UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q/A

(Amendment
No. 1)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|- | ----------------------------------------------------------------------------------------
|  |                                                                                         
|  | For the quarterly period ended June 30, 2010                                            
|  |                                                                                         
|£ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
|  |                                                                                         
|  | For the transition period from __________ to __________                                 



Commission File Number 001-33717



General
Steel Holdings, Inc.

(Exact name of registrant as specified in
its charter)



|Nevada
        (State or other Jurisdiction of
        Incorporation or Organization) |  | 41-2079252
        (I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------- |  | -------------------------------------------------------



Level 21, Tower B, Jia Ming Center

No. 27 Dong San Huan North Road

Chaoyang District, Beijing 100020

(Address of Principal Executive Office,
Including Zip Code)



+86(10)57757691

(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 ̈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 ̈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. See definition of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer ̈ |  | Accelerated filer  ̈ |  | Non-accelerated
        filer ̈
        (Do not check if a smaller reporting company) |  | Smaller reporting company x
|------------------------ |  | ------------------- |  | ------------------------------------------------------------------------------------ |  | ---------------------------



*Please note that while the registrant qualified as an accelerated
filer at the time of filing its Annual Report on Form 10-Q as filed with the Securities and Exchange Commission on August 9, 2010,
as of the date of filing this Amendment No. 1 to Annual Report on Form 10-Q, the registrant has exited the accelerated filer status
at the end of the fiscal year ended December 31, 2011 and now holds the status as a smaller reporting company.



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈Nox



As of August 28, 2012, 56,932,788 shares of common stock, par
value $0.001 per share, were issued and outstanding.











EXPLANATORY NOTE



This Quarterly Report on Form 10-Q/A
is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q (“Amendment No. 1”), which amends and restates our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Original 10-Q”), originally filed on August 9, 2010 with the Securities and
Exchange Commission (the “SEC”). This Amendment No. 1 restates the following
items:



- Part I, Item 1- Financial Statements;



- Part I, Item 2- Management’s Discussion
and Analysis of Financial Condition and Results of Operations;



- Part I, Item 4- Controls and Procedures;
and



- Part II, Item 6- Exhibits.



While the Original 10-Q is being amended
and restated as a whole, except for the Items noted above, no other information included in the Original 10-Q is being amended
or updated by this Amendment No. 1. This Amendment No. 1 continues to describe the conditions as of the date of the Original 10-Q
and, except as contained therein, we have not updated or modified the disclosures contained in the Original 10-Q. Accordingly,
this Amendment No. 1 should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original
10-Q, including any amendments to those filings.



This Amendment No. 1 is being filed in order
to restate:



• Our consolidated balance sheets as
of June 30, 2010 and December 31, 2009. As a result, our consolidated total assets decreased by $5.6 million and $3.7 million at
June 30, 2010 and December 31, 2009, respectively;



•
Our consolidated statements of operation and other comprehensive income (loss) for
the three and six months ended June 30, 2010 and 2009. As a result, our consolidated net loss attributable to controlling interest
for the three months ended June 30, 2010 decreased by $0.1 million; Our consolidated net loss attributable to controlling interest
for the six months ended June 30, 2010 decreased by million and $0.02 million; and



•
Our consolidated statements of changes in equity at June 30, 2010
and December 31, 2009. As a result, our consolidated total shareholder’s equity decreased by $5.6 million and $5.6 million
for the six months ended June 30, 2010 and December 31, 2009, respectively.



The restatement relates
to our accounting treatment for certain reimbursements received in relation to the collaboration with Shaanxi Iron and Steel Group,
Co. Ltd. (“Shaanxi Steel”) on the construction of equipment by Shaanxi Steel during the period from June 2009 to March
2011. The Company believed that the original accounting treatment for the reimbursement was in accordance with U.S. GAAP, based
upon its understanding of the economic substance and the nature of reimbursement and its interpretation of U.S. GAAP.



However, in connection
with the preparation of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, the Company revisited the appropriate
treatment for these items. Given the complexity, and the unique structure of the transaction and the challenge with respect to
finding the appropriate accounting guidance, either by direct application or analogy in relation to various aspects of the transaction,
both the Company's current and former auditors agreed that a review by the Office of the Chief Accountant (“OCA”) of
the SEC with respect to the appropriate accounting treatment for the compensation would be helpful. On April 20, 2012, after several
rounds of written and oral communications, the OCA provided the Company with its guidance with respect to the accounting treatment.
Upon receipt of the guidance from the OCA, the Company concluded amendment to the Original 10-Q was necessary.



A summary of the effects
of this restatement to our financial statements included within this Amendment No. 1 is presented under Item 1. Financial Statements,
at Note 2, “Restatement”.











Table of Contents

|                              |                                                                                                                                                          | Page
|----------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Part I. FINANCIAL INFORMATION |                                                                                                                                                         
|                              |                                                                                                                                                          |     
|Item 1.                       | Financial Statements.                                                                                                                                    | 3   
|                              |                                                                                                                                                          |     
|                              | Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009.                                                                       | 3   
|                              |                                                                                                                                                          |     
|                              | Consolidated Statements of Operation and Other Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2010 and 2009 (Unaudited). | 4   
|                              |                                                                                                                                                          |     
|                              | Consolidated Statements of Changes In Equity (Unaudited).                                                                                                | 5   
|                              |                                                                                                                                                          |     
|                              | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited).                                                       | 6   
|                              |                                                                                                                                                          |     
|                              | Notes to Consolidated Financial Statements (Unaudited).                                                                                                  | 7   
|                              |                                                                                                                                                          |     
|Item 2.                       | Management’s Discussion and Analysis of Financial Condition and Results of Operations.                                                                   | 42  
|                              |                                                                                                                                                          |     
|Item 3.                       | Quantitative and Qualitative Disclosures About Market Risk.                                                                                              | 61  
|                              |                                                                                                                                                          |     
|Item 4.                       | Controls and Procedures.                                                                                                                                 | 62  
|                              |                                                                                                                                                          |     
|Part II. OTHER INFORMATION    |                                                                                                                                                         
|                              |                                                                                                                                                          |     
|Item 1.                       | Legal Proceedings.                                                                                                                                       | 63  
|                              |                                                                                                                                                          |     
|Item 6.                       | Exhibits.                                                                                                                                                | 63  
|                              |                                                                                                                                                          |     
|Signatures                    |                                                                                                                                                          | 64  



2







PART I – FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS.









GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2010 AND DECEMBER 31, 2009

(In thousands, except per share data)

(As restated)



|                                                                                                                                                                                |  | June 30,    |           |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | - | ------------ | -
|                                                                                                                                                                                |  | 2010        |           |   | 2009         |  
|                                                                                                                                                                                |  | (Unaudited) |           |   |              |  
|ASSETS                                                                                                                                                                          |  |             |           |   |              |  
|CURRENT ASSETS:                                                                                                                                                                 |  |             |           |   |              |  
|Cash                                                                                                                                                                            |  | $           | 50,772    |   |              | $
|Restricted cash                                                                                                                                                                 |  |             | 269,670   |   |              |  
|Notes receivable                                                                                                                                                                |  |             | 56,355    |   |              |  
|Restricted notes receivable                                                                                                                                                     |  |             | 24,324    |   |              |  
|Accounts receivable, net                                                                                                                                                        |  |             | 21,374    |   |              |  
|Accounts receivable - related party                                                                                                                                             |  |             | 734       |   |              |  
|Other receivables, net                                                                                                                                                          |  |             | 8,887     |   |              |  
|Other receivables - related parties                                                                                                                                             |  |             | 59,652    |   |              |  
|Dividend receivable                                                                                                                                                             |  |             | 5,940     |   |              |  
|Inventories                                                                                                                                                                     |  |             | 250,558   |   |              |  
|Advances on inventory purchase                                                                                                                                                  |  |             | 40,085    |   |              |  
|Advances on inventory purchase - related parties                                                                                                                                |  |             | 8,798     |   |              |  
|Prepaid expense                                                                                                                                                                 |  |             | 5,407     |   |              |  
|Prepaid value added tax                                                                                                                                                         |  |             | 17,075    |   |              |  
|Deferred tax assets                                                                                                                                                             |  |             | 10,411    |   |              |  
|Total current assets                                                                                                                                                            |  |             | 830,042   |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|PLANT AND EQUIPMENT, net                                                                                                                                                        |  |             | 562,733   |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|OTHER ASSETS:                                                                                                                                                                   |  |             |           |   |              |  
|Advances on equipment purchase                                                                                                                                                  |  |             | 18,618    |   |              |  
|Investment in unconsolidated subsidiaries                                                                                                                                       |  |             | 12,751    |   |              |  
|Long-term deferred expense                                                                                                                                                      |  |             | -         |   |              |  
|Intangible assets, net of accumulated amortization                                                                                                                              |  |             | 23,400    |   |              |  
|Note issuance cost                                                                                                                                                              |  |             | 392       |   |              |  
|Total other assets                                                                                                                                                              |  |             | 55,161    |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|TOTAL ASSETS                                                                                                                                                                    |  | $           | 1,447,936 |   |              | $
|                                                                                                                                                                                |  |             |           |   |              |  
|LIABILITIES AND EQUITY                                                                                                                                                          |  |             |           |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|CURRENT LIABILITIES:                                                                                                                                                            |  |             |           |   |              |  
|Short term notes payable                                                                                                                                                        |  | $           | 388,080   |   |              | $
|Accounts payable                                                                                                                                                                |  |             | 194,478   |   |              |  
|Accounts payable - related parties                                                                                                                                              |  |             | 85,128    |   |              |  
|Short term loans - bank                                                                                                                                                         |  |             | 177,404   |   |              |  
|Short term loans - others                                                                                                                                                       |  |             | 177,434   |   |              |  
|Short term loans - related parties                                                                                                                                              |  |             | -         |   |              |  
|Other payables and accrued liabilities                                                                                                                                          |  |             | 32,621    |   |              |  
|Other payables - related parties                                                                                                                                                |  |             | 26,247    |   |              |  
|Customer deposits                                                                                                                                                               |  |             | 93,814    |   |              |  
|Customer deposits - related parties                                                                                                                                             |  |             | 9,539     |   |              |  
|Deposit due to sales representatives                                                                                                                                            |  |             | 64,482    |   |              |  
|Taxes payable                                                                                                                                                                   |  |             | 11,285    |   |              |  
|Deferred lease income                                                                                                                                                           |  |             | 31,826    |   |              |  
|Total current liabilities                                                                                                                                                       |  |             | 1,292,338 |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|CONVERTIBLE NOTES PAYABLE, net of debt discount of $2,019 and $2,250 as of June 30, 2010 and December 31, 2009, respectively                                                    |  |             | 1,281     |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|DERIVATIVE LIABILITIES                                                                                                                                                          |  |             | 8,672     |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|Total liabilities                                                                                                                                                               |  |             | 1,302,291 |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|COMMITMENT AND CONTINGENCIES                                                                                                                                                    |  |             |           |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|EQUITY:                                                                                                                                                                         |  |             |           |   |              |  
|Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively                |  |             | 3         |   |              |  
|Common Stock, $0.001 par value, 200,000,000 shares authorized, 52,952,508 and 51,618,595 shares  issued and outstanding as of June 30, 2010 and December 31, 2009, respectively |  |             | 53        |   |              |  
|Paid-in-capital                                                                                                                                                                 |  |             | 99,498    |   |              |  
|Statutory reserves                                                                                                                                                              |  |             | 6,541     |   |              |  
|Accumulated deficits                                                                                                                                                            |  |             | (29,403   | ) |              |  
|Accumulated other comprehensive income                                                                                                                                          |  |             | 8,152     |   |              |  
|Total shareholders' equity                                                                                                                                                      |  |             | 84,844    |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|NONCONTROLLING INTERESTS                                                                                                                                                        |  |             | 60,801    |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|Total equity                                                                                                                                                                    |  |             | 145,645   |   |              |  
|                                                                                                                                                                                |  |             |           |   |              |  
|TOTAL LIABILITIES AND EQUITY                                                                                                                                                    |  | $           | 1,447,936 |   |              | $



