UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended SeptemberJune 30, 20162019

or

For the transition period from __________ to __________

Commission File Number 001-33717

General Steel Holdings, Inc.

(Exact name of registrant as specified in its charter)

Suite 106, Tower H,

Phoenix Place, ShuguangxiliRoom 803, Tower1, Building B, Wangjing SOHO

Chaoyang District, Beijing, China 100028100102

(Address of Principal Executive Office, Including Zip Code)

+86 (10) 8572 30736470-9625

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ¨x   No x¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).  Yes ¨x No x¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.company or an emerging growth company.. See definition of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No x

Securities registered pursuant to Section 12(b) of the Act:

As of September 27, 2017, 16,800,361August 7, 2019, 46,013,959 (excluding 494,462 shares of treasury stock) shares of common stock, par value $0.001 per share, were outstanding.

Table of Contents

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(LOSS)INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(UNAUDITED)

(In thousands, except per share data)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30 2016 AND 2015

(UNADUITED)

(In thousands)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Organization and Operations

General Steel Holdings, Inc. (the “Company”) was incorporated on August 5, 2002 in the state of Nevada. The Company, through its 100% owned subsidiary, General Steel Investment Co., Ltd, has been operating steel companies serving various industries in the People’s Republic of China (“PRC”). The Company’s main operation,operations, since its disposal of its significant steel producing operating assets and trading business at December 31, 2016 and the disposal of its final steel producing operating assets on March 21, 2016, has2017, have been its trading business on iron ore, nickel-iron-manganese alloys, and other steel-related products. The Company, together with its subsidiaries, majority owned subsidiaries and variable interest entity, is referred to as the “Group”32% equity holding in Tianwu General Steel Material Trading Co., Ltd (“Tianwu”).

In view of the near-term challenges for the steel manufacturing sector, On July 31, 2019, the Company strategically accelerated its business transformation between 2015 and 2016. The Company’s transformation strategy is to pursue opportunities that offer compelling benefits to the Company’s organization and shareholders, and includes:

•          First, strengthen the Company’s financials while providing the financial flexibility to pursue higher return, higher growth opportunities;

•          Second, reduce the complexity of the Company’s business structure, which is consistent with the Company’s objectives for internal simplification and operating efficiency;

•          Third, diversify operating risk in order to lower the Company’s high reliance on steel business, while at the same time leverage on the Company’s vast vertical resources in the steel industry; and

•          Fourth, pursue opportunities for additional value creation.

On November 4, 2015, the Company's Board of Directors (the "Board"), including the audit committee, committed to a plan and authorized the Company's management to pursue the potential sale of all its ownership interest in Maoming Hengda Steel Company, Ltd. ("Maoming Hengda") and Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”) in order to unlock the value in Maoming Hengda's land assets, as well as divest from and restructure the steel business.

On December 30, 2015, the Company entered into an agreement to sell its wholly-owned General Steel (China) and its entire equity interest in all of its subsidiaries for $1 million to Victory Energy Resource Limited, a HK registered company indirectly-owned by Henry Yu, the Company's Chairman. As a result of this transaction, the Company met the criteria under ASC 810-10-40-4 to deconsolidate General Steel (China), General Shengyuan, Yangpu Shengtong, Qiu Steel, and Longmen Joint Venture and subsidiaries at the disposal date. The disposed entities’ net loss through the disposal date were consolidated and presented as operations disposed for the three and nine months ended September 30, 2015 in the unaudited condensed consolidated financial statements. See Note 2(o) “Summary of significant accounting policies – operations held for sale and operations disposed/to be disposed” for details.

On March 21, 2016, the Company sold its interest in Maoming Hengda thereby fully completing the divestiture of its steel manufacturing business as planned. As a result, Maoming Hengda’s financial information was presented as operation disposed and assets and liabilities held for sales for the nine months ended September 30, 2016 and 2015 in the unaudited condensed consolidated financial statements. Certain prior period data has been reclassified to conform to the current year presentation and to reflect the results of operations disposed. See Notes 2(a) and 2(o) for details.

Other Business Operations:

The Company established a subsidiary wholly owned by General Steel Investment Co., Ltd. (“GSI BVI”), GSI BVI’s wholly owned subsidiary Tongyong Shengyuan (Tianjin) Technology Development Co., Ltd. (“Tongyong Shengyuan”Tongyong”) in June 2015. Tongyong Shengyuan is the holding company forand Tongyong’s 32% ownership of Tianwu to Tianjin Shuangsi Trading Co. Ltd. (“Tianjin Shuangsi”).

In October 2015, the Company completed its acquisition of an 84.5% equity interest in Catalon Chemical Corp. (“Catalon”),Ltd, a Delaware corporation headquartered in Virginia that develops and manufactures De-NOx honeycomb catalysts and industrial ceramics.  Prior to December 31, 2015, the Company became aware of some operational issues related to Catalon. It was determined that such issues might have affected the prior operations of Catalon as well as the ability to conduct business in the future. As such, the Company expected to cancel the shares issued to the 84.5% original owners of Catalon in accordance with the terms of the agreement.party, for $300,000. Therefore the company presented Catalon’s remaining assets, after impairment charges, and liabilities as held for sale as of December 31, 2015. On March 31, 2016, the Company decided to dispose of Catalon, so the result of operations of Catalon was presented as discontinued operations in Septemberheld for sale on June 30, 20162019 in the consolidated financial statements. See Note 162(m) – Acquisitions.Operations held for sale.

On December 31, 2018, the Company entered into a Share Exchange Agreement (the “Agreement”) with Fresh Human Global Ltd., a Cayman Islands corporation (“Fresh Human”) and Hummingbird Holdings Limited, the sole shareholder of Fresh Human (“Hummingbird”) holding one share of Fresh Human. Pursuant to the terms of the Agreement, Hummingbird exchanged its equity interest in Fresh Human for 4,175,095 shares of restricted stock of the Company (the “Exchange”). As a result of the Exchange, Fresh Human is now a wholly-owned subsidiary of the Company.

The transactions contemplated by the Agreement are related party transactions. Hummingbird was a shareholder of the Company, holding 51.1% of the Company’s outstanding common stock at the time of this transaction. Through ownership of the Company’s Series A Preferred Stock, Hummingbird also held 30% of the combined voting power of our common stock and preferred stock at that time. Immediately after Exchange, Hummingbird held 55.5% of the common stock of the Company. Currently Hummingbird holds 50.45% of common stock of the company

Fresh Human is a holding company incorporated on May 25, 2018, under the laws of Cayman Islands. Fresh Human has no substantive operations other than holding the outstanding shares of Tuotuo River HK Limited (“Tuotuo River”). Tuotuo River, a Hong Kong Limited Liability Company, is a holding company incorporated on June 6, 2018. Tuotuo River holds all of the outstanding equity of Beijing Qianhaitong Technology Development Co., Ltd (“Tuotuo River WFOE”).

Fresh Human and Tuotuo River were established as the holding companies of Tuotuo River WFOE. Tuotuo River WFOE is the primary beneficiary of Beijing Ouruixi Medical Technology Co., Ltd. (“Beijing Ouruixi”). All of these entities included in Fresh Human are under common control, which results in the consolidation of Beijing Ouruixi. This consolidation has been accounted for as a reorganization of entities under common control at carrying value. The Company issued 4,175,095 shares of common stock at $.001 par value for the Exchange. The $4,189,657 excess of carrying value of assets acquired over fair value of shares issued is recorded as additional paid in capital.

The Company’s main operation is Beijing Ouruixi’s business of cell research, development, processing and storage, and cell culture services, in the PRC.

Contractual Arrangements

Beijing Ouruixi’s PRC business license includes cell research, development, and storage and cell culture services and it is categorized as scientific research. This is a business category in which foreign investment is restricted pursuant to the current PRC regulations. As such, Beijing Ouruixi is controlled through contractual agreements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such contractual arrangements consist of a series of four agreements (collectively the “Contractual Arrangements”). The significant terms of the Contractual Agreements are as follows:

Technical Consultation and Services Agreement

Pursuant to the Technical Consultation and Services Agreement dated December 19, 2018 between Tuotuo River WFOE and Beijing Ouruixi, Tuotuo River WFOE is engaged as exclusive provider of management consulting services to Beijing Ouruixi. For such services, Beijing Ouruixi agrees to pay service fees, which are determined based on all of its net income, to Tuotuo River WFOE. Alternatively, Tuotuo River WFOE has the obligation to absorb all of Beijing Ouruixi’s losses.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company’s remaining businessTechnical Consultation and Services Agreement remains in effect for 20 years until December 19, 2038. The agreement can be extended only if Tuotuo River WFOE gives its written consent of extension of the agreement before the expiration of the agreement, and Beijing Ouruixi agrees to the extension without reserve.

Equity Option Agreements

Pursuant to the Equity Option Agreements dated December 19, 2018 among the shareholders who collectively own all of Beijing Ouruixi and Tuotuo River WFOE, these shareholders jointly and severally granted Tuotuo River WFOE an option to purchase their equity interests in Beijing Ouruixi. The purchase price shall be the lowest price permitted under applicable PRC laws. If the purchase price is primarily comprisedgreater than the registered capital of Tianjin Shuangsi Trading Co. Ltd. (“Tianjin Shuangsi”),Beijing Ouruixi, the shareholders are required to immediately return any amount in excess of the registered capital to Tuotuo Ricer WFOE or its designee. Tuotuo River WOFE may exercise such option at any time until it has acquired all equity interests of Beijing Ouruixi. The agreements will terminate at the date on which all of the equity interests of Beijing Ouruixi have been transferred to Tuotuo River WFOE or its designee.

Equity Pledge Agreements

Pursuant to the Equity Pledge Agreements dated December 19, 2018, the shareholders who collectively own all of Beijing Ouruixi pledged all of the equity interests in Beijing Ouruixi to Tuotuo River WFOE as collateral to secure the obligations of Beijing Ouruixi under the exclusive Consulting Services and Operating Agreement. These shareholders may not transfer or assign the pledged equity interests, or incur or allow any encumbrance that would jeopardize Tuotuo River WFOE’s interests, without Tuotuo River WFOE’s prior approval. In the event of default, Tuotuo River WFOE as the pledgee will be entitled to certain rights and entitlements, including the priority in receiving payments by the evaluation or proceeds from the auction or sale of whole or part of the pledged equity interests of Beijing Ouruixi. The agreement shall be continuously valid until these shareholders are no longer shareholders of Beijing Ouruixi or until Beijing Ouruixi has satisfied all its obligations under the Technical Consultation and Services Agreement.

Voting Rights Proxy and Financial Supporting Agreements

Pursuant to the Voting Rights Proxy and Financial Supporting Agreements dated December 19, 2018, the shareholders of Beijing Ouruixi gave Tuotuo River WFOE an irrevocable proxy to act on their behalf on all matters pertaining to Beijing Ouruixi and to exercise all of their rights as shareholders of Beijing Ouruixi, including the right to attend shareholders meetings, to exercise voting rights and to transfer all or a trading companypart of their equity interests in Beijing Ouruixi. In consideration of such grant of rights, Tuotuo River WFOE agrees to provide the necessary financial support to Beijing Ouruixi, whether or not Beijing Ouruixi incurs losses, and agrees not to request repayment if Beijing Ouruixi is unable to do so. The agreements shall remain in effect for 20 years, until December 19, 2038.

Based on the foregoing contractual arrangements, which grant Tuotuo River WFOE effective control of Beijing Ouruixi, obligate Tuotuo River WFOE to absorb all of the risk of loss from their activities, and enable Tuotuo River WFOE to receive all of their expected residual returns, the Company acquired 100% equityaccounts for Beijing Ouruixi as a variable interest on February 16, 2016 for a considerationentity (“VIE”).

The Company consolidates the accounts of $0.03 million as Tianjin Shuangsi was establishedits subsidiaries and VIE, in accordance with Regulation S-X-3A-02 promulgated by the chief executive officerSecurities Exchange Commission (“SEC”), and Accounting Standards Codification (“ASC”) 810-10, Consolidation.

The accompanying consolidated financial statements reflect the activities of the Company’s related entitysubsidiaries and his relative. Tianjin Shuangsi primarily trades iron ore, nickel-iron-manganese alloys, and other steel-related products. The Company continued its trading business after the disposition of General Steel (China) and Maoming Hengda.VIEs:

*Operation held for sale, see Note 2 (m)

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 – Summary of significant accounting policies

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial informationand pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements include the accounts of all directly, indirectly owned subsidiaries and the variable interest entity listed below. All material intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2015 annual report on Form 10-K filed on August 30, 2016.

The consolidated financial statements of the Company reflect the activities of the following major directly owned subsidiaries as of September 30, 2016: 

* Tongyong Shengyuan is a holding company of Tianjin Shuangsi in which the Company holds a 100% equity interest.

The accompanying consolidated financial statements include the financial statements of the Company and its subsidiaries, itswhich include the wholly-foreign owned enterprise (“WFOE”) and variable interest entityentities (“VIE”VIEs”) over which the Company exercises control and, when applicable, entities for which the Company is the ultimate primary beneficiary, and the VIE’s subsidiaries.

Subsidiaries are those entities in which the Company, directlyhas a controlling financial interest or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.  

A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity. 

beneficiary. All significant inter-company transactions and balances have been eliminated upon consolidation.

In assessing the Company’s liquidity,

Historically, the Company monitorsfinances its operations through internally generated cash and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company engages in trading of steel related products and the Company’s business is not capital intensive. Debt financing in the form of short term loans, loanspayables from related parties, have been utilizedparties. As of June 30, 2019, the Company had approximately $0.9 million in cash, which primarily consists of cash on hand and bank deposits, which are unrestricted as to finance the working capital requirements of the Company. The main operating expenseswithdrawal and use and are public Company maintenance costs which CEO Mr. Yu Zuo Sheng fully supports funding the Company’s operations.

Due to the restructuring,deposited with banks in China. Although the Company’s working capital deficit has decreasedwas $3.9 million, $0.3 million of this was operations to approximately $8.28 million as of September 30, 2016 from $75.9 million as of December 31, 2015. As of September 30, 2016 current assetsheld for sale. After the operations are mainly composed of cash, accounts receivables and other receivables. In 2017,disposed, the Company extended the payment terms of its payable to related parties until the end of 2020, therefore removing theses related parties payable,believes working capital is $4 million.sufficient to support its operations for the next twelve months.

Management considers the historical experience, the economy, trends in the industry, the expected collectability of the accounts and other receivables and the realization of the prepayments and determined the Company is expected to realize the remaining balances.

Based on the above considerations, the Company’s management is of the opinion that it has sufficient funds to meet its working capital requirements and debt obligations as they become due. However, this opinion is based on the market and general economic condition, the Company’s operating results not continuing to deteriorate and the Company shareholders continuing to provide liquidity.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and footnotes. Actual results could differ from these estimates.

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

The Company has significant exposuremaintains cash with banks in the PRC. In China, a depositor can have up to RMB500,000 insured by the price fluctuationPeople’s Bank of raw materials and energy prices as part of its normal operations.China Financial Stability Bureau (“FSD”). In US, a depositor can have up to $250,000 insured by the Federal Deposit Insurance Corporation (“FDIC”). As of SeptemberJune 30, 20162019 and December 31, 2015,2018, approximately $146,000 and $145,000 of the Company didCompany’s cash held by financial institutions were insured, respectively, and the remaining balances of approximately $721,000 and $4,670,000 were not have any open commodity contracts to mitigate such risks.insured.

Cash includes demand deposits in accounts maintained with banks within the PRC, Hong Kong and the United States. Total cash (including restricted cash balances) in these banks on September 30, 2016 and December 31, 2015 amounted to $0.009 million and $0.004 million, respectively. As of September 30, 2016 and December 31, 2015, $0.002 million and $0.02 million cash in the bank was covered by insurance. The Company has not experienced any losses in other bank accounts and believes it is not exposed to any risks on its cash in bank accounts.

ThreeTwo of the Company’s customers including related parties, individually accounted for 33.0%, 31.0% and 29.5% of total sales for the nine months ended September 30, 2016 respectively and two of the company’s customers individually accounted for 74% and 25%100% of total sales for the three and six months ended SeptemberJune 30, 2016, respectively. Two of the Company’s customers individually accounted for 15.0%2019, and 13.9% of total sales from operations disposed for the three months ended September 30, 2015, while none of the Company’s customers individually accounted for more than 10% of total sales for the ninethree and six months ended SeptemberJune 30, 2015.2018.

OneTwo of the Company’s customers a related party, accounted for 100% of the total accounts receivable as of September 30, 2016. One of the Company’s customers from operation disposed individually accounted for 96.2% of total accounts receivable as of June 30, 2019. None of the Company’s customers accounted for more than 10% of the total customer deposit as of December 31, 2015.2018.

Two of the Company’s suppliers accounted for 79.9% of the total purchases for the three and six months ended June 30, 2019. None of the Company’s suppliers accounted for more than 10% of the total purchases for the three and six months ended June 30, 2018.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Two of the Company’s suppliers including related parties, individually accounted for37.0% and 34.9% of the total purchases for the nine months ended September 30, 2016. One of the Company’s suppliers, a related party, accounted for 80.3% of the total purchases for the three months ended September 30, 2016. None of the Company’s supplier individually accounted for more than 10% of the total purchases for the three months and nine months ended September 30, 2015, respectively.

One of the Company’s suppliers, a related party, individually accounted for 100%69.5% of total accounts payable as of SeptemberJune 30, 2016, while none2019. None of the Company’s suppliers individually accounted for more than 10% of total accounts payable as of December 31, 2015.2018 from operations held for sale.

The reporting currency of the Company is the U.S. dollar. The Company’s subsidiaries and VIE in China use the local currency, Renminbi (“RMB”), as their functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statementstatements of operations accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Translation adjustments included in accumulated other comprehensive income amounted to $1.7$3.25 million and $2.0$3.21 million as of SeptemberJune 30, 20162019 and December 31, 2015,2018, respectively. The balance sheet amounts, with the exception of equity at SeptemberJune 30, 20162019 and December 31, 20152018 were translated at 6.676.87 RMB and 6.496.88 RMB to $1.00, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to statement of operations accounts for the ninesix months ended SeptemberJune 30, 20162019 and 20152018 were 6.586.79 RMB and 6.156.37 RMB to $1.00, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.

The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, short term investments, accounts receivable, other receivables, accountsother payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. For short term loans and notes payable, the Company concluded the carrying values are a reasonable estimate of fair values because of the short period of time between the origination and repayment and as their stated interest rates approximate current rates available. The carrying value of the long term loans-related party approximates its fair value as of the reporting date as their stated interest rates approximate current market rates available.

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement, and enhance disclosure requirements for fair value measures. The three levels are defined as follow:

The Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value.

Cash includesand cash equivalents include cash on hand, demand deposits and demandtime deposits in banks, with original maturities of lessthree months or fewer than three months.   

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounts receivable include trade accounts due from customers and other receivables from cash advances to employees, related parties or third parties.customers. An allowance for doubtful accounts is established and recorded based on managements’management’s assessment of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-offwritten off against allowanceallowances for doubtful accounts, after management has determined that the likelihood of collection is not probable. There was no allowance for doubtful accounts as of June 30, 2019 and December 31, 2018.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Advances on inventory purchases are monies deposited or advancedPrepaid expenses represent advance payments made to outside vendors or related parties on future inventory purchases. Due to the shortage of raw material in China, most of the Company’s vendors require a certain amount of money to be deposited with themfor services such as a guarantee that the Company will complete its purchases on a timely basis.

This amount is refundablerent, consulting and bears no interest. The Company has legally binding contracts with its vendors, which required the deposit to be returned to the Company when the contract ends. The inventory is normally delivered within one month after the monies have been advanced. certification.

Inventories are mainly finished goods and are stated at the lower of cost or market using the first-in, first-out method. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory and additional cost of goods sold when the carrying value exceeds net realizable value.  

Plant and equipment areEquipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets with a 3%-5% residual value. The depreciation expense on assets acquired under capital leases is included with depreciation expense on owned assets. The estimated useful lives are as follows:

Through their respective disposals long lived assets, including buildings and improvements, equipment and intangible assets are reviewed if events and changes in circumstances indicate that their carrying amount may not be recoverable, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations.

Due to the recurring losses in the Longmen Joint Venture’s operations, the most recent economic down turn, the major sell off of the Chinese stock market and the lacking of government expansion in major infrastructure, the Company considered Longmen Joint Venture’s carrying amount for property and equipment not being recoverable. The Company used the undiscounted cash flow approach for the purpose of performing a recoverability test, which included future cash inflows less associated cash outflows that were directly associated with and that were expected to arise as a direct result of the use and eventual disposition of the assets. For purposes of assessment, the long lived assets were grouped at the lowest level for which there was identifiable cash flows. The major groupings analyses include Longmen Joint Venture, Maoming Hengda and General Steel (China). Further, the Company’s estimate of future cash flows included estimated future cash flows necessary to maintain our existing production potential over the entire period and within the various groups. The projections were based on a best estimate approach of likely outcomes. During the quarter ended September 30, 2015, the Company expected Longmen Joint Venture’s long-lived assets to be not fully recoverable and recognized an impairment loss of $973.9 million to reduce its carrying value to its fair value.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

EntitiesIn February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease assets (right of use) and lease obligations (lease liability) for leases previously classified as operating leases under generally accepted accounting principles on the balance sheet for leases with terms in which theexcess of 12 months. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company has the ability to exercise significant influence, but does not have a controlling interest, are accountedadopted ASC 2016-02 since January 1, 2019. See note 12 for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock between 20% and 50%, and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. The Company accounts for investments with ownership less than 20% using the cost method.

On December 28, 2015 General Steel (China) sold its 32% equity interest in Tianwu General Steel Material Trading Co., Ltd. to Tongyong Shengyuan, one of our wholly owned subsidiaries, for $14.9 million (RMB 96.6 million). As of September 30, 2016, Tongyong Shengyuan’s net investment in the unconsolidated entity was $13.5 million.

Total investment income (loss) in unconsolidated subsidiaries amounted to $(0.6) million and $0 for the three months ended September 30, 2016 and 2015, respectively, which was included in “Income (loss) from equity investment” in the condensed consolidated statements of operations and comprehensive loss. Total investment income (loss) in unconsolidated subsidiaries amounted to $(1.0) million and $0 for the nine months ended September 30, 2016 and 2015, respectively, which was included in “Income (loss) from equity investment” in the condensed consolidated statements of operations and comprehensive loss.

Total investment income (loss) in unconsolidated subsidiaries from operations disposed amounted to $0 for the three months ended September 30, 2016 and 2015, respectively, which was included in net loss from operations disposed in the consolidated statements of operations and comprehensive loss. Total investment income (loss) in unconsolidated subsidiaries from operations disposed amounted to $(3.0) million and $0 for the nine months ended September 30, 2016 and 2015, respectively, which was included in net loss from operations disposed in the consolidated statements of operations and comprehensive loss.

The Company performed a significance test in accordance with SEC Rule 1-02(w) of Regulation S-X and determined Tianwu qualify as a significant equity investee. The condensed income statement of Tianwu is presented as follows:

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)details.

Sales is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, the Company has no other significant obligations and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits. Sales represent the invoiced value of goods, net of value-added tax (VAT). All of the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 13% or 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product.

Gross versus Net Revenue Reporting

Starting from January 1^st, 2016, in the normal course of the Company’s trading business, the Company orders directly the iron ore, nickel-iron-manganese alloys, and other steel-related products from its suppliers and drop ships the products directly to its customers. In these situations, the Company generally collects the sales proceeds directly from its customers and pays for the inventory purchases to its suppliers separately. The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction. In determining whether the Company is the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. Because the Company is not the primary obligor is not responsible for (i) fulfilling the steel-related products delivery, (ii) establishing the selling prices for delivery of the steel-related products, (iii) performing all billing and collection activities including retaining credit risk and (iv) baring the back-end risk of inventory loss with respect to any product return from its customer, the Company has concluded that it is the agent in these arrangements, and therefore report revenues and cost of revenues on a net basis.

For the three and nine months ended September 30, 2016, the Company reported gross sales of $26.6 million and $121.9 million, of which $7.0 million and $84.1 million were related party sales. The Company had $26.2 million and $120.6 million in purchases, respectively, of which $26.2 million and $78.5 million were related party purchases .Net revenue was $0.35million and $0.37 million for the three and nine months ended September 30, 2016, respectively and net revenue for related parties amounted to $0.08 million and $0.8 million for the three and nine months ended September 2016, respectively. See details of related party sales and purchases in Note 14.

In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management having the authority to approve the action commitsand committing to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from thosethe balances of the continuing operations. At the same time, the results of all discontinued operations (which we presented as operations to be disposed and operations disposed)held for sale), less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.

Reconciliation of the carrying amounts of major classes of assets and liabilities of discontinued operations are classified as held for sale in the consolidated balance sheets.

Carrying amounts of major classes of assets included as part of discontinued operations:

(In thousands)

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reconciliation of the amounts of major classes of income and losses from operations held for sale in the unaudited condensed consolidated statements of operations and comprehensive loss, including General Steel Investment Co., Ltd. and its subsidiaries for the three and six months ended June 30, 2019.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reconciliation

Entities in which the Company has the ability to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock between 20% and 50%, and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. The Company accounts for investments with ownership less than 20% using the cost method.

On December 28, 2015, General Steel (China) Co., Ltd sold its 32% equity interest in Tianwu General Steel Material Trading Co., Ltd. to Tongyong Shengyuan, one of the Carrying AmountsCompany’s wholly owned subsidiaries, for $14.9 million (RMB 96.6 million). As of Major Classes of Assets and Liabilities of Discontinued Operations Classified as Held for Sale in the Consolidated Balance Sheet which include Maoming Hengda’s operations as of December 31, 2015, Catalon as of SeptemberJune 30, 21062019 and December 31, 2015.2018, Tongyong Shengyuan’s net investment in the unconsolidated entity - operations held for sale was $9.3 million and $13.0 million, respectively.

Reconciliation of the Amounts of Major Classes of Income and LossesTotal investment income (loss) in unconsolidated subsidiaries, which was included in “Income (Loss) from Operations to be Disposed Classified as Held for Sale and Disposedequity investment” in the Unaudited Condensed Consolidated Statementsconsolidated statements of Operationsoperations and Comprehensive Loss which include Cataloncomprehensive income of discontinued operations, amounted to $(3.3) million and Maoming’soperation$(0.6) million for the three and nine months ended SeptemberJune 30, 20162019 and 20152018, respectively, and Longmen Joint Venture’s operationamounted to $(3.8) million and $2.9 million for the three and ninesix months ended SeptemberJune 30, 2015.2019 and 2018, respectively.

ReconciliationThe Company performed significance tests in accordance with SEC Rule 1-02(w) of the AmountsRegulation S-X and determined Tianwu qualifies as significant equity investee. The condensed financial statements of Major Classes of Income and Losses from Operations Disposed ClassifiedTianwu is presented as Held for Sale and Disposed in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss which include Catalon and Maoming’s operation for the three and nine months ended September 30, 2016 and 2015 and Longmen Joint Venture’s operation for the three and nine months ended September 30, 2015.follows:

CONSOLIDATED BALANCE SHEETS

(In thousands)

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED STATEMENT OF OPERATIONS