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iso4217:CNY xbrli:pure pf0:t As of September 30, 2012, future minimum rental payments applicable to the above non-cancelable capital leases with remaining terms in excess of one year were as follows: On September 22, 2011, the Company received a RMB 19,000,000 ($3,019,100 translated at December 31, 2011 exchange rate) short-term borrowing from Credit Union. The loan was a "working capital" loan that bore interest at 13.12% per annum and was repaid on September 19, 2012. On March 26, 2012, the Company received a RMB 19,000,000 ($3,023,090) short-term borrowing from Credit Union. The loan bore interest at 7.93% per annum and was repaid on September 25, 2012. Upon repayment, the Company borrowed a new RMB 19,000,000 ($3,023,090) loan on September 25, 2012. The loan is a "working capital" loan that bears interest at 11.40% per annum and due on September 24, 2013. The loan is secured by the equipment of Hongri. Total value of equipment secured for above mentioned bank loans is RMB 70,967,104 ($11,292,576). On January 20, 2012, the Company received a RMB 7,900,000 ($1,256,969) short-term borrowing from a private lender. The loan bears interest of 10.50% per annum and is due on January 10, 2013. On June 28, 2011, Hongri entered into a revolving loan agreement (the "Agreement") with Raiffeisen Bank International AG Beijing Branch ("Raiffeisen"). The Agreement provides for a revolving credit facility in an aggregate principal amount of RMB 180,000,000 (approximately $28,602,000 translated at the rate of December 31, 2011) which used as working capital. Each borrowing could not exceed 180 days or days the Bank agreed during the Agreement period. On August 24, 2011, Hongri deposited RMB 15,000,000 ($2,383,500, translated at December 31, 2011 exchange rate) into Raiffeisen to execute the revolving loan agreement, which was recorded as restricted cash. On August 31, 2011, the Company received the first borrowing RMB 180,000,000 ($28,602,000) which was due by February 27, 2012. The Company repaid its outstanding balance as of February 24, 2012. Upon the repayment, the Company acquired the second borrowing in the total amount of RMB 180,000,000 from Raiffeisen Bank. The second borrowing was due by varied from July to August 2012. On June 27, 2012, the Company repaid RMB 60,000,000 ($9,478,200, translated at the average rate of the nine months ended September 30, 2012). The remaining balance of RMB 120,000,000 ($18,956,400, translated at the average rate of the nine months ended September 30, 2012) was repaid in July (RMB 50,000,000) and August (RMB 70,000,000). On July 23, 2012, Hongri entered into an amendment agreement (the "Amendment Agreement I") with Raiffeisen Bank International AG Beijing Branch ("Raiffeisen"). The Amendment Agreement provided for a revolving credit facility in an aggregate principal amount of RMB 120,000,000 (approximately $19,093,200, translated at the rate of September 30, 2012) which used as working capital only. Each borrowing could not exceed 180 days or days the Bank agreed during the Amendment Agreement period.On September 18, 2012, Hongri entered into a second amendment agreement (the "Amendment Agreement II") with Raiffeisen Bank International AG Beijing Branch ("Raiffeisen"). The Amendment Agreement II provides for a revolving credit facility in an aggregate principal amount of RMB 100,000,000 (approximately $15,911,000, translated at the rate of September 30, 2012) which is used as working capital only. Each borrowing could not exceed 180 days or days the Bank agreed during the Amendment Agreement period. The Amendment Agreement II is to be terminated on January 31, 2014.During August 2012, the Company borrowed total of RMB 100,000,000 ($15,797,000, translated at the average rate of the nine months ended September 30, 2012) and repaid all borrowed amount by the end of September 2012. Upon repayment, the Company borrowed separately total of RMB 100,000,000 ($15,911,000, translated at the rate of September 30, 2012). The loans bear interest rate of 7.31% per annual and are due varied from January 29, 2013 to February 28, 2013.Pursuant to the Amendment Agreement II, borrowings will bear interest at 130.6% of the benchmark rates of similar loans published by the People's Bank of China. Current benchmark interest rate for a six months loan is 5.6% revised on July 6, 2012. The borrowing interest is 7.31% currently. The interest is calculated on the daily basis and shall be paid on the 20th of the last month of each quarter. The borrowings are secured substantially by the following: all machinery and equipment of Hongri; a security deposit of RMB 10,000,000 (approximately $1,591,100) into the Raiffeisen bank as a collateral; corporate guaranty from Hebei Wu'an Yuanbaoshan Industry Group Co., Ltd. ("YBS group"), a majority shareholder of Hongri; and personal guaranty from Mr. Beifang Liu, Chairman of YBS group and Mr. Shenghong Liu, Chairman and Chief Executive Officer of the Company. 29.5% was effective rate for the nine months ended September 30, 2012 due to loss in current quarter. 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(&#8220;CIS&#8221;) was incorporated January 27, 2010 under the laws of the State of Maryland. On February 5, 2010, CIS formed a wholly-owned subsidiary, Northern Steel Inc. (&#8220;Northern&#8221;), under the laws of the State of Colorado to facilitate the Company&#8217;s operations in China.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On July 15, 2010, Northern formed its wholly owned foreign enterprise in Handan City, Hebei Province, China, Nuosen (Handan) Trading Co., Ltd (&#8220;Nuosen&#8221;), under the laws of China. Nuosen is a management company to manage operations in China.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Handan Hongri Metallurgy Co., Ltd. (&#8220;Hongri&#8221;) is a Chinese company located at Handan City, Hebei Province, China. Hongri was incorporated under the Chinese laws on March 7, 2007 with registered capital of Reminbi (&#8220;RMB&#8221;) 90,489,999 (approximately $12 million US dollars). Hongri is primarily engaged in the business of manufacturing and selling steel plate, steel bars, steel wires and steel billets for domestic customers and certain related parties.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Hebei Wu&#8217;an Yuanbaoshan Industry Group Co., Ltd (&#8220;YBS Group&#8221;) is an enterprise incorporated and existing within the territory of China. YBS Group owns 70% equity interest of Hongri.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Fakei Investment (Hong Kong) Ltd (&#8220;Fakei&#8221;) is an enterprise incorporated in Hong Kong. Fakei owns 30% equity interest of Hongri.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On August 1, 2010, CIS, through Northern and its wholly owned foreign enterprise, Nuosen, entered into Entrusted Management Agreement, Exclusive Option Agreement, and Covenants Agreement (collectively, the &#8220;Entrusted Agreements&#8221;) with Hongri and shareholders of Hongri, YBS Group and Fakei. The effect of the Entrusted Agreements is to cede control of management and economic benefits of Hongri to Nuosen. As a consideration, CIS issued 44,083,529 restricted shares of its common stock, par value $0.0001, to Karen Prudente, a nominee and trustee for the shareholders of YBS Group entering into the Entrusted Agreements with Nuosen. CIS also issued 17,493,463 restricted shares of its common stock to the shareholders of Fakei in consideration for Fakei entering into the Entrusted Agreements with Nuosen.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Entrusted Agreements empower CIS, through Northern and Nuosen, with the ability to control and substantially influence Hongri&#8217;s daily operations and financial affairs, appoint its senior executives and approve all matters requiring shareholders&#8217; approval. As a result of these Entrusted Agreements, which obligate CIS to absorb a majority of expected losses of Hongri and&#160;enable CIS to receive a majority of expected residual returns&#160;from Hongri and because CIS has the power to direct the activities of Hongri that most significantly impact Hongri&#8217;s economic performance, CIS, through its wholly-owned subsidiaries, accounts for Hongri as its Variable Interest Entity (&#8220;VIE&#8221;) under ASC 810-10-05-8A. Accordingly, CIS consolidates Hongri&#8217;s operating results, assets and liabilities.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On August 10, 2010, Mr. Liu Shenghong, the Chairman of the Board of Directors and one of the shareholders of YBS Group and several other shareholders of YBS Group (each of them, a &#8220;Purchaser&#8221;) have entered into call option agreements, (collectively, the &#8220;Call Option Agreements&#8221;), with the major shareholder, Karen Prudente, pursuant to which they are entitled to purchase up to 100% of the issued and outstanding shares from Karen Prudente at a price of $0.0001 per 100 shares for a period of five years as outlined in the Call Option Agreements: the Option may be exercised, in whole or in part, in accordance with the following schedule: 34% of the Option Shares subject to the Option shall vest and become exercisable on January 1, 2012; 33% of the Option Shares subject to the Option shall vest and become exercisable on January 1, 2013 and 33% of the Option Shares subject to the Option shall vest and become exercisable on January 1, 2014. 34% of the Option Shares became exercisable after December 31, 2011. The shareholders did not exercise these Option Shares as of the date of this report. According to the above mentioned Call Option Agreements, Karen Prudente would transfer all restricted shares of the Company&#8217;s common stock that she received to the shareholders of YBS Group subject to the terms and conditions thereunder and entrust the shareholders of YBS Group with her voting rights in the Company.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">For accounting purposes, the above transactions were accounted for in a manner similar to a reverse merger or recapitalization, since the former equity shareholders of Hongri now effectively own a majority of CIS&#8217; common stock immediately following the transactions. Consequently, the assets and liabilities and historical operations reflected in the consolidated financial statements prior to the transactions are those of Hongri and are recorded at the historical cost of Hongri, and the consolidated financial statements after completion of the transactions include the assets and liabilities of CIS, Northern, Nuosen, and Hongri (collectively, CIS or the &#8220;Company&#8221;), historical operations of Hongri, and operations of CIS, Northern, Nuosen and Hongri from the date of the transaction.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">CIS through Hongri, its operating company in China, produces and sells steel plates, steel bars, steel wires and steel billets. The Company currently has an aggregate production capacity of 2.3 million metric tons of steel per year from its headquarters on approximately 1,000 acres in Handan City, Hebei Province, China. Most of the Company&#8217;s products are domestically sold in China.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Basis of Presentation</font></font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the &#8220;SEC&#8221;) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Certain information in footnote disclosures normally included in the financial statements prepared in conformity with accounting principles generally accepted in the United States of America has been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year&#8217;s results. The Company believes the disclosures are adequate to make the information presented not misleading.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">These financial statements should be read in conjunction with the Company&#8217;s audited financial statements and notes thereto for the year ended December 31, 2011 included in the Company&#8217;s Annual Report on Form 10K filed in March 2012.</font> </div><br/> 90489999 0.70 0.30 44083529 0.0001 17493463 Chairman of the Board of Directors and one of the shareholders of YBS Group and several other shareholders of YBS Group (each of them, a "Purchaser") have entered into call option agreements 1.00 $0.0001 per 100 shares P5Y 0.34 0.33 0.33 0.34 The Company currently has an aggregate production capacity of 2.3 million metric tons of steel per year from its headquarters on approximately 1,000 acres in Handan City, Hebei Province, China. 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PADDING-BOTTOM: 4px"> <font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;</font> </td> <td align="right" valign="bottom" width="1%" style="PADDING-BOTTOM: 4px"> <font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;</font> </td> <td valign="bottom" width="1%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: left"> <font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">$</font> </td> <td valign="bottom" width="11%" style="BORDER-BOTTOM: black 4px double; TEXT-ALIGN: right"> <font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">5,402,600</font> </td> <td nowrap="nowrap" valign="bottom" width="1%" style="TEXT-ALIGN: left; PADDING-BOTTOM: 4px"> <font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;</font> </td> </tr> </table> 1909320 3019100 1591100 2383500 3500420 5402600 <table cellpadding="0" cellspacing="0" id="list-1" width="100%" style="FONT-FAMILY: times new roman; 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Therefore, the leases meet the requirement for capitalization of assets as the term is expected to be greater than 75% of the useful life of the asset. Typically, the terms of the lease are based on YBS&#8217;s costs. The value of the capitalized assets have been calculated to be the present value of all lease payments over the stated term using the Company&#8217;s bank borrowing rates. Should YBS extend any of the leases, the Company will re-calculate the value of the capitalized lease based on the renewed terms and record an additional asset upon the occurrence.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In December 2007, the Company entered into a lease agreement with YBS Group to lease 956 mu (approximately 157.5 acres) of land as its manufacturing site. The rent for the first three years was waived per lease agreement. The annual lease payment is RMB 1,434,450 (approximately $228,235) which commenced in 2011. The average lease payment is RMB 1,291,005 (approximately $205,412) per annum. The lease is set to expire on December 31, 2037. The present value of the total lease payments at inception was RMB 12,703,147 (approximately $2,021,198 at the current exchange rate), which was calculated with a discount rate of 7.83%, a PRC long term borrowing rate in December 2007.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In November 2007, the Company entered into a lease agreement with YBS Group to lease the manufacturing building of Plate-Rolling I. The annual lease payment is RMB 3,522,211 (approximately $560,419) commencing on January 1, 2008. The lease is set to expire on December 31, 2017. The present value of the total lease payments at inception was RMB 23,816,623 (approximately $3,789,463 at the current exchange rate), which was calculated with a discount rate of 7.83%, a PRC long term borrowing rate in December 2007.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In November 2007, the Company entered into a lease agreement with Hongrong, a related party, to lease the manufacturing building of Steel-Making I. The annual lease payment is RMB 1,210,716 (approximately $192,637) commencing on January 1, 2008. The lease is set to expire on December 31, 2017. The present value of the total lease payments at inception was RMB 8,186,666 (approximately $1,302,580 at the current exchange rate), which was calculated with a discount rate of 7.83%, a PRC long term borrowing rate in December 2007.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In November 2009, the Company entered into a lease agreement with YBS Group to lease the manufacturing building of Steel-Making II. The annual lease payment is RMB 107,469 (approximately $17,099) commencing on January 1, 2010. The lease is set to expire on December 31, 2019. The present value of the total lease payments at inception was RMB 793,198 (approximately $126,206 at the current exchange rate), which was calculated with a discount rate of 5.94%, a PRC long term borrowing rate in December 2009.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <br /> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In November 2009, the Company entered into a lease agreement with Hongrong to lease the manufacturing building of Bar-Rolling III. The annual lease payment is RMB 758,503 (approximately $120,685) commencing on January 1, 2010. The lease is set to expire on December 31, 2019. 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YBS Group is a parent company. It provides various services to the subsidiary companies, such as market and industrial information, public relationship, various government agents&#8217; relationship, coordination the production and purchase for subsidiaries and so on. Advances to YBS Group were in connection with the purchase of iron and supplementary materials used in Hongrong&#8217;s production, a motlen iron supplier of Hongri. The balance of advance to YBS Group will be returned or credited for YBS Group&#8217;s other services provided to the Company.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 1.8pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">YBS group charged a service fee based on applicable itemized expenses and fixed service fee. Commencing in 2010, YBS Group charged 0.1% of current year revenue of Hongri as a fixed service fee. Service fees consisted of management salaries, training, consultations, common areas charges and other fees. Management believes that 0.1% of revenue is a reasonable charge method. The Company estimated that this service fee would be similar or marginally higher if the same services had been provided by third parties. In addition to the fixed service fee, the Company will charge itemized services and expenses to the Company if such service and expenses are incurred. The services fees were $165,787 and $225,953 for the three months ended September 30, 2012 and 2011, respectively, and $1,023,655 and $629,403 for the nine months ended September 30, 2012 and 2011, respectively. Among the nine months services fees ended September 30, 2012, $560,254 was an itemized expense in connection with the refinancing of RMB 180 million loan from Raiffeisen Bank. Executive officers&#8217; salaries were stand-alone expenses. 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Company advance to the related parties enable these related parties to pay partial amounts in advance to their vendors or suppliers. Most of these advances related to the purchase of raw material and other supplies in routine business and were short term in nature. These advances are interest free. The Company is in favor of Hongrong as its primary molten iron supplier. It will reduce the transportation cost and steel making cost since Hongrong is located nearby Hongri. Hongrong has a new blast furnace ready for production and to guarantee the Company has enough molten iron supply, the Company advanced more funds to Hongrong in order to ensure that at least 3 months of current volume demand is available for immediate use in Hongrong&#8217;s blast furnace. The balance of advances to Hongrong, the Company&#8217;s major molten iron supplier, was $176,653,491 and $56,340,968 as of September 30, 2012 and December 31, 2011, respectively.</font> </div><br/><div style="TEXT-ALIGN: justify; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 1.8pt"> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Accounts payable to related parties represents an unsettled amount in the normal course of business. These payables were short term in nature. Total payable to related parties was $10,181,676 and $184,447 as of September 30, 2012 and December 31, 2011, respectively. Among accounts payable &#8211; related parties, $9,450,961 to YBS group was related to the equipment the Company received during nine months ended September 30, 2012. 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During the three and nine months ended September 30, 2011, the Company&#8217;s sales of its products to YBS Group amounted to $1,136,271 and $17,881,628, respectively. YBS acts as a distributor of steel products for the Company and all sales are final. The only right of return is for defective steel products and the Company has not experienced any returns in the past years of operations. The steel products are picked up directly by YBS&#8217; customers at which time the Company recognizes the sale. 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