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



3







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATION AND
OTHER COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands, except per share data)



|                                                                    |  | Three months ended June 30, |            |   | Six months ended June 30, |  
|------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | -
|                                                                    |  | 2010                        |            |   | 2009                      |  
|                                                                    |  | As restated                 |            |   |                           |  
|REVENUES                                                            |  | $                           | 383,173    |   |                           | $
|                                                                    |  |                             |            |   |                           |  
|REVENUES - RELATED PARTIES                                          |  |                             | 118,506    |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|TOTAL REVENUES                                                      |  |                             | 501,679    |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|COST OF REVENUES                                                    |  |                             | 369,433    |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|COST OF REVENUES - RELATED PARTIES                                  |  |                             | 124,882    |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|TOTAL COST OF REVENUES                                              |  |                             | 494,315    |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|GROSS PROFIT                                                        |  |                             | 7,364      |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|SELLING, GENERAL AND  ADMINISTRATIVE EXPENSES                       |  |                             | 13,677     |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|(LOSS) INCOME FROM OPERATIONS                                       |  |                             | (6,313     | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|OTHER INCOME(EXPENSE)                                               |  |                             |            |   |                           |  
|Interest income                                                     |  |                             | 617        |   |                           |  
|Finance/interest expense                                            |  |                             | (16,464    | ) |                           |  
|Change in fair value of derivative liabilities                      |  |                             | 10,729     |   |                           |  
|Gain from debt extinguishment                                       |  |                             | -          |   |                           |  
|Government grant                                                    |  |                             | -          |   |                           |  
|Income from equity investments                                      |  |                             | 3,074      |   |                           |  
|Lease income                                                        |  |                             | 184        |   |                           |  
|Other non-operating income, net                                     |  |                             | 628        |   |                           |  
|Total other expense, net                                            |  |                             | (1,232     | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|LOSS BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST  |  |                             | (7,545     | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|PROVISION FOR INCOME TAXES                                          |  |                             |            |   |                           |  
|Current                                                             |  |                             | (5,093     | ) |                           |  
|Deferred                                                            |  |                             | 2,290      |   |                           |  
|Total (benefit) provision for income taxes                          |  |                             | (2,803     | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|NET LOSS BEFORE NONCONTROLLING INTEREST                             |  |                             | (4,742     | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|Less: Net (Loss) income attributable to noncontrolling interest     |  |                             | (2,738     | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST                       |  |                             | (2,004     | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|OTHER COMPREHENSIVE INCOME (LOSS)                                   |  |                             |            |   |                           |  
|Foreign currency translation adjustments                            |  |                             | 314        |   |                           |  
|Comprehensive income (loss) attributable to noncontrolling interest |  |                             | (2         | ) |                           |  
|                                                                    |  |                             |            |   |                           |  
|COMPREHENSIVE LOSS                                                  |  | $                           | (1,692     | ) |                           | $
|                                                                    |  |                             |            |   |                           |  
|WEIGHTED AVERAGE NUMBER OF SHARES                                   |  |                             |            |   |                           |  
|Basic & Diluted                                                     |  |                             | 52,111,605 |   |                           |  
|                                                                    |  |                             |            |   |                           |  
|LOSS PER SHARE                                                      |  |                             |            |   |                           |  
|Basic & Diluted                                                     |  | $                           | (0.04      | ) |                           | $



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



4







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)



|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  | Accumulated |   |        |              |  |   |              | 
|------------------------------------------------------------------- |  | --------------- | --------- |  | ------------ | - | - | ------ |  |  | -------------------------------------------- |  |  | ------- | ---- |  | ----------- | - | ------ | ------------ |  | - | ------------ | 
|                                                                    |  | Preferred stock |           |  | Common stock |   |   |        |  |  | Retained earnings
    / Accumulated deficits |  |  |         |      |  | other       |   |        |              |  |   |              | 
|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  | Paid-in |      |  | Statutory   |   |        |              |  |   | Contribution | 
|                                                                    |  | Shares          |           |  | Par value    |   |   | Shares |  |  | Par value                                    |  |  | capital |      |  | reserves    |   |        | Unrestricted |  |   | receivable   | 
|BALANCE, December 31, 2008                                          |  |                 | 3,092,899 |  |              | $ | 3 |        |  |  | 36,128,833                                   |  |  | $       | 36   |  |             | $ | 37,128 |              |  | $ | 4,902        | 
|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Net loss attributable to controlling interest                       |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Net income attributable to noncontrolling interest                  |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Disposal of subsidiaries                                            |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Distribution of dividend to noncontrolling shareholders             |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Adjustment to statutory reserve                                     |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   | 260          | 
|Common stocks issued for compensation                               |  |                 |           |  |              |   |   |        |  |  | 216,000                                      |  |  |         | 0.22 |  |             |   | 498    |              |  |   |              | 
|Common stock issued for interest payment                            |  |                 |           |  |              |   |   |        |  |  | 152,240                                      |  |  |         | 0.15 |  |             |   | 558    |              |  |   |              | 
|Common stock issued for repayment of debt                           |  |                 |           |  |              |   |   |        |  |  | 300,000                                      |  |  |         | 0.30 |  |             |   | 1,800  |              |  |   |              | 
|Common stock transferred by CEO for compensation                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   | 138    |              |  |   |              | 
|Notes converted to common stock                                     |  |                 |           |  |              |   |   |        |  |  | 5,104,596                                    |  |  |         | 5.11 |  |             |   | 24,125 |              |  |   |              | 
|Make whole shares issued on notes conversion                        |  |                 |           |  |              |   |   |        |  |  | 1,399,759                                    |  |  |         | 1.40 |  |             |   | 5,565  |              |  |   |              | 
|Reduction of Registered Capital                                     |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Foreign currency translation adjustments                            |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|BALANCE, June 30, 2009, unaudited                                   |  |                 | 3,092,899 |  |              | $ | 3 |        |  |  | 43,301,428                                   |  |  | $       | 43   |  |             | $ | 69,812 |              |  | $ | 5,162        | 
|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Net loss attributable to controlling interest
    ,as restated      |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Net income attributable to noncontrolling interest
    ,as restated |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Distribution of dividend to noncontrolling shareholders             |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Adjustment to statutory reserve                                     |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   | 1,000        | 
|Common stock issued for compensation                                |  |                 |           |  |              |   |   |        |  |  | 380,650                                      |  |  |         | 0.55 |  |             |   | 1,377  |              |  |   |              | 
|Common stock issued for interest payments                           |  |                 |           |  |              |   |   |        |  |  | 44,065                                       |  |  |         | 0.05 |  |             |   | 187    |              |  |   |              | 
|Common stock transferred by CEO for compensation                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   | 138    |              |  |   |              | 
|Notes converted to common stock                                     |  |                 |           |  |              |   |   |        |  |  | 1,940,678                                    |  |  |         | 1.95 |  |             |   | 7,947  |              |  |   |              | 
|Make whole shares issued on notes conversion                        |  |                 |           |  |              |   |   |        |  |  | 396,218                                      |  |  |         | 0.40 |  |             |   | 1,520  |              |  |   |              | 
|Common stock issued for private placement                           |  |                 |           |  |              |   |   |        |  |  | 5,555,556                                    |  |  |         | 5.56 |  |             |   | 14,607 |              |  |   |              | 
|Foreign currency translation adjustments ,as
    restated           |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|BALANCE, December 31, 2009, as restated                             |  |                 | 3,092,899 |  |              | $ | 3 |        |  |  | 51,618,595                                   |  |  | $       | 52   |  |             | $ | 95,588 |              |  | $ | 6,162        | 
|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Net loss attributable to controlling interest,
    as restated      |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Net loss attributable to noncontrolling interest,
    as restated   |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Distribution of dividend to noncontrolling shareholders             |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Noncontrolling interest acquired                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|Adjustment to special reserve                                       |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   | 379          | 
|Common stock issued for compensation                                |  |                 |           |  |              |   |   |        |  |  | 405,750                                      |  |  |         | 0.41 |  |             |   | 1,369  |              |  |   |              | 
|Common stock issued for repayment of debt                           |  |                 |           |  |              |   |   |        |  |  | 928,163                                      |  |  |         | 0.93 |  |             |   | 2,403  |              |  |   |              | 
|Common stock transferred by CEO for compensation                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   | 138    |              |  |   |              | 
|Foreign currency translation adjustments, as
    restated           |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|                                                                    |  |                 |           |  |              |   |   |        |  |  |                                              |  |  |         |      |  |             |   |        |              |  |   |              | 
|BALANCE, June 30, 2010, unaudited, as restated                      |  |                 | 3,092,899 |  |              | $ | 3 |        |  |  | 52,952,508                                   |  |  | $       | 53   |  |             | $ | 99,498 |              |  | $ | 6,541        | 



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



5







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(UNAUDITED)

(In thousands, except per share data)



|                                                                                      |  | Six months ended June 30, |         
|------------------------------------------------------------------------------------- |  | ------------------------- | --------
|                                                                                      |  | 2010                      |         
|                                                                                      |  | As restated               |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |  |                           |         
|Consolidated net loss                                                                 |  | $                         | (14,765 
|Adjustments to reconcile net loss to cash (used in) provided by operating activities: |  |                           |         
|Depreciation and amortization                                                         |  |                           | 19,334  
|Debt extinguishment                                                                   |  |                           | -       
|Impairment of long-lived assets                                                       |  |                           | 1,733   
|(Gain) Loss on disposal of equipment                                                  |  |                           | 343     
|Stock issued for services and compensation                                            |  |                           | 1,507   
|Make whole shares interest expense on notes conversion                                |  |                           | -       
|Income from investment                                                                |  |                           | (3,229  
|Amortization of deferred note issuance cost and discount on convertible notes         |  |                           | 13      
|Change in fair value of derivative instrument                                         |  |                           | (14,668 
|Deferred tax assets                                                                   |  |                           | (5,434  
|Changes in operating assets and liabilities                                           |  |                           |         
|Notes receivable                                                                      |  |                           | (26,939 
|Accounts receivable                                                                   |  |                           | (12,161 
|Accounts receivable - related parties                                                 |  |                           | (1,015  
|Other receivables                                                                     |  |                           | (1,570  
|Other receivables - related parties                                                   |  |                           | (15,846 
|Inventories                                                                           |  |                           | (79,299 
|Advances on inventory purchase                                                        |  |                           | (11,512 
|Advances on inventory purchase - related parties                                      |  |                           | (5,431  
|Accounts payable                                                                      |  |                           | 35,734  
|Accounts payable - related parties                                                    |  |                           | 37,605  
|Other payables and accrued liabilities                                                |  |                           | 2,426   
|Other payables - related parties                                                      |  |                           | 22,656  
|Customer deposits                                                                     |  |                           | (20,270 
|Customer deposits - related parties                                                   |  |                           | 25,081  
|Taxes payable                                                                         |  |                           | 4,966   
|Deferred lease income                                                                 |  |                           | 15,338  
|Net cash (used in) provided by operating activities                                   |  |                           | (45,403 
|                                                                                      |  |                           |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |  |                           |         
|Restricted cash                                                                       |  |                           | (76,526 
|Acquired long term investment                                                         |  |                           | (1,273  
|Cash proceeds from disposal of long-term investment                                   |  |                           | 3,667   
|Dividend receivable                                                                   |  |                           | (1,554  
|Long term other receivables                                                           |  |                           | -       
|Cash proceeds from sales of equipment                                                 |  |                           | 60      
|Advance on equipment purchases                                                        |  |                           | (10,268 
|Equipments purchase and intangible assets                                             |  |                           | (29,240 
|Payments to original shareholders                                                     |  |                           | (2,460  
|Net cash used in investing activities                                                 |  |                           | (117,594
|                                                                                      |  |                           |         
|CASH FLOWS FINANCING ACTIVITIES:                                                      |  |                           |         
|Notes receivable - restricted                                                         |  |                           | (24,223 
|Borrowings on short term loans - bank                                                 |  |                           | 133,196 
|Payments on short term loans - bank                                                   |  |                           | (105,485
|Borrowings on short term loan - others                                                |  |                           | 72,083  
|Payments on short term loans - others                                                 |  |                           | (89,878 
|Payments on short term loans - others-related parties                                 |  |                           | (4,401  
|Borrowings on short term notes payable                                                |  |                           | 408,476 
|Payments on short term notes payable                                                  |  |                           | (276,594
|Deposits due to sales representatives                                                 |  |                           | 18,663  
|Net cash provided by financing activities                                             |  |                           | 131,837 
|                                                                                      |  |                           |         
|EFFECTS OF EXCHANGE RATE CHANGE IN CASH                                               |  |                           | (186    
|                                                                                      |  |                           |         
|(DECREASE) INCREASE IN CASH                                                           |  |                           | (31,346 
|                                                                                      |  |                           |         
|CASH, beginning of period                                                             |  |                           | 82,118  
|                                                                                      |  |                           |         
|CASH, end of period                                                                   |  | $                         | 50,772  
|                                                                                      |  |                           |         
|Non-cash transactions of investing and financing activities:                          |  |                           |         
|Share issuance for debt settlement                                                    |  | $                         | 2,410   



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









6









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Note 1 – Background



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,
operates a portfolio of steel companies serving various industries in the People’s Republic of China (“PRC”).
The Company’s main operation is manufacturing and sales of steel products such as steel rebar, hot-rolled carbon and silicon
sheets and spiral-weld pipes.



Started on January 1, 2010, one of the
Company’s subsidiaries, General Steel (China) Co. Ltd. changed its business model from a direct operations model to a lease
operations model which will provide a steady revenue stream in the form of fixed monthly lease revenue. See note 16 for details
of the lease transaction.



Note 2- Restatement



This financial statements contain restatements
related to the certain reimbursements received related to its collaboration with Shaanxi Iron and Steel Group, Co. Ltd. ("Shaanxi
Steel") on the construction of equipment by Shaanxi Steel during the period from June 2009 to March 2011.



During June 2009 to March 2011, General
Steel worked with Shaanxi Steel to build new state-of-the-art equipment at the site of General Steel's principal subsidiary, Shaanxi
Longmen Iron and Steel Co., Ltd. ("Longmen JV"). As a result, the Company's Longmen JV incurred certain costs of construction
as well as economic losses on suspended production of certain small furnaces and other equipment to accommodate the construction
of the new equipment, on behalf of Shaanxi Steel.



Dismantling began in June 2009. From that
point forward through construction and testing until completion of the project in March 2011, Longmen JV recorded these certain
costs as they were incurred according to the nature of these costs. At the beginning of the construction in June 2009, Longmen
JV reached an oral agreement with Shaanxi Steel that these costs would be reimbursed by Shaanxi Steel. In December 2010, Shaanxi
Steel and Longmen JV were able to finalize the amount of costs incurred by the Longmen JV and executed two signed agreements between
the two parties on December 20, 2010. Therefore, to compensate the Company, in the fourth quarter of 2010, Shaanxi Steel reimbursed
Longmen JV USD 16.4 million (RMB 108 million) related to the value of assets dismantled, various site preparation costs incurred
by Longmen JV and rent under a 40-year property sub-lease that was entered into by the parties in June 2009 (the "Longmen
Sub-lease"), and USD 27.8 million (RMB 183 million) for the reduced production efficiency caused by the construction. These
reimbursements were reported as other income and a reduction of cost of goods sold in the fourth quarter of 2010. In addition,
in 2010 and 2011, Shaanxi Steel reimbursed Longmen JV USD 13.5 million (RMB 89 million) each year for trial production costs related
to the two new blast furnaces, two new converters and one new sintering machine constructed and owned by Shaanxi Steel, which were
recorded as reductions to cost of goods sold in the fourth quarter of 2010 and in the first quarter of 2011. All of these reimbursements
were settled by offsetting other payables due from Longmen JV to Shaanxi Steel.



The Company believed that the original
accounting treatment for the reimbursement was in accordance with U.S. GAAP, based upon its understanding of the economic substance
and the nature of reimbursement and its interpretation of U.S. GAAP. Specifically, the reimbursement to Longmen JV of the costs
incurred was recognized and treated as income as the reimbursements were received, based on an oral agreement reached with Shaanxi
Steel at the onset of the construction in June 2009. Subsequently, the parties entered into a written agreement in December 2010,
which was effectively the implementation of the prior oral agreement and the confirmation that such costs would be reimbursed subject
to an independent audit firm's verification. The reimbursements were legally and contractually unrelated to any future agreements
between the parties, which may have changed the accounting treatment.



7







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



However, in connection with the preparation
of its quarterly report on Form 10-Q for the quarter ended June 30, 2011, the Company revisited the appropriate treatment for these
items. Given the complexity, and the unique structure of the transaction and the challenge with respect to finding the appropriate
accounting guidance, either by direct application or analogy in relation to various aspects of the transaction, both the Company's
current and former auditors agreed that a review by the Office of the Chief Accountant ("OCA") of the SEC with respect
to the appropriate accounting treatment for the compensation would be helpful.



On April 20, 2012, after several rounds
of written and oral communications, the OCA provided the Company with its guidance with respect to the accounting treatment. Following
receipt of the guidance from the OCA, the Company centered the accounting treatment on the Longmen Sub-lease, under which Longmen
JV sub-leased the land to Shaanxi Steel on which the new furnaces were constructed. Under this approach, the reimbursement for
the net book value of the fixed assets that were demolished and for the inefficiency costs caused by the construction and loss
incurred in the beginning stages of the system production are considered a part of the sub-lease. Applying the leasing guidance,
these reimbursements are effectively additional rent under the sub-lease and are incorporated into the accounting treatment for
the sub-lease and amortized to income over the remaining sub-lease term. In other words, the Company has concluded that, except
for the reimbursement for site preparation costs, for which the income statement treatment will remain unchanged, the amount of
reimbursement and previously recorded income should be deferred and recognized as a component of the property that was sub-leased
during the construction, to be amortized to income over the remaining terms of the 40-year sub-lease.



As a result of the restatement, the deferred
lease income on the land used right was $31.8 million and $16.5 million as of June 30, 2010 and December 31, 2009, respectively.
For the six month period ended June, 2010, the Company recognized deferred lease income of $320,340. For the three month period
ended June 30, 2010, the Company recognized deferred lease income of $183,802. The net loss attributable to controlling interest
decreased $0.02 million and $0.12 million for the six and three months ended June 30, 2010, respectively.



The impact of these restatements on the
financial statements is reflected in the following table:



|(in thousands)                 |  | June 30, |           |   | June 30,    |  |        | June 30, |  |  | December 31, |   |  | December 31, |           |   | December 31, | 
|------------------------------ |  | -------- | --------- | - | ----------- |  | ------ | -------- |  |  | ------------ | - |  | ------------ | --------- | - | ------------ | 
|                               |  | 2010     |           |   | 2009        | 
|Balance Sheet and Equity Items |  | Original |           |   | Restatement |  |        | Restated |  |  | Original     |   |  | Restatement  |           |   | Restated     | 
|Current Assets                 |  |          | 829,415   |   |             |  | 627    |          |  |  | 830,042      |   |  |              | 615,278   |   |              | 
|Plant and Equipments, net      |  |          | 566,202   |   |             |  | (3,469 | )        |  |  | 562,733      |   |  |              | 555,111   |   |              | 
|Total Assets                   |  |          | 1,453,578 |   |             |  | (5,642 | )        |  |  | 1,447,936    |   |  |              | 1,228,064 |   |              | 
|Total Liabilities              |  |          | 1,298,668 |   |             |  | 3,623  |          |  |  | 1,302,291    |   |  |              | 1,061,735 |   |              | 
|Accumulated deficits           |  |          | (24,047   | ) |             |  | (5,356 | )        |  |  | (29,403      | ) |  |              | (16,411   | ) |              | 
|Total Shareholder's equity     |  |          | 90,446    |   |             |  | (5,602 | )        |  |  | 84,844       |   |  |              | 93,731    |   |              | 





|                                              |  | Three months ended June 30, |        |   | Six months ended June 30, | 
|--------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | 
|                                              |  | 2010                        |        |   | 2010                      | 
|Income Statement Items                        |  | Original                    |        |   | Restatement               | 
|Gross profit                                  |  |                             | 7,360  |   |                           | 
|Other expense, net                            |  |                             | (1,473 | ) |                           | 
|Net loss attributable to controlling interest |  |                             | (2,128 | ) |                           | 
|                                              |  |                             |        |   |                           | 
|Loss per share                                |  |                             |        |   |                           | 
|Basic                                         |  |                             | (0.04  | ) |                           | 
|Diluted                                       |  |                             | (0.04  | ) |                           | 



8







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



|                                                    |  | June 30, |         |   | June 30,    |  |         | June 30, |  |  | June 30, |   |  | June 30,    |         |   | June 30, | 
|--------------------------------------------------- |  | -------- | ------- | - | ----------- |  | ------- | -------- |  |  | -------- | - |  | ----------- | ------- | - | -------- | 
|                                                    |  | 2010     |         |   | 2009        | 
|Statement of Cash Flow                              |  | Original |         |   | Restatement |  |         | Restated |  |  | Original |   |  | Restatement |         |   | Restated | 
|Consolidated net loss                               |  |          | (13,617 | ) |             |  | (1,148  | )        |  |  | (14,765  | ) |  |             | (12,121 | ) |          | 
|Net cash (used in) provided by operating activities |  |          | (45,421 | ) |             |  | 18      |          |  |  | (45,403  | ) |  |             | 28,990  |   |          | 
|Net cash (used in) investing activities             |  |          | (22,405 | ) |             |  | (95,189 | )        |  |  | (117,594 | ) |  |             | (26,354 | ) |          | 
|Net cash provided by financing activities           |  |          | 36,648  |   |             |  | 95,189  |          |  |  | 131,837  |   |  |             | 46,409  |   |          | 



Note 3 – Summary of significant
accounting policies



Basis of presentation



The consolidated financial statements of
the Company reflect the activities of the following directly and indirectly owned subsidiaries:

|                                                                        |  |                        |  | Percentage |      
|----------------------------------------------------------------------- |  | ---------------------- |  | ---------- | -----
|Subsidiary                                                              |  | of Ownership           | 
|General Steel Investment Co., Ltd.                                      |  | British Virgin Islands |  |            | 100.0
|General Steel (China) Co., Ltd.(“GS (China)”)                           |  | PRC                    |  |            | 100.0
|Baotou Steel – General Steel Special Steel Pipe Joint Venture Co., Ltd. |  | PRC                    |  |            | 80.0 
|Yangpu Shengtong Investment Co., Ltd.                                   |  | PRC                    |  |            | 99.1 
|Qiu Steel Investment Co., Ltd. (“Qiu Steel”)                            |  | PRC                    |  |            | 98.7 
|Shaanxi Longmen Iron and Steel Co. Ltd.(“Longmen Joint Venture”) (1)    |  | PRC                    |  |            | 60.0 
|Maoming Hengda Steel Group Co., Ltd. (“Maoming Hengda”)                 |  | PRC                    |  |            | 99.0 



The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include
the accounts of all directly and indirectly owned subsidiaries listed above. All material intercompany transactions and balances
have been eliminated in consolidation.



Management has included all adjustments,
consisting only of normal recurring adjustments, considered necessary to give a fair presentation of operating results for the
periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this
Form 10-Q/A should be read in conjunction with information included in the 2009 annual report filed on Form 10-K.



9







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



| | (1) | Longmen Joint Venture has three consolidated subsidiaries, Hualong Fire Retardant Material Co.,
Ltd. (“Hualong”), Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”) and Beijing Huatianyulong International
Steel Trading Co., Ltd. (“Huatianyulong”), in which Longmen Joint Venture does not hold a controlling equity interest.
Hualong, Tongxing and Huatianyulong are separate legal entities established in the PRC as limited liability companies and subsequently
acquired by Longmen Joint Venture in June 2007, January 2008 and July 2008, respectively. Prior to and subsequent to their acquisition
by Longmen Joint Venture, these three entities have been operating as self-sustaining integrated sets of activities and assets
conducted and managed for the purpose of providing a return to shareholders consisting of all the inputs, processes and outputs,
which has indicated their business nature as defined in ASC 805-10-20. A step by step examination approach then has been undertaken
to determine whether the aforementioned entities are eligible for a scope exception under ASC 810-10-15-17(d). After a comprehensive
analysis, the Company has concluded that none of the conditions of ASC 810-10-15 and, in particular 810-10-15-14 were met upon
acquisition. Therefore, Hualong, Tongxing and Huatianyulong are not VIEs. Further consideration was given to whether consolidation
was appropriate under the voting interest model, specifically, ASC 810-10-15-8 which states that the power of control may exist
also with a lesser percentage of ownership (i.e. less than 50%).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Hualong



Longmen Joint Venture, the single
largest shareholder, holds a 36.0% equity interest in Hualong. The other two shareholders, who own 34.67% and 29.33% respectively,
have assigned their voting rights to Longmen Joint Venture in writing at the time of the acquisition of Hualong. The voting rights
have been assigned through the date Hualong ceases its business operation or the other two shareholders sell their interest in
Hualong. Hualong’s main business is to supply refractory.

Tongxing



Longmen Joint Venture holds a
22.76% equity interest in Tongxing and hundreds of employees of Longmen Joint Venture own the remaining 77.24%. Each individual
employee shareholder comprising the remaining 77.24% has assigned its voting rights to Longmen Joint Venture in writing at the
time of the acquisition of Tongxing. The voting rights have been assigned through the date Tongxing ceases its business operation
or the employees sell their interest in Tongxing. Tongxing’s business highly relies on Longmen Joint Venture. Tongxing’s
rebar processing is fully and solely engaged by Longmen Joint Venture. The metallurgical coke produced has been primarily sold
to Longmen Joint Venture until August 2010 when the coke ovens were dismantled.



Huatianyulong



Longmen Joint Venture holds a
50.0% equity interest in Huatianyulong and the other unrelated shareholder holds the remaining 50.0%. The other shareholder has
assigned its voting rights to Longmen Joint Venture in writing at the time of acquisition of Huatianyulong. The voting rights have
been assigned through the date Huatianyulong ceases its business operation or the other unrelated shareholder sells its interest
in Huatianyulong. Huatianyulong mainly sells imported iron ore.



The Company has determined that
it is appropriate for Longmen Joint Venture to consolidate these three entities with appropriate recognition in the Company’s
financial statements of the non-controlling interests in each entity, beginning on the acquisition dates as these were also the
effective dates of the agreements with other stockholders granting a majority voting rights in each entity, and thereby, the power
of control, to Longmen Joint Venture.



10







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Principles of consolidation – subsidiaries



The Company follows ASC 810-10-15 “Consolidation –
Scope and Scope Exceptions” when determining whether to consolidate an entity in our financial statements. All legal entities
which the Company owns directly or indirectly more than 50 percent of the outstanding voting shares are required to be consolidated
given that control rests with the majority owner. Entities in which the Company owns less than 50 percent voting shares are evaluated
in accordance with generally accepted account principles to determine whether the Company may hold the power of control. If we
hold established power of control in such entities, the Company consolidates the entities with recognition of the non-controlling
interest in them accordingly.



Use of estimates



The preparation of financial statements
in conformity with generally accepted accounting principles of the United States requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected
in the Company’s financial statements include the fair value of financial instruments, the useful lives of and impairment
for property, plant and equipment, and potential losses on uncollectible receivables. Actual results could differ from these estimates.



Concentration of risks



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.



Cash includes demand deposits in accounts
maintained with banks within PRC, Hong Kong and the United States. Total cash (including restricted cash balances) in these banks
on June 30, 2010 and December 31, 2009 amounted to $320.4 million and $274.2 million, respectively. As of June 30, 2010, $1.2 million
cash in the bank was 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.



The Company’s five major customers
are all distributors and collectively represented approximately 24.5% and 27.3% of the Company’s total sales for the three
months and six months ended June 30, 2010, respectively. The Company had five major customers, which represented approximately
13% and 21% of the Company’s total sales for the three months and six months ended June 30, 2009, respectively. None of these
five customers accounts for more than 10% of total sales for the three months and six months ended June 30, 2010 and 2009. No accounts
receivable was due from the five major customers as of June 30, 2010 and 2009.



For the three months and six months ended
June 30, 2010, the Company purchased approximately 47.2% and 48.5% of its raw materials from five major suppliers, respectively,
of which two of the five vendors account individually more than 10% of the total purchase. The purchase from the five major suppliers
represents approximately 32% and 41% of Company’s total purchase for the three months and six months ended June 30, 2009,
respectively. The top five vendors accounted for 23.1% and 20.5% of total accounts payable as of June 30, 2010 and 2009, respectively.



11







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Revenue recognition



The Company follows the generally accepted
accounting principles in the United States regarding revenue recognition. Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant
obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria
for revenue recognition are recorded as customer deposits. Sales revenue represents 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 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.



Foreign currency translation and other
comprehensive income (as restated)



The reporting currency of the Company is
the US dollar. The Company’s subsidiaries 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. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement
of changes in 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 $8.2 million and $8.1 million as of June 30, 2010 and December 31, 2009, respectively. The
balance sheet amounts, with the exception of equity at June 30, 2010 and December 31, 2009, were translated at 6.79 RMB and 6.82
RMB to $1.00, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to
income statement accounts for the six months ended June 30, 2010 and 2009 were 6.82 RMB and 6.82 RMB, respectively. Cash flows
are also translated at average translation rates for the period, therefore, amounts reported on the statement of cash flows will
not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.



Financial instruments



The accounting
standards 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, accounts receivable, other receivables, accounts 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 Companyconcluded the carrying values are a reasonable estimate of fair value because
of the short period of time between the origination and repayment and their stated interest rate approximates current rates available.



The Company analyzes all financial instruments
with features of both liabilities and equity, pursuant to which the Company’s warrants were required to be recorded as a
liability at fair value and marked to market each reporting period.



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:



| | · | Level 1 inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities in active markets.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | Level 2 inputs to the valuation methodology
include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability,
either directly or indirectly, for substantially the full term of the financial instruments.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Level 3 inputs to the valuation methodology
are unobservable and significant to the fair value.
| | - | -----------------------------------------------------------------------------------------------



12







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



In December 2007, the Company issued convertible
notes totaling $40 million (“Notes”) and 1,154,958 warrants. In December 2009, the Company issued 2,777,778 warrants
in connection with a registered direct offering. The aforementioned warrants and the conversion option embedded in the Notes meet
the definition of a derivative instrument in the accounting standards. Therefore these instruments are accounted for as derivative
liabilities and marked-to-market each reporting period. The change in the value of the derivative liabilities is charged against
or credited to income. The fair value was determined using the Cox Rubenstein Binomial Model, defined in the accounting standard
as level 2 inputs, and recorded the change in earnings. As a result, the derivative liabilities are carried on the consolidated
balance sheet at their fair value.



As of June 30, 2010, the outstanding convertible
note principal amounted to $3.3 million, and the carrying value of the convertible note amounted to approximately $1.3 million.
The Company used Level 3 inputs for its valuation methodology for the convertible note, and their fair values are determined using
cash flows discounted at relevant market interest rates in effect at the period close since there is no observable market price.



|(in thousands)            |  | Carrying Value as of June 30, 2010 |       |  | Fair Value Measurements at June 30, 2010 Using Fair Value Hierarchy | 
|------------------------- |  | ---------------------------------- | ----- |  | ------------------------------------------------------------------- | 
|                          |  | (Unaudited)                        |       |  | Level 1                                                             | 
|Derivative liabilities    |  | $                                  | 8,672 |  |                                                                     | 
|Convertible notes payable |  | $                                  | 1,281 |  |                                                                     | 



Convertible notes payable and derivative
liabilities, the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet
at fair value in accordance with the accounting standard.



Level 3 Valuation Reconciliation:



|                                                   |  | Convertible Notes |      
|-------------------------------------------------- |  | ----------------- | -----
|                                                   |  | (in thousands)    |      
|Balance, December 31, 2009                         |  | $                 | 1,050
|Current period effective interest charges on notes |  |                   | 318  
|Interest paid                                      |  |                   | (87  
|Balance, June 30, 2010 (Unaudited)                 |  | $                 | 1,281



Cash



Cash includes cash on hand and demand deposits
in banks with original maturities of less than three months.



Restricted cash



The Company has notes payable outstanding
with various banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. The notes payable
are generally short term in nature due to its short maturity period of six to nine months, thus restricted cash is classified as
a current asset.



Accounts receivable and allowance for
doubtful accounts



Accounts receivable include trade accounts
due from customers and other receivables from cash advances to employees, related parties or third parties. An allowance for doubtful
accounts is established and recorded based on managements’ assessment of potential losses based on the credit history and
relationships with the customers. Management reviews its receivable on a regular basis to determine if the bad debt allowance is
adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful
accounts after management has determined that the likelihood of collection is not probable.



13







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Notes receivable



Notes receivable represents trade accounts
receivable due from various customers where the customers’ banks have guaranteed the payment of the receivables. The notes
are non-interest bearing and normally paid within three to six months. The Company has the ability to submit request for payment
to the customer’s bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee. The
Company had $56.4 million and $29.2 million outstanding as of June 30, 2010 and December 31, 2009, respectively.



Restricted notes receivable represents
notes receivable pledged as collateral for short-term loans from banks. As of June 30, 2010 and December 31, 2009, restricted notes
receivable amounted to $24.3 million and $0, respectively.



Inventories



Inventories are stated at the lower of
cost or market using the weighted average cost 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.



Shipping and handling



Shipping and handling for raw materials
purchased are included in cost of goods sold. Shipping and handling cost incurred to ship finished products to customers are included
in selling expenses. Shipping and handling expenses for finished goods amounted to $2.9 million and $1.0 million for the three
months ended June 30, 2010 and 2009, respectively. Shipping and handling for the six months ended June 30, 2010 and 2009 amounted
to $5.0 million and $1.6 million, respectively.



Intangible assets



All land in the People’s Republic
of China is owned by the government. However, the government grants “land use rights”. GS (China) acquired land use
rights in 2001 for a total of $3.5 million. These land use rights are for 50 years and expire in 2050 and 2053. Management elected
to amortize the land use rights over the ten-year business term because its initial business license had a ten-year term. Although
GS (China) became a Sino-Foreign Joint Venture in 2004, and obtained a new business license for twenty years; the Company decided
to continue amortizing the land use rights over the original ten-year business term.



Longmen Group contributed land use rights
for a total amount of $21.8 million to the Longmen Joint Venture. The contributed land use rights are for 50 years and expire in
2048 to 2052.



Maoming Hengda has land use rights amounting
to $2.2 million for 50 years that expire in 2054.



|                      |  | Original Cost  |        |  | Expires on | 
|--------------------- |  | -------------- | ------ |  | ---------- | 
|Entity                |  | (in thousands) |        |  |            | 
|GS (China)            |  | $              | 3,481  |  |            | 
|Longmen Joint Venture |  | $              | 21,803 |  |            | 
|Maoming Hengda        |  | $              | 2,235  |  |            | 



14







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Intangible assets of the Company are reviewed
at least annually, more often when circumstances require, determining 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 June 30, 2010, the Company expects these assets to be fully recoverable.



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 a 3%-5% residual value.



The estimated useful lives are as follows:



|Buildings and Improvements | 10-40 Years
|-------------------------- | -----------
|Machinery                  | 10-30 Years
|Other equipment            | 5  Years   
|Transportation Equipment   | 5  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, maintenance,
repairs and minor renewals are charged directly to expense as incurred. Major additions and betterment to buildings and equipment
are capitalized. Interest incurred during construction is capitalized into construction in progress. All other interest is expensed
as incurred.



Long lived assets, including buildings
and improvements, equipment and intangible assets are reviewed if events and changes in circumstances indicate that its 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. The Company also re-evaluates the
periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of
useful lives. For the three and six months ended June 30, 2010, the Company impaired long lived assets in the amount of $1.7 million.



Investments in unconsolidated subsidiaries



Subsidiaries 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.



Longmen Joint Venture and its subsidiary
- Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing Metallurgy”) invested in several companies from 2004 to 2009.



15







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



|Unconsolidated subsidiary                          |  | Year
                                                                                                                                                                                       acquired |           |  | Amount invested (In thousands) |   |        | % owned | 
|-------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- |  | ------------------------------ | - | ------ | ------- | 
|Shaanxi Daxigou Mining Co., Ltd                    |  |                                                                                                                                                                                                      | 2004      |  |                                | $ | 3,567  |         | 
|Shaanxi Xinglong Thermoelectric Co., Ltd           |  |                                                                                                                                                                                                      | 2004-2007 |  |                                |   | 6,270  |         | 
|Shaanxi Longgang Group Xian steel Co., Ltd         |  |                                                                                                                                                                                                      | 2005      |  |                                |   | 147    |         | 
|Huashan Metallurgical Equipment Co. Ltd.           |  |                                                                                                                                                                                                      | 2003      |  |                                |   | 1,775  |         | 
|Xian Delong Powder Engineering Materials Co., Ltd. |  |                                                                                                                                                                                                      | 2006      |  |                                |   | 992    |         | 
|Total (Unaudited)                                  |  |                                                                                                                                                                                                      |           |  |                                | $ | 12,751 |         | 



Total investment income in unconsolidated
subsidiaries amounted to $3.1 million and $2.8 million for the three months ended June 30, 2010 and 2009, respectively. Total investment
income in unconsolidated subsidiaries amounted to $3.2 million and $2.7 million for the six months ended June 30, 2010 and 2009,
respectively.



On May 2010, Tongxing Metallurgy disposed
its long-term investment in Shanxi Longmen Coal Chemical Industry Co., Ltd to an unrelated party for the consideration of $8.1
million (RMB 55 million). Tongxing Metallurgy realized a $1.5 million gain on disposal for the six months ended June 30, 2010.



Short-term notes payable



Short-term notes payable are lines of credit
extended by banks. The banks in-turn issue the Company a bankers acceptance note, which can be endorsed and assigned to vendors
as payments for purchases. The notes payable are generally payable at a determinable period, generally three to six months. This
short-term note payable bears no interest and is guaranteed by the bank for its complete face value and usually matures within
three to six-month period. The banks usually require the Company to deposit a certain amount of cash at the bank as a guarantee
deposit, which is classified on the balance sheet as restricted cash.



Customer deposits (as restated)



Customer deposits represent amounts advanced
by customers on product orders. The product normally is shipped within one month after receipt of the advance payment, and the
related sale is recognized in accordance with the Company’s revenue recognition policy. As of June 30, 2010 and December
31, 2009, customer deposits amounted to $103.4 million and $121.9 million, including deposits paid to relate parties, which amounted
to $9.5 million and $3.0 million, respectively.



Deferred lease income (as restated)



During June 2009 to March 2011, General
Steel worked with Shaanxi Steel to build new state-of-the-art equipment at the site of General Steel's principal subsidiary, Shaanxi
Longmen Iron and Steel Co., Ltd. ("Longmen JV"). As a result, the Company's Longmen JV incurred certain costs of construction
as well as economic losses on suspended production of certain small furnaces and other equipment to accommodate the construction
of the new equipment, on behalf of Shaanxi Steel. To compensate the Company, in the fourth quarter of 2010, Shaanxi Steel reimbursed
Longmen JV USD 16.4 million (RMB 108 million) related to the value of assets dismantled, various site preparation costs incurred
by Longmen JV and rent under a 40-year property sub-lease that was entered into by the parties in June 2009 (the "Longmen
Sub-lease"), and USD 27.8 million (RMB 183 million) for the reduced production efficiency caused by the construction. Applying
the lease accounting guidance (ASC 840-20-25-1), the Company has concluded that, except for the
reimbursement for site preparation costs, the amount of reimbursement should be deferred and recognized as a component of the property
that was sub-leased during the construction, to be amortized to income over the remaining terms of the 40-year sub-lease.



Deferred lease income represents the remaining
balance of compensation being deferred.  As of June 30, 2010 and December 31, 2009, the balance of $31.8 million and $16.5
million represented the balance of remaining deferred lease income respectively.





16











GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Earnings per share



The Company has adopted the generally
accepted accounting principles in the United States regarding earnings per share (“EPS”) which requires presentation
of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings
per share.



Basic earnings per share are computed
by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common
stock were exercised and converted into common stock.



Income taxes



The Company
accounts for income taxes in accordance with the generally accepted accounting principles in the United States for income taxes.
Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities
and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting
basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes. The
generally accepted accounting principles in the United States for accounting for uncertainty in income taxes clarify the accounting
and disclosure for uncertain tax positions. A tax position is recognized as a benefit only if it is “more likely
than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For
tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect
on the Company’s consolidated financial statements.



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 consolidated 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. Deferred tax assets are
recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated using 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 is 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.



Deferred income taxes are recognized for
temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements,
net operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the
relevant taxing authorities.



17







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Share-based compensation



The Company accounts for equity instruments
issued in exchange for the receipt of goods or services from other than employees in accordance with the accounting standards
regarding accounting for stock-based compensation and accounting for equity instruments that are issued to other than employees
for acquiring or in conjunction with selling goods or services. Costs are measured at the estimated fair market value of the consideration
received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity
instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or
completion of performance by the provider of goods or services as defined by these accounting standards. In the case of equity
instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.



Noncontrolling interests



Effective January 1, 2009, the Company
adopted generally accepted accounting principles in the United States regarding noncontrolling interest in the consolidated financial
statements. Certain provisions of this statement are required to be adopted retrospectively for all periods presented. Such provisions
include a requirement that the carrying value of noncontrolling interests (previously referred to as minority interests) be removed
from the mezzanine section of the balance sheet and reclassified as equity.



Further, as a result of adopting this
accounting standard, net income attributable to noncontrolling interests is now excluded from the determination of consolidated
net income. In addition, the foreign currency translation adjustment is allocated between controlling and noncontrolling interests.



Recently issued accounting pronouncements



In January
2010, FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary.  Under this
guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest
in the subsidiary.  Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures
any retained investment in the subsidiary at fair value.  In contrast, an entity is required to account for a decrease in
its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. 
This ASU clarifies the scope of the decrease in ownership provisions, and expands the disclosures about the deconsolidation of
a subsidiary or de-recognition of a group of assets.  This ASU is effective for beginning in the first interim or annual
reporting period ending on or after December 31, 2009. The Company does not expect the adoption of this ASU to have a material
impact on its consolidated financial statementsIn January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting
for Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and
reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The
amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit
activity for an equity interest in another entity.  The amendments in this update are effective beginning in the period that
an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB
No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the
Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting
period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period
that an entity adopted SFAS No. 160. The Company adopted this standard and has determined the standard does not have material
effect on the Company’s consolidated financial statements.



18







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



In January 2010, FASB issued ASU No. 2010-06
– Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires
new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts
of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.
2)  Activity in Level 3 fair value measurements.  In the reconciliation for fair value measurements using significant
unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number).This update provides amendments to Subtopic 820-10 that
clarify existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement
disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in
the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets
and liabilities. 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about
the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those
disclosures are required for fair value measurements that fall in either Level 2 or Level 3.The new
disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity
in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU. However, the Company does
not expect the adoption of this ASU to have a material impact on its consolidated financial statements.



In February 2010, the FASB issued Accounting
Standards Update 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,”
or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose
the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial
statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09
was effective immediately upon issuance and was adopted in February 2010.



In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market
in Which the Underlying Equity Security Trades,” or ASU 2010-13.ASU 2010-13 provides amendments to Topic
718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which
a substantial porting of the entity’s equity securities trades should not be considered to contain a condition that is not
a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise
qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2010. The Company does not expect the adoption
of ASU 2010-17 to have a significant impact on its consolidated financial statements.



In April 2010,
the FASB issued Accounting Standard Update 2010-17, “Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition” orASU
2010-17.ThisUpdate
providesguidanceon the recognition of revenue under the milestone method, which allows a vendor
to adopt an accounting policy to recognize all of the arrangement consideration that is contingent on the achievement of a substantive
milestone (milestone consideration) in the period the milestone is achieved. The pronouncement is effective on a prospective basis
for milestones achieved in fiscal years and interim periods within those years, beginning on or after June 15, 2010. The
Company does not expect the adoption of ASU 2010-17 to have a significant impact on its consolidated financial statements.



Reclassifications



Certain prior period amounts have been
reclassified to conform to the current period presentation. These classifications have no effect on net income.



19







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Note 4 – Accounts receivable
and allowance for doubtful accounts



Accounts receivable, excluding related
party receivables, net of allowance for doubtful accounts consists of the following:



|                                      |  | June 30, 2010  |        |   | December 31, 2009 |  
|------------------------------------- |  | -------------- | ------ | - | ----------------- | -
|                                      |  | (Unaudited)    |        |   |                   |  
|                                      |  | (As restated)  |        |   | (As restated)     |  
|                                      |  | (in thousands) |        |   | (in thousands)    |  
|Accounts receivable                   |  | $              | 21,756 |   |                   | $
|Less: allowance for doubtful accounts |  |                | (382   | ) |                   |  
|Net accounts receivable               |  | $              | 21,374 |   |                   | $



Movement of allowance for doubtful accounts is as follows:



|                     |  | June 30, 2010  |      |   | December 31, 2009 |  
|-------------------- |  | -------------- | ---- | - | ----------------- | -
|                     |  | (Unaudited)    |      |   |                   |  
|                     |  | (in thousands) |      |   | (in thousands)    |  
|Beginning balance    |  | $              | 490  |   |                   | $
|Charge to expense    |  |                | -    |   |                   |  
|Less Write-off       |  |                | (110 | ) |                   |  
|Exchange rate effect |  |                | 2    |   |                   |  
|Ending balance       |  | $              | 382  |   |                   | $



Note 5 – Inventories (as restated)



Inventories consist of the following:



|                  |  | June 30, 2010             |         |  | December 31, 2009 |  
|----------------- |  | ------------------------- | ------- |  | ----------------- | -
|                  |  | (Unaudited) (As restated) |         |  | (As restated)     |  
|                  |  | (in thousands)            |         |  | (in thousands)    |  
|Supplies          |  | $                         | 1,721   |  |                   | $
|Raw materials     |  |                           | 219,886 |  |                   |  
|Finished goods    |  |                           | 28,951  |  |                   |  
|Total inventories |  | $                         | 250,558 |  |                   | $



Raw materials
consist primarily of iron ore and coke at Longmen Joint Venture. The cost of finished goods includes direct costs of raw
materials as well as direct labor used in production. Indirect production costs such as utilities and indirect labor related to
production such as assembling, shipping and handling costs are also included in the cost of inventory.



The Company values its inventory at the
lower of cost or market, determined on a weighted average method, or net realizable value. For the three and six months ended
June 30, 2010, $6.1 million and $6.5 million of inventory has been written off and included in cost of goods sold.



20







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Note 6– Advances on inventory
purchase



Advances on inventory purchases are monies
deposited or advanced to outside vendors or related parties on future inventory purchases. Due to the high shortage of steel in
China, most of the Company’s vendors require a certain amount of money to be deposited with them as a guarantee that the
Company will complete its purchases on a timely basis.



This amount is refundable 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. The total outstanding
amount, including advances to related parties, was $48.9 million and $31.4 million as of June 30, 2010 and December 31, 2009,
respectively.



Note 7 – Plant and equipment,
net



Plant and equipment consist of the following:



|                                   |  | June 30, 2010                            |         |   | December 31, 2009            |  
|---------------------------------- |  | ---------------------------------------- | ------- | - | ---------------------------- | -
|                                   |  | (Unaudited) (As restated) (in thousands) |         |   | (As restated) (in thousands) |  
|Buildings and improvements         |  | $                                        | 120,469 |   |                              | $
|Machinery                          |  |                                          | 484,161 |   |                              |  
|Transportation and other equipment |  |                                          | 11,088  |   |                              |  
|Construction in progress           |  |                                          | 40,185  |   |                              |  
|Subtotal                           |  |                                          | 655,903 |   |                              |  
|Less accumulated depreciation      |  |                                          | (93,170 | ) |                              |  
|Total                              |  | $                                        | 562,733 |   |                              | $



Construction in progress consisted of
the following as of June 30, 2010:



|Construction in progress       |  | Value        |        |  | Estimated completion |  |                    | Estimated additional cost | 
|------------------------------ |  | ------------ | ------ |  | -------------------- |  | ------------------ | ------------------------- | 
|description                    |  | In thousands |        |  | date                 |  |                    | In thousands              | 
|                               |  | (Unaudited)  |        |  |                      |  |                    | (Unaudited)               | 
|                               |  |              |        |  |                      |  |                    |                           | 
|Longmen employees cafeteria    |  | $            | 1,777  |  |                      |  | August, 2010       |                           | 
|                               |  |              |        |  |                      |  |                    |                           | 
|3# lime stone grinding machine |  |              | 2,248  |  |                      |  | July, 2010         |                           | 
|4# continuous casting          |  |              | 4,571  |  |                      |  | July, 2010         |                           | 
|Rebar production line          |  |              | 21,422 |  |                      |  | September, 2010    |                           | 
|Steel scrap cross              |  |              | 1,696  |  |                      |  | July, 2010         |                           | 
|#3 Gangue                      |  |              | 922    |  |                      |  | 2012               |                           | 
|                               |  |              |        |  |                      |  |                    |                           | 
|Others                         |  |              | 7,549  |  |                      |  | By the end of 2012 |                           | 
|Total                          |  | $            | 40,185 |  |                      |  |                    |                           | 



Long lived assets, including construction
in progress are reviewed if events and changes in circumstances indicate that its carrying amount may not be recoverable, to determine
whether their carrying value has become impaired. The Company determined that the construction in progress in Maoming Hengda was
impaired as of June 30, 2010. For the three and six months ended June 30, 2010, $1.7 million construction-in-progress has been
written off and included in operating expense.



21







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Depreciation, including amounts in cost
of sales, for the three months ended June 30, 2010 and 2009 amounted to $9.5 million and $7.0
million, respectively, and for the six months ended June 30, 2010 and 2009, amount to $18.8
and $13.1 million, respectively.



The Company has no fixed assets to be
disposed as of both June 30, 2010 and December 31, 2009.



Note 8 – Intangible assets, net



Intangible assets consist of the following:



|                                          |  | June 30, 2010  |        |   | December 31, 2009 |  
|----------------------------------------- |  | -------------- | ------ | - | ----------------- | -
|                                          |  | (Unaudited)    |        |   |                   |  
|                                          |  | (in thousands) |        |   | (in thousands)    |  
|Land use rights                           |  | $              | 27,685 |   |                   | $
|Software                                  |  |                | 476    |   |                   |  
|Subtotal                                  |  |                | 28,161 |   |                   |  
|                                          |  |                |        |   |                   |  
|Accumulated Amortization – Land use right |  |                | (4,649 | ) |                   |  
|Accumulated Amortization – software       |  |                | (112   | ) |                   |  
|Subtotal                                  |  |                | (4,761 | ) |                   |  
|Intangible assets, net                    |  | $              | 23,400 |   |                   | $



The gross amount of the intangible assets
amounted to $28.2 million and $27.9 million as of June 30, 2010 and December 31, 2009, respectively. The remaining weighted average
amortization period is 35.6 years.



Total amortization expense for the three
months ended June 30, 2010 and 2009 amountedto $0.2 million,$0.2million, respectively, and for the six months ended June 30, 2010 and 2009, amounted to $0.5
million and $0.4 million, respectively.



The estimated aggregate amortization expense
for each of the five succeeding years is as follows:



|Years ended   |  | Estimated Amortization Expense |        |  | Gross carrying Amount |  
|------------- |  | ------------------------------ | ------ |  | --------------------- | -
|              |  | (in thousands)                 |        |  | (in thousands)        |  
|June 30, 2011 |  | $                              | 1,157  |  |                       | $
|June 30, 2012 |  |                                | 1,157  |  |                       |  
|June 30, 2013 |  |                                | 817    |  |                       |  
|June 30, 2014 |  |                                | 721    |  |                       |  
|June 30, 2015 |  |                                | 721    |  |                       |  
|Thereafter    |  |                                | 18,827 |  |                       |  
|Total         |  | $                              | 23,400 |  |                       |  



22









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





Note 9 – Debt (as restated)



Short-term notes payable



Short-term notes payable are lines of
credit extended by the banks. The banks in turn issue the Company a bank acceptance note, which can be endorsed and assigned to
vendors as payments for purchases. The notes payable are generally payable at a determinable period, generally three to six months.
This short-term note payable is guaranteed by the bank for its complete face value. The banks usually do not charge interest on
these notes but require the Company to deposit a certain amount of cash at the bank as a guarantee deposit which is classified
on the balance sheet as restricted cash. Restricted cash as a guarantee for the notes payable amounted to $269.7 million and $192.0
million as of June 30, 2010 and December 31, 2009, respectively.



The Company had the following short-term
notes payable:



|                                                                                                                                                                                                                                                                                                                                  |  | June 30,  2010 |         |  | December 31,  2009 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- |  | ------------------ | -
|                                                                                                                                                                                                                                                                                                                                  |  | (Unaudited)    |         |  |                    |  
|                                                                                                                                                                                                                                                                                                                                  |  | (in thousands) |         |  | (in thousands)     |  
|GS (China): Notes payable from banks in China, due various dates from July 2010 to September 2010. Restricted cash required of $9.6 million and $4.0 million as of June 30, 2010 and December 31, 2009, respectively; guaranteed by third parties.                                                                                |  | $              | 13,276  |  |                    | $
|Longmen Joint Venture: Notes payable from banks in China, due various dates from July 2010 to December 2010. Restricted cash of $258.2 million and $162.3 million as of June 30, 2010 and December 31, 2009, respectively; some notes are guaranteed by third parties while others are secured by equipments and land use rights. |  |                | 373,847 |  |                    |  
|Bao Tou: Notes payable from banks in China, due various dates on September 2010.Restricted cash of $1.0 million and $5.1 million as of June 30, 2010 and December 31, 2009, respectively; pledged by buildings.                                                                                                                   |  |                | 957     |  |                    |  
|Maoming Hengda: Notes payable from banks in China, Restricted cash of $0 and $20.6 million as of June 30, 2010 and December 31, 2009, respectively                                                                                                                                                                                |  |                | -       |  |                    |  
|Total short-term notes payable                                                                                                                                                                                                                                                                                                    |  | $              | 388,080 |  |                    | $



Short-term loans



Short-term loans represent amounts due
to various banks, other companies and individuals, and related parties normally due within one year. The principles of loans are
due at maturity. However, the loans can be renewed with the banks, related parties and other parties.



23







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Short term loans due to banks, related
parties and other parties consisted of the following:





|                                                                                                                                                                                                                                                                                          |  | June 30,       |         |  | December 31,   |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- |  | -------------- | -
|                                                                                                                                                                                                                                                                                          |  | 2010           |         |  | 2009           |  
|                                                                                                                                                                                                                                                                                          |  | (Unaudited)    |         |  |                |  
|                                                                                                                                                                                                                                                                                          |  | (in thousands) |         |  | (in thousands) |  
|                                                                                                                                                                                                                                                                                          |  |                |         |  |                |  
|GS (China): Loan from banks in China, due various dates from August 2010 to June 2011. Weighted average interest rate 4.85% per annum; some are guaranteed by third parties while others are secured by equipment / inventory.                                                            |  | $              | 24,107  |  |                | $
|                                                                                                                                                                                                                                                                                          |  |                |         |  |                |  
|Longmen Joint Venture: Loan from banks in China, due various dates from July 2010 to June 2011. Weighted average interest rate 5.46% per annum; some are guaranteed by third parties or notes receivables while others are secured by equipment / buildings / land use right / inventory. |  |                | 153,297 |  |                |  
|Total – short-term loans - bank                                                                                                                                                                                                                                                           |  | $              | 177,404 |  |                | $



|                                                                                                                                                                       |  | June 30, 2010             |         |  | December 31,  2009 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- |  | ------------------ | -
|                                                                                                                                                                       |  | (Unaudited) (As restated) |         |  | (As restated)      |  
|                                                                                                                                                                       |  | (in thousands)            |         |  | (in thousands)     |  
|Longmen Joint Venture: Loans from various unrelated companies and individuals, due various dates from July to December 2010, and interest rates up to 12.0% per annum. |  | $                         | 83,935  |  |                    | $
|Longmen  Joint Venture: Loan from others, due on demand, average interest rates ranging between 0.6% and 3.2% per annum.                                               |  |                           | 79,532  |  |                    |  
|Maoming Hengda: Loans from one unrelated parties and one related party, due on demand, none interest bearing.                                                          |  |                           | 13,967  |  |                    |  
|Total – short-term loans - others                                                                                                                                      |  | $                         | 177,434 |  |                    | $



|                                                                                                                      |  | June 30,       |   |  | December 31,   |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------------- | - |  | -------------- | -
|                                                                                                                      |  | 2010           |   |  | 2009           |  
|                                                                                                                      |  | (Unaudited)    |   |  |                |  
|                                                                                                                      |  | (in thousands) |   |  | (in thousands) |  
|Longmen Joint Venture: Loans from Sheng An Da, due on 2010, and interest rates 12.0% per annum.                       |  | $              | - |  |                | $
|Qiu Steel: Related party loans from Tianjin Heng Ying and Tianjin Da Zhan, due on 2010. Annual interest rate of 5.0%. |  |                | - |  |                |  
|Total – short-term loans - related parties                                                                            |  | $              | - |  |                | $



24







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



The Company had various loans from unrelated
companies. The balances amounted to $177.4 million and $183.6 million as of June 30, 2010 and December 31, 2009, respectively.
Of the $177.4 million, $14.0 million loans carry no interest and the remaining $163.4 million are subject to interest rates ranging
from 0.6% to 12.0%. All short term loans from unrelated companies are due on demand and unsecured.



Total interest expense, excluding capitalized
interest, amounted to $16.5 million and $11.3 million for the three months ended June 30, 2010,
and 2009, respectively, and interest expense amounted to $27.4 million and $14.2 million for
the six months ended June 30, 2010 and 2009, respectively.



Capitalized interest amounted to $0.7
million and $5.7 million for the three months ended June 30, 2010 and 2009, respectively, and $1.1 million and $7.9 million for
the six months ended June 30, 2010 and 2009, respectively.



Note 10– Customer deposits (as
restated)



Customer deposits represent amounts advanced
by customers on product orders. The product normally is shipped within one month after receipt of the advance payment, and the
related sale is recognized in accordance with the Company’s revenue recognition policy. As of June 30, 2010 and December
31, 2009, customer deposits amounted to $103.4 million and $121.9 million, including deposits paid to related parties amounted
to $9.5 million and $3.0 million, respectively.



Note 11 – Deposit due to sales
representatives



Longmen Joint Venture 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 discounted 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 $64.5 million and $49.5 million
in deposits due to sales representatives as of June 30, 2010 and December 31, 2009, respectively. For the six months ended June
30, 2010, the Company received deposits amounted to $18.4 million from sales representatives to secure the sales quantity.



Note 12 – Convertible notes and derivative liabilities



On December 13, 2007, the Company entered
into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”)
issuing $40.0 million in promissory notes (“Notes”) and 1,154,958 warrants. The warrants can be converted to common
stock through May 13, 2013 at an initial exercise price of $13.51 per share, subject to customary anti-dilution adjustments. On
December 24, 2009, the warrant exercise price was reset to $5.00 per share.



The Notes bear initial interest at 3%
per annum, which will be increased each year as specified in the Agreement, payable semi-annually in cash or shares of the Company’s
common stock. The Notes have a five year term through December 12, 2012. They are convertible into shares of the Company’s
common stock, subject to customary anti-dilution adjustments. The initial conversion price was $12.47 which was reset to $4.25
on May 7, 2009. The Company may redeem the Notes at 100% of the principal amount, plus any accrued and unpaid interest, beginning
December 13, 2008, provided the market price of the common stock is at least 150% of the then applicable conversion price for
30 consecutive trading days prior to the redemption.



Pursuant to the generally accepted accounting
standards of the United States for convertible debt and debt issued with stock purchase warrants, the Company discounted the Notes
equal to the fair value of the warrants. The Notes were further discounted for the fair value of the conversion option. The combined
discount is being amortized to interest expense over the life of the Notes using the effective interest method.



25







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



The fair value of conversion option and
the warrants were initially calculated using the Cox Rubenstein Binomial model based on the following variables:



| | · | Expected
                                                                                                               volatility adjusted
                                                                                                               to 125%
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Expected
                                                                                                               dividend yield
                                                                                                               of 0%
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Risk-free
                                                                                                               interest rate of
                                                                                                               1.27%
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Expected
                                                                                                               lives of five years
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| | · | Market
                                                                                                               price at issuance
                                                                                                               date of $10.43
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Strike
                                                                                                               price of $12.47
                                                                                                               and $13.51, for
                                                                                                               the conversion
                                                                                                               option and the
                                                                                                               warrants, respectively
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pursuant to generally accepted accounting
principles of the United States, the Company determined that both the warrants and the conversion option embedded in the Notes
meet the definition of a derivative instrument and must be carried as a liability and marked to market each reporting period.
On December 13, 2007, the Company recorded $34.7 million as derivative liability, including $9.3 million for the fair value of
the warrants and $25.4 million for fair value of the conversion option. The initial carrying value of the Notes was $5.3 million.
The financing cost of $5.2 million was recorded as note issuance cost and is being amortized to interest expense over the term
of the Notes using the effective interest method.



Reset of Conversion Price



The derivative liability related to the
embedded conversion option was adjusted as of May 7, 2009, based on the revised conversion price. As a result of the reduced conversion
price, the derivative liability increased as of May 7, 2009 by $27.1 million, which amount is included in the change in the value
of the derivative liability in the consolidated statement of operations and other comprehensive income (loss).



Note Conversion



$30.0 million
of the Notes was converted to 7,045,274 shares of common stock at a conversion price of $4.2511. Pursuant togenerally
accepted accounting principles of the United States, the Company valued the conversion option on the
note conversion date. A total of $32.1 million of the carrying value and derivative liability had been reclassified into equity.According to the convertible note agreement, the Company incurred the make whole interest expense of $8.8 million for the
year ended December 31, 2009.



The carrying value of the Notes was $1.3
million and $1.1 million as of June 30, 2010 and December 31, 2009, respectively. The effective interest charges on the Notes
totaled $0.1 million and $0.8 million for the three months ended June 30, 2010 and 2009, respectively, and $0.3 million and $1.8
million for the six months ended June 30, 2010 and 2009, respectively.



Note issuance cost was amortized to interest
expense for the three months ended June 30, 2010 and 2009 amounted to $0.008 million and $0.02 million, respectively. Note issuance
cost was amortized to interest expense for the six months ended June 30, 2010 and 2009 amounted to $0.01 million and $0.04 million,
respectively.



Reset of Warrants Exercise Price



On December 24, 2009, the holders of the
existing warrants to purchase 1,154,958 shares of our common stock (See Note 11) entered into warrant reset agreements whereby
the exercise price was reset from $13.51 to $5.00 per share and the number of shares of common stock issuable upon exercise of
warrants was increased by 2.3775 times from 1,154,958 to 3,900,871. The Company booked $10.1 million derivative loss in 2009 for
this reset accordingly.



26







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



As of December 31 2009, the balance of
derivative liabilities, including 2009 issued warrants (see Note 17), was $23.3 million, which consisted of $20.8 million for
the warrants and $2.5 million for the conversion option. As of June 30 2010, the balance of derivative liabilities was $8.7 million,
which consisted of $7.7 million for the warrants and $1.0 million for the conversion option.



Note 13 – Supplemental disclosure
of cash flow information (as restated)



Interest paid amounted to $6.3 million
and $4.1 million for the three months ended June 3031, 2010 and 2009, respectively, and for the six months ended June 30, 2010
and 2009, amounted to $8.7 million and $6.7 million, respectively.



Income tax payments amounted to $0.5 million
and $1.3 million for the three months ended June 30, 2010 and 2009, respectively, and for the six months ended June 30, 2010 and
2009, amounted to $1.3 and $1.8 million June 30, 2010 and 2009, respectively.



Effective Interest charge on the Notes
of $0.3 million was capitalized into construction in progress for the six months ended June 30, 2010.



Note 14 - Gain from debt extinguishment
and Government grant



Debt extinguishment



For the six months ended June 30, 2009,
the Company recorded gain from debt extinguishment totaling $2.9 million. In 2009, Maoming Hengda, a subsidiary, entered into
a Debt Waiver Agreement with Guangzhou Hengda, pursuant to which Guangzhou Hengda agreed to waive $2.9 million (RMB 20.0 million)
of debt that Maoming Hengda owes to Guangzhou Hengda. The Company determined that the subsequent debt settlement does not constitute
a contingency at the date of purchase as defined in the accounting standard - business Combinations and thus should not result
in a reallocation of the purchase price. The waiver is irrevocable.



Government grant



Due to an increasing emphasis the government
puts on energy savings and pollution emission controls, the Shaanxi Province Development and Reform Commission provided incentives
for local companies to eliminate outdated iron and steel production machineries and equipment. The Company’s subsidiary,
Longmen Joint Venture, received $4.3 million (RMB 29.2 million) in government grants for compliance in dismantling two blast furnaces
for the six months ended June 30, 2009. The Company wrote off the residual book value of the furnaces dismantled totaling $0.7
million (RMB 5.0 million), and recorded other income of $3.5 million for the six months ended June 30, 2009.



Note 15 – Deferred Lease Income
(as restated)



As discussed in Note 2, in connection
to construction of two new blast furnaces systems, to compensate the Company, in the fourth quarter of 2010, Shaanxi Steel reimbursed
Longmen JV USD 16.4 million (RMB 108 million) related to the value of assets dismantled, various site preparation costs incurred
by Longmen JV and rent under a 40-year property sub-lease that was entered into by the parties in June 2009 (the "Longmen
Sub-lease"), and USD 27.8 million (RMB 183 million) for the reduced production efficiency caused by the construction. In
addition, in 2010 and 2011, Shaanxi Steel reimbursed Longmen JV USD 13.5 million (RMB 89 million) each year for trial production
costs related to the two new blast furnaces, two new converters and one new sintering machine constructed and owned by Shaanxi
Steel. The compensations total USD 57.7 million (RMB 380 million), among which USD 31.5 million (RMB 207.4 million) was recorded
as a deferred sub-lease income from the land which was sub-leased by Longmen Joint Venture to Shaanxi Steel on the new furnaces
constructed as of June 30, 2010. The deferred lease income is amortized to income over the remaining term of the 40-year sub-lease.
For the six month period ended June, 2010, the Company recognized deferred lease income of $320,340. For the three month period
ended June 30, 2010, the Company recognized deferred lease income of $183,802. As of June 30, 2010 and December 31, 2009, the
balance of deferred lease income amounted to $31.8 million and $16.5 million.



27







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



|                                                        |  | June 30,       |        |   |                   |  
|------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | -
|                                                        |  | 2010           |        |   | December 31, 2009 |  
|                                                        |  | (unaudited)    |        |   |                   |  
|                                                        |  | (in thousands) |        |   | (in thousands)    |  
|Beginning balance                                       |  | $              | 16,487 |   |                   | $
|Add: Compensation for dismantled assets                 |  |                | 552    |   |                   |  
|Add: Compensation for loss of efficiency                |  |                | 13,736 |   |                   |  
|Add: Compensation for trial production cost             |  |                | 939    |   |                   |  
|Add: Deferred depreciation cost during trial production |  |                | 365    |   |                   |  
|Less: Lease income realized                             |  |                | (320   | ) |                   |  
|Exchange rate effect                                    |  |                | 67     |   |                   |  
|Ending balance                                          |  | $              | 31,826 |   |                   | $



Note 16 – Taxes (as restated)



Significant components of the provision
for income taxes on earnings and deferred taxes on net operating losses from operation for the three and six months ended June
30, 2010 and 2009 are as follows:



|                                           |  | Three months ended |        |   | Six months ended |  
|------------------------------------------ |  | ------------------ | ------ | - | ---------------- | -
|In thousands                               |  | June 30, 2010      |        |   | June 30, 2009    |  
|                                           |  | (Unaudited)        |        |   | (Unaudited)      |  
|                                           |  | (As restated)      |        |   |                  |  
|Current                                    |  | $                  | (5,093 | ) |                  | $
|Deferred                                   |  |                    | 2,290  |   |                  |  
|Total (benefit) provision for income taxes |  | $                  | (2,803 | ) |                  | $



Significant components of the provision
for income taxes on earnings and deferred taxes on net operating losses from operation for the six months ended June 30, 2010
and 2009 are as follows:



According to Chinese tax regulations,
the net operating loss can be carried forward to offset with operating income for the next five years. Management believes the
deferred tax asset is fully realizable.



28







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



The principal component of the deferred income tax assets is
as follows:



|                                                                             |  | June 30, 2010             |        |   | December 31, 2009 |  
|---------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ----------------- | -
|                                                                             |  | (Unaudited) (As restated) |        |   | (As restated)     |  
|                                                                             |  | (in thousands)            |        |   | (in thousands)    |  
|Beginning balance                                                            |  | $                         | 5,044  |   |                   | $
|Net operating loss carry-forward (tax assets realized) for subsidiaries      |  |                           | 3,973  |   |                   |  
|Effective tax rate                                                           |  |                           | 25     | % |                   |  
|Deferred tax asset                                                           |  | $                         | 993    |   |                   | $
|Long Gang Headquarter, net operating loss carry-forward (tax asset realized) |  |                           | 29,073 |   |                   |  
|Effective tax rate                                                           |  |                           | 15     | % |                   |  
|Deferred tax asset                                                           |  | $                         | 4,361  |   |                   | $
|Exchange difference                                                          |  |                           | 13     |   |                   |  
|Totals                                                                       |  | $                         | 10,411 |   |                   | $



Under the Income
Tax Laws of the PRC, the Company’s subsidiary, GS (China), is generally subject to an income tax at an effective rate of
25% on income reported in the statutory financial statements after appropriate tax adjustments, unless the enterprise is located
in a specially designated region where it allows foreign enterprises a two-year income tax exemption and a 50% income tax reduction
for the following three years.GS (China) became a Chinese Sino-foreign joint venture at the time of the merger on October
14, 2004 and it became eligible for the tax benefit. GS (China) is located in Tianjin Costal Economic
Development Zone and under the Income Tax Laws of Tianjin City of the PRC; it is eligible for
an income tax rate of 25% and 12% for the periods ended June 30, 2010 and December 31, 2009, respectively.



The Company’s subsidiary, Longmen
Joint Venture, is located in the mid-west region of China. It qualifies for the “Go-West” tax rebate of 15% tax rate
promulgated by the government; therefore, income tax is at 15% deducted rate till December 31, 2010.



Baotou Steel Pipe Joint Venture is located
in Inner Mongolia and issubject to an income tax at an effective rate of 25%.



Maoming Hengda is located in Guangdong
province and is subject to an income tax at an effective rate of 25%.



The following table reconciles the U.S. statutory rates to
the Company’s effective tax rate for the six months ended June 30, 2010 and 2009 are as follows:



|                                                                              |  | June 30, 2010             |       |    | June 30, 2009 | 
|----------------------------------------------------------------------------- |  | ------------------------- | ----- | -- | ------------- | 
|                                                                              |  | (Unaudited) (As restated) |       |    | (Unaudited)   | 
|U.S. Statutory rates                                                          |  |                           | 34.0  | %  |               | 
|Foreign income not recognized in the US                                       |  |                           | (34.0 | )% |               | 
|China income taxes                                                            |  |                           | 25.0  | %  |               | 
|Tax effect of income not taxable for tax purposes (1)                         |  |                           | 9.4   | %  |               | 
|Effect of different tax rate of subsidiaries operating in other jurisdictions |  |                           | (10.1 | )% |               | 
|Total provision for income taxes                                              |  |                           | 24.3  | %  |               | 





29









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





| | (1) | This represents derivative expenses
                                                                 (income) and stock compensation expenses incurred by the Company
                                                                 that are not deductible/taxable in the PRC for the six months
                                                                 ended June 30, 2010 and 2009.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





The Company has cumulative undistributed
earnings of foreign subsidiaries of approximately $1.1 million as of June 30, 2010, and is included in consolidated retained earnings
and will continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred
taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would
have to be provided if we concluded that such earnings will be remitted in the future.



General Steel Holdings, Inc. was incorporated
in the United States and has incurred net operating losses for income tax purposes for the six months ended June 30, 2010 and for
the year ended December 31, 2009. The net operating loss carry forwards for United States income taxes amounted to $5.6 million
which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through
2030. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s limited
operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation
allowance on the deferred tax asset benefit to reduce the asset to zero. The valuation allowance as of June 30, 2010 was $1.9 million.
The net change in the valuation allowance for the six months ended June 30, 2010 was $0.1 million. Management will review this
valuation allowance periodically and make adjustments as warranted.



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 PRC
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.



VAT on sales and VAT on purchases amounted
to $141.0 million and $138.6 million, respectively, for the three months ended June 30, 2010and $93.2 million and $98.2 million,
respectively, for the three months ended June 30, 2009. Sales and purchases are recorded net of VAT collected and paid as the Company
acts as an agent for the government. VAT taxes are not impacted by the income tax holiday.



VAT on sales and VAT on purchases amounted
to $258.5 million and $226.4 million, respectively, for the six months ended June 30, 2010and $179.2 million and $165.9 million,
respectively, for the six months ended June 30, 2009. Sales and purchases are recorded net of VAT collected and paid as the Company
acts as an agent for the government. VAT taxes are not impacted by the income tax holiday.



Taxes payable consisted of the following:



|                     |  | June 30,  2010             |        |  | December 31,  2009 |  
|-------------------- |  | -------------------------- | ------ |  | ------------------ | -
|                     |  | (Unaudited)  (As restated) |        |  | (As restated)      |  
|                     |  | (in thousands)             |        |  | (in thousands)     |  
|VAT taxes payable    |  | $                          | 8,345  |  |                    | $
|Income taxes payable |  |                            | 700    |  |                    |  
|Misc taxes           |  |                            | 2,240  |  |                    |  
|Totals               |  | $                          | 11,285 |  |                    | $



30









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





Note 17 –Earnings per share (as restated)



The calculation of earnings per share is
as follows:



|(In thousands except earnings per share data)                          |  | Three-month ended June 30, |        |   | Six-month ended June 30, |  
|---------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | -
|                                                                       |  | 2010                       |        |   | 2009                     |  
|                                                                       |  | (Unaudited) (As restated)  |        |   | (Unaudited)              |  
|Loss attributable to holders of common shares                          |  | $                          | (2,004 | ) |                          | $
|Basic and diluted weighted average number of common shares outstanding |  |                            | 52,112 |   |                          |  
|Loss per share                                                         |  |                            |        |   |                          |  
|Basic & diluted                                                        |  | $                          | (0.04  | ) |                          | $



There is no dilutive effect for its earnings
per share as the Company incurred net loss for the three and six months end June 30, 2010 and 2009.



Note 18 –Related party transactions and balances (as restated)



Related party transactions



On March 31, 2010, GS (China), a subsidiary
in which the Company holds a controlling interest, entered into a lease agreement with Tianjin Daqiuzhuang Steel Plates Co., Ltd.
(the “Lessee”), whereby GS (China) will lease its facility located at No. 1, Tonga Street, Daqizhuang Town, Junghai
County, Tianjin City to the Lessee (the “Lease Agreement”). The Lease Agreement provides approximately 776,078 square
feet of workshops, lands, equipments and other facilities to the Lessee and allows the Company to reduce overhead costs while providing
a recurring monthly revenue stream resulting from payments due thereunder. The term of the Lease Agreement is from January 1, 2010
to December 31, 2011 and the monthly base rental rate due to GS (China) is approximately $0.2 million (RMB1.68 million). The lessee
partially owned by a related party Beijing Wendlar Co., Ltd, and is managed by the former general manager of GS (China). For the
three and six months ended June 30, 2010, GS (China) realized rental income in the amount of $0.8 million and $1.5 million from
the Lessee.



The future rental payments to be received
associated with the Lease Agreement are as follow:



|Year ended June 30, |  | Amount         |      
|------------------- |  | -------------- | -----
|                    |  | (in thousands) |      
|2011                |  | $              | 2,970
|2012                |  |                | 1,484
|Thereafter          |  |                | -    
|Total               |  | $              | 4,454



31









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





The following chart summarized sales to
the related party transactions for the six months ended June 30, 2010 and 2009.



|Name of related parties                                                   |  | Relationship                                                     |  |  | June 30, 2010  |         |         | June 30 2009   |  
|------------------------------------------------------------------------- |  | ---------------------------------------------------------------- |  |  | -------------- | ------- | ------- | -------------- | -
|                                                                          |  |                                                                  |  |  | (Unaudited)    |         |         | (Unaudited)    |  
|                                                                          |  |                                                                  |  |  | (in thousands) |         |         | (in thousands) |  
|Shaanxi Longmen (Group) Co, Ltd and its subsidiaries (“Long Steel Group”) |  | Noncontrolling shareholder of Longmen Joint Venture              |  |  | $              | 183,668 |         |                | $
|Hengying                                                                  |  | Common control under CEO                                         |  |  |                | 19,268  |         |                |  
|Dazhan                                                                    |  | Common control under CEO                                         |  |  |                | 15,903  |         |                |  
|Hancheng Haiyan Coking                                                    |  | Investee of Long Steel Group                                     |  |  |                | 19,368  |         |                |  
|Shaanxi Steel                                                             |  | Majority shareholder of Longmen Group                            |  |  |                | 933     |         |                |  
|Beijing Daishang Trade Co., Ltd.                                          |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                | 5,456   |         |                |  
|Tianjin Daqiuzhuang Steel Plates Co., Ltd.                                |  | Common control under CEO                                         |  |  |                | 8,314   |         |                |  
|Others                                                                    |  |                                                                  |  |  |                |         | 991     |                |  
|Total                                                                     |  |                                                                  |  |  |                | $       | 253,901 |                |  



The following charts summarize purchases
from the related party transactions for the six months ended June 30, 2010 and 2009.



|Name of related parties          |  | Relationship                                                     |  |  | June 30, 2010  |         |         | June 30, 2009  |  
|-------------------------------- |  | ---------------------------------------------------------------- |  |  | -------------- | ------- | ------- | -------------- | -
|                                 |  |                                                                  |  |  | (Unaudited)    |         |         | (Unaudited)    |  
|                                 |  |                                                                  |  |  | (in thousands) |         |         | (in thousands) |  
|Long Steel Group                 |  | Noncontrolling shareholder of Longmen Joint Venture              |  |  | $              | 253,840 |         |                | $
|Hengying and Dazhan              |  | Common control under CEO                                         |  |  |                | -       |         |                |  
|Jingma Jiaohua                   |  | Investee of Longmen Joint Venture’s subsidiary (unconsolidated)  |  |  |                | 6,978   |         |                |  
|Hancheng Haiyan Coking           |  | Investee of Long Steel Group                                     |  |  |                | 117,835 |         |                |  
|Beijing Daishang Trade Co., Ltd. |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                | 1,011   |         |                |  
|Others                           |  |                                                                  |  |  |                |         | 315     |                |  
|Total                            |  |                                                                  |  |  |                | $       | 379,979 |                |  
|                                 |  |                                                                  |  |  |                |         |         |                |  





32









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



Related party balances



| | a. | Account receivables - related parties:
| | -- | --------------------------------------



|Name of related parties                    |  | Relationship                                        |  |  | June 30, 2010  |     |     | December 31, 2009 |  
|------------------------------------------ |  | --------------------------------------------------- |  |  | -------------- | --- | --- | ----------------- | -
|                                           |  |                                                     |  |  | (Unaudited)    |     |     | (As restated)     |  
|                                           |  |                                                     |  |  | (in thousands) |     |     | (in thousands)    |  
|Tianjin Daqiuzhuang Steel Plates Co., Ltd. |  | Common control under CEO                            |  |  | $              | 734 |     |                   | $
|Long Steel Group                           |  | Noncontrolling shareholder of Longmen Joint Venture |  |  |                | -   |     |                   |  
|Total                                      |  |                                                     |  |  |                | $   | 734 |                   |  



| | b. | Other receivables - related parties:
| | -- | ------------------------------------



|Name of related parties                            |  | Relationship                                        |  |  | June 30, 2010             |        |        | December 31, 2009 |  
|-------------------------------------------------- |  | --------------------------------------------------- |  |  | ------------------------- | ------ | ------ | ----------------- | -
|                                                   |  |                                                     |  |  | (Unaudited) (As restated) |        |        | (As restated)     |  
|                                                   |  |                                                     |  |  | (in thousands)            |        |        | (in thousands)    |  
|Beijing Wendlar Co., Ltd                           |  | Common control under CEO                            |  |  | $                         | 326    |        |                   | $
|Long Steel Group                                   |  | Noncontrolling shareholder of Longmen Joint Venture |  |  |                           | -      |        |                   |  
|Shaanxi Steel                                      |  | Majority shareholder of Longmen Group               |  |  |                           | 41,991 |        |                   |  
|Mao Ming Sheng Zhe                                 |  | Common control under CEO                            |  |  |                           | 2,141  |        |                   |  
|Tianjin Dazhan Industry Co, Ltd                    |  | Common control under CEO                            |  |  |                           | 15,140 |        |                   |  
|Baotou Shengda Steel Pipe Co., Ltd                 |  | Common control under CEO                            |  |  |                           | 54     |        |                   |  
|Tianjin Jin Qiu Steel Market                       |  | Common control under CEO                            |  |  |                           | -      |        |                   |  
|Tianjing General Steel Management Service Co., Ltd |  | Common control under CEO                            |  |  |                           | -      |        |                   |  
|Total                                              |  |                                                     |  |  |                           | $      | 59,652 |                   |  



| | c. | Advances on inventory purchase – related parties:
| | -- | -------------------------------------------------



|Name of related parties      |  | Relationship             |  |  | June 30, 2010  |       |       | December 31, 2009 |  
|---------------------------- |  | ------------------------ |  |  | -------------- | ----- | ----- | ----------------- | -
|                             |  |                          |  |  | (Unaudited)    |       |       |                   |  
|                             |  |                          |  |  | (in thousands) |       |       | (in thousands)    |  
|Mao Ming Sheng Ze            |  | Common control under CEO |  |  | $              | 8,798 |       |                   | $
|Tianjin Jin Qiu Steel Market |  | Common control under CEO |  |  |                | -     |       |                   |  
|Total                        |  |                          |  |  |                | $     | 8,798 |                   |  



33











GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)







| | d. | Accounts payable - related parties:
| | -- | -----------------------------------





|Name of related parties           |  | Relationship                                                     |  |  | June 30, 2010              |        |        | December 
31,2009 |  
|--------------------------------- |  | ---------------------------------------------------------------- |  |  | -------------------------- | ------ | ------ | ----------------- | -
|                                  |  |                                                                  |  |  | (Unaudited) (in thousands) |        |        |                   |  
|Tianjin Hengying Trading Co., Ltd |  | Common control under CEO                                         |  |  | $                          | 8,770  |        |                   | $
|Tianjin Dazhan Industry Co., Ltd  |  | Common control under CEO                                         |  |  |                            | 12,193 |        |                   |  
|Henan Xinmi Kanghua               |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                            | 898    |        |                   |  
|Zhengzhou Shenglong               |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                            | 91     |        |                   |  
|ShanXi  Fangxin                   |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                            | -      |        |                   |  
|Baogang Jianan                    |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                            | 170    |        |                   |  
|Jingma Jiaohua                    |  | Investee of Longmen Joint Venture’s subsidiary (unconsolidated)  |  |  |                            | 1,210  |        |                   |  
|Huashan metallurgy                |  | Investee of Longmen Joint Venture’s subsidiary (unconsolidated)  |  |  |                            | -      |        |                   |  
|Beijing Daishang Trading Co., Ltd |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                            | 122    |        |                   |  
|Long Steel Group                  |  | Noncontrolling shareholder of Longmen Joint Venture              |  |  |                            | 13,795 |        |                   |  
|Tianjin General Qