articles of Corporation provides for a
10 year operating term beginning on August 18, 2000 with registered capital of
RMB79,200,000 or approximately USD$9,583,200. The Company is a Chinese
registered limited liability company with a legal structure similar to a limited
liability company organized under the state laws in the United States of
America. Tianjin Long Yu Trading Material Co., Ltd. is the majority owner with a
71% ownership in the Company. Mr. Yu Zuo Sheng, our president, owns 66.11% of
Tianjin Long Yu Trading Material Co., Ltd.
The Company is primarily engaged in the manufacturing of hot roll carbon and
silicon steel sheets which are mainly used in the production of tractors,
agricultural vehicles. The Company sells its products through both retailer and
wholesaler.
Basis of presentation
- ---------------------
The financial statements represent the activities of the Company. The Company's
financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America.
Revenue recognition
- -------------------
The Company recognizes revenue when the goods are delivered and title has
passed. Sales revenue represents the invoiced value of goods, net of a
value-added tax (VAT). All of the Company's products that are sold in the PRC
are subject to a Chinese value-added tax at a rate of 17% of the gross sales
price. This VAT may be offset by VAT paid by the Company on raw materials and
other materials included in the cost of producing their finished product.
The Company normally requires all customers to pay the Company the full amount
of their purchase in advance when the customer submits their orders. The
products are normally shipped within six months after receipt of the advance
payment. In certain instances the Company will not require the customer to make
an advance deposits, however this is done a limited basis.
Foreign currency translation
- ----------------------------
The reporting currency of the Company is the US dollar. The Company uses their
local currency, Renminbi (RMB), as their functional currency. Results of
operations and cash flow are translated at average exchange rates during the
period, and 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 shareholders' equity.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, (continued)
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 3% residual value. The depreciation expense for
the years ended December 31, 2003 and 2002 amounted to $916,003 and $862,500,
respectively. Estimated useful lives of the assets are as follows:
Estimated Useful Life
Buildings 10-30 years
Machinery and equipment 8-15 years
Other equipment 5-18 years
Transportation Equipment 10-15 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.
The cost and related accumulated depreciation of assets sold or otherwise
retired are eliminated from the accounts and any gain or loss is included in the
statement of operations. Maintenance, repairs and minor renewals are charged
directly to expense as incurred. Major additions and betterment to buildings and
equipment are capitalized.
Long-term assets of the Company are reviewed annually as to 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 December 31, 2003, the Company expects these assets to be
fully recoverable.
Plant and equipment consist of the following at December 31:
2003 2002
----------- -----------
Buildings and improvements $ 4,965,626 $ 3,391,811
Transportation equipment 627,870 764,422
Machinery 11,928,408 10,893,478
Others 252,694 44,157
Construction in progress -- 48,346
----------- -----------
Totals 17,774,598 15,142,214
Less accumulated depreciation 2,710,438 1,843,154
----------- -----------
Totals $15,064,160 $13,299,060
=========== ===========
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, (continued)
Use of estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles of the United States of America requires management to
make estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Management believes that the
estimates utilized in preparing its financial statements are reasonable and
prudent. Actual results could differ from these estimates.
Recently issued accounting pronouncements
- -----------------------------------------
During June of 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("FAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("FAS 142").
FAS 141 requires use of the purchase method of accounting for all business
combinations initiated after June 30, 2001, provides specific guidance on how to
identify the accounting acquirer in a business combination, provides specific
criteria for recognizing intangible assets apart from goodwill and requires
additional financial statement disclosures regarding business combinations. The
Company has adopted FAS 141 and there has not been a significant impact on the
Company's present financial condition or results of operations.
FAS 142 addresses the accounting for goodwill and other intangible assets after
their initial recognition. FAS 142 changes the accounting for goodwill and other
intangible assets by replacing periodic amortization of the asset with an annual
test of impairment of goodwill at either the reporting segment level or one
level below, providing for similar accounting treatment for intangible assets
deemed to have an indefinite life. Assets with finite lives will be amortized
over their useful lives. FAS 142 also provides for additional financial
statement disclosures about goodwill and intangible assets. The Company has
adopted FAS 142 and there has not been a significant impact on the Company's
present financial condition or results of operations.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("FAS 143"). FAS 143 changes
the recorded amount of liabilities associated with asset retirements and
requires the accretion of interest expense over the remaining life of the asset.
FAS 143 also requires additional disclosure regarding asset retirement
obligations. This Statement is effective for fiscal years beginning after June
15, 2002. The Company has adopted FAS 143 there has not been a significant
impact on the Company's present financial condition or results of operations.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, (continued)
Recently issued accounting pronouncements, (continued)
- ------------------------------------------------------
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 retains the existing requirements to recognize and measure the
impairment of long-lived assets to be held and used or to be disposed of by
sale. However, FAS 144 changes the scope and certain measurement requirements of
existing accounting guidance. FAS 144 also changes the requirements relating to
reporting the effects of a disposal or discontinuation of a segment of a
business. This statement is effective for fiscal years beginning after December
15, 2001. The adoption of this statement did not have a significant impact on
the financial condition or results of operations of the Company.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145 "Rescission of Statements No. 4, 14 and 64, Amendment of FASB Statement No.
13 and Technical Corrections." ("FAS 145"). This Statement rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," and an amendment of
that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." This statement also rescinds SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers." This statement amends SFAS
No. 13, "Accounting for Leases," to eliminate any inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions.
FAS 145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. This statement is effective for fiscal years beginning after
May 15, 2002. The adoption of this statement did not have a significant impact
on the financial condition or results of operations of the Company.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires the recognition of certain
guarantees as liabilities at fair market value and is effective for guarantees
issued or modified after December 31, 2002. The Company has adopted the
disclosure requirement of FIN 45 and did not have a material impact on its
financial condition or results of operations of the Company.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure".
The statement allows for the Company's current method of accounting for stock
options to continue. Effective for interim periods beginning after December 15,
2002, disclosure will be required for information on the fair value of stock
options and the effect on earnings per share (in tabular form) for both interim
and annual reports. The adoption of this statement did not have a significant
impact on the financial condition or results of operations of the Company.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, (continued)
Recently issued accounting pronouncements, (continued)
- ------------------------------------------------------
In December 2003, the FASB issued Interpretation No. 46(R), Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN No. 46(R),
which requires the consolidation of certain variable interest entities, as
defined. FIN No. 46(R) is effective immediately for variable interest entities
created after December 31, 2003, and for all variable interest entities of the
first reporting period ending after December 15, 2004.; however, disclosures are
required currently if a company expects to consolidate any variable interest
entities. As the Company is in the process of evaluating if such variable
interest entities exist and the Company does not believe that the adoption of
FIN No. 46(R) will have an impact on its results of operations, financial
position or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of this statement did
not have a significant impact on the financial condition or results of
operations of the Company.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
changes the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. FASB No. 150 requires that those
instruments entered into or modified after May 31, 2002, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this statement did not have a material impact on the
financial condition or results of operations of the Company.
Cash and concentration of risk
- ------------------------------
Cash includes cash on hand and demand deposits in accounts maintained with
state-owned banks within the People's Republic of China. Total cash (including
restricted cash balances) in state-owned banks at December 31, 2003 and 2002
amounted to $4,192,740 and $4,299,200, respectively of which no deposits are
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.
Restricted cash
- ---------------
The Company through its bank agreements is required to keep certain amounts on
deposit that are subject to withdrawal restrictions and these amounts are
$2,096,370 and $2,149,600 as of December 31, 2003 and 2002, respectively.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, (continued)
Inventories
- -----------
Inventories are stated at the lower of cost or market using the first-in
first-out basis and consist of the following at December 31:
2003 2002
---------- ----------
Raw materials $2,469,620 $2,830,964
Finished goods 2,332,295 1,261,228
---------- ----------
Totals $4,801,915 $4,092,192
========== ==========
The Company reviews its inventory annually for possible obsolete goods or to
determine if any reserves are necessary for potential obsolescence. As of
December 31, 2003 and 2002, the Company has determined that no reserves are
necessary at year end.
Financial instruments
- ---------------------
Statement of Financial Accounting Standards No. 107 (SFAS 107), "Disclosures
about Fair Value of Financial Instruments" requires disclosure of the fair value
of financial instruments held by the Company. SFAS 107 defines the fair value of
financial instruments as the amount at which the instrument could be exchanged
in a current transaction between willing parties. The Company considers the
carrying amount of cash, accounts receivable, other receivables, accounts
payable, accrued liabilities and other payables to approximate their fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest.
Accounts receivable, trade and allowance for doubtful accounts
- --------------------------------------------------------------
The Company's business operations are conducted in the People's Republic of
China. During the normal course of business, the Company extends unsecured
credit to its customers. Accounts receivable, trade outstanding at December 31,
2003 and 2002 amounted to $456,684 and $1,560,647, respectively. Management
reviews its accounts receivable on a regular basis to determine if the bad debt
allowance is adequate at each year-end. However, the Company records a provision
for accounts receivable trade which ranges from 0.3% to 1.0% of the outstanding
accounts receivable balance in accordance with generally accepted accounting
principles in the PRC. The allowance for doubtful accounts as of December 31,
2003 and 2002 amounted to $1,043 and $4,682, respectively.
Other receivables
- -----------------
Other receivables consist of various cash advances to unrelated third parties
which have business relationships with the Company. These amounts are unsecured,
non-interest bearing and generally are short term in nature. As of December 31,
2003 the other receivables amounted to $328,271 and $2,518,421, respectively.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, (continued)
Intangible assets
- -----------------
All land in the People's Republic of China is owned by the government and cannot
be sold to any individual or company. However, the government grants the user a
"land use right" (the Right) to use the land. The Company has acquired land use
rights during years ending 2000 and 2003 for a total amount of $2,870,902. The
Company has the right to use this land for 50 years. At December 31, 2003 and
2002, accumulated amortization amounted to $306,533 and $209,733. The cost of
the rights is being amortized over ten years using the straight-line method.
Intangible assets of the Company are reviewed annually as to 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 December 31, 2003, the Company expects these assets to be
fully recoverable.
Total amortization expense for the years ended December 31, 2003 and 2002
amounted to $96,800 and $96,800 respectively.
Income taxes
- ------------
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the recognition of
deferred income tax liabilities and assets for the expected future tax
consequences of temporary differences between income tax basis and financial
reporting basis of assets and liabilities. Provision for income taxes consist of
taxes currently due plus deferred taxes. Since the Company had no operations
within the United States there is no provision for US taxes and there are no
deferred tax amounts at December 31, 2003 and 2002.
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 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, and deferred tax assets are recognized to the extent that it is
probably that taxable profit will be available against which deductible
temporary differences can be utilized.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies, (continued)
Income taxes, (continued)
- -------------------------
Deferred tax is calculated at the 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 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.
Under the Income Tax Laws, the Company is generally subject to an income tax at
an effective rate of 33% (30% state income taxes plus 3% local income taxes) on
income reported in the statutory financial statements after appropriate tax
adjustments, unless the enterprise is located in a specially designated region
for which more favorable effective tax rates are applicable.
The provision for income taxes at December 31 consisted of the following:
2003 2002
---------- ----------
Provision for China Income Tax $ 661,914 $ 298,275
Provision for China Local Tax 105,517 38,903
---------- ----------
Total provision for income taxes $ 767,431 $ 337,178
========== ==========
The following table reconciles the U.S. statutory rates to the Company's
effective tax rate:
2003 2002
--------- ---------
U.S. Statutory rates 34.0% 34.0%
Foreign income not recognized in USA (34.0) (34.0)
China income taxes 33.0 33.0
--------- ---------
Totals 33.0% 33.0%
========= =========
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 Chinese laws. The value added tax standard rate is 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.
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 2 - Supplemental disclosure of cash flow information
Income taxes paid amounted to $428,117 and $193,847 for the years ended December
31, 2003 and 2002, respectively. Interest paid amounted to $632,957 and $782,718
for the years ended December 31, 2003 and 2002, respectively.
Note 3 - Notes receivable
This amount represents trade accounts receivable due from various customers
which the customers' bank has guaranteed payment of the receivable. This amount
is non-interest bearing and is normally paid within three to six months. The
Company has the ability to submit their request for payment to the customer's
bank earlier than the scheduled payment date; however, the Company will incur an
interest charge and processing fees in such instances. As of December 31, 2003,
$1,188,854 was outstanding as compared to $0 in the prior year.
Note 4 - Advances on inventory purchases
Advances on inventory purchases including the related party purchases are monies
advanced to vendors or related parties on inventory purchases. The inventory is
normally delivered within one month after the monies has been advanced. The
total amount outstanding at December 31 consisted of the following:
2003 2002
---------- ----------
Advances on inventory purchases - related parties $1,021,824 $4,258,829
========== ==========
Advances on inventory purchases $7,831,480 $1,510,191
========== ==========
Note 5 - Related party transactions
The following is a description of the individuals and companies discussed in the
footnotes and their relationship to the Company.
Tianjin Long Yu Material Co., Ltd is a Chinese company which is 66.11% owned by
our president Yu Zuo Sheng.
Tianjin Shengda Steel Co., and Shexian Shengda Steel Co., are Chinese companies
wholly owned by our president Yu Zuo Sheng directly and indirectly.
The Company has loaned Tianjin Shengda Steel Co. monies. The loan bears no
interest and has not specific terms of repayment. The total amount due from
Tianjin Shengda Steel Co. amounted to $459,800 for the years ending December 31,
2003 and 2002.
Tianjin Long Yu Material Co., Ltd, a related party, pays for various expenses,
supplies, inventories and other goods on behalf of the Company. The transactions
are reoccurring in nature and generally are paid off during the year. The total
amount due to this related party at December 31, 2003 and 2002 amounted to $0
and $1,414,526, respectively. Note 5 - Related party transactions (continued)
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
The Company purchases raw materials from Shexian Shengda Steel Co., Total
purchases during the years ending December 31, 2003 and 2002 amounted to
$10,049,543 and $6,894,906, respectively. As of December 31, 2003 and 2002, the
Company has made advance payments for future inventory purchases in the amount
of $1,021,824 and $4,258,829, respectively.
All amounts due from or to these related parties are non-interest bearing and
have no fixed repayment terms.
Note 6 - Short-term loans payable
Short-term loans payable represent amounts due to various banks and are due
normally within one year. At December 31, the loans consisted of the following:
2003 2002
----------- -----------
Loan from China Bank, JingHai Branch, due August 17,
2004 and August 19, 2003, respectively. Monthly interest
only payment, annual interest rates of 6.372%
and 6.903% respectively, secured by equipment $ 350,900 $ 350,900
Loan from China Bank, JingHai Branch, due August 6, 2004
and August 8, 2003, respectively. Monthly interest
only payment, annual interest rates of 6.372%
and 6.903%, respectively, secured by real estate 834,900 834,900
Loan from Agriculture Bank, DaQiuZhuang Branch, due
November 13, 2004 and December 10, 2003, respectively
Monthly interest only payment, annual interest rate of
6.71184%, guranteed by Tianjin Shengda Steel Co., 726,000 726,000
a related party
Loan from Agriculture Bank, DaQiuZhuang Branch, due October
21, 2004 and October 22, 2003, respectively. Monthly
interest only payment, annual interest rate of 6.62688%,
secured by land use right and buildings 2,783,000 2,783,000
Loan from Agriculture Bank, DaQiuZhuang Branch, due July 25,
2004 and August 16, 2003, respectively. Monthly interest
only payment, annual interest rate of 6.71184%,
guranteed by Tianjin Shengda Steel Co., a related party 484,000 484,000
Loan from Agriculture Bank, DaQiuZhuang Branch, due March
24, 2004 and March 29, 2003, respectively. Monthly interest
only payment, annual interest rates of 6.62683%
and 6.364812%, respectively, secured by equipment 1,210,000 1,210,000
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Short term loans payable (continued)
At December 31, the loans consisted of the following, continued:
Loan from Agriculture Bank of China, DaQiuZhuang Branch, due
May 19, 2004 and May 20, 2003, respectively. Monthly
interest only payment, annual interest rate of6.62688%,
secured by equipment 3,025,000 3,025,000
Loan from Construction Bank of China, JinHai Branch, due August
20, 2004 and September 18, 2003, respectively. Monthly
interest only payment, annual interest rates of 5.433%
and 5.499%, respectively, secured by properties 1,185,800 1,210,000
Loan from ShangHai PuFa Bank, due November 8, 2004
Monthly interest only payment, annual interest rate
of 4.8675%, guranteed by TianJing ShengDa Steel Co., 2,420,000 --
a related party
Loan from Construction Bank of China, due November 11, 2004
Monthly interest only payment, annual interest rate of 6.371%,
guranteed by TianJing ShengDa Steel Co., a related party 786,500 --
----------- -----------
Totals $13,806,100 $10,623,800
=========== ===========
Note 7 - Lines of credit
The Company has lines of credit with JingHai China Bank, Agriculture Bank,
Daqiuzhuang Industrial and Commercial Bank, and ShangHai PuFa Bank and consisted
of the following at December 31:
2003 2002
----------- -----------
China Bank, JingHai Branch, various amounts
due dates ranging between February and June 2004,
restricted cash required ranging from 40% to 50% of
loan amount, secured by land and buildings $ 2,662,000 $ 2,444,200
Agriculture Bank, various amounts due
dates ranging between January to July 2004,
restricted cash required of 50% of loan amount
guaranteed by the Company 1,603,250 1,573,000
Daqiuzhuang Industrial and Commercial Bank,
vauious amounts due dates ranging between April and June
2004, restricted cash required of 30% of loan amount,
guaranteed by the Company 629,200 500,940
ShangHai PuFa Bank, due February 2004
restricted cash required of 30% of loan balance,
guaranteed by the Company 1,815,000 --
----------- -----------
Totals $ 6,709,450 $ 4,518,140
=========== ===========
TIANJIN DAQIUZHUANG METAL SHEET CO., LTD.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Line of credit (continued)
Total interest expense for the years ending December 31, 2003 and 2002 on all
debt amounted to $632,957 and $782,718, respectively.
Note 8 - Customer deposits
The Company normally requires all customers to pay the Company the full amount
of their purchase in advance when the customers submit their orders. The
products are normally shipped within six months after receipt of the advance
payment and the related sale is recognized in accordance with the Company's
revenue recognition policy. As of December 31, 2003 and 2002, customer deposits
amounted to $914,160 and $2,615,027, respectively.
Note 9 - Deposits due to sales representatives
The Company has 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 reduced 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 $862,730 and $1,226,940
in deposits due to sales representatives outstanding at December 31, 2003 and
2002, respectively.
Note 10 - Subsequent events
In January 2004, the owners of the Company changed to the following ownership:
Yang Pu Capital Automotive Investment Limited 70.0%
Tianjin Long Yu Material Co., Ltd. 25.2%
Inner-Mongolia Jinxin Economic and Trade Co., Ltd. 4.8%
----------
Total 100.0%
==========
On June 24, 2004, the Company reformed as a Sino-Foreign joint venture company.
General Steel Investment Co., Ltd., a corporation organized under the laws of
the British Virgin Islands, acquired from Yang Pu Capital Automotive Investment
Limited it's 70% in Tianjin Daqiuzhuang Metal Sheet Co., Ltd. Mr. Yu Zuo Sheng,
our president, owns 99.99% of General Steel Investment Co., Ltd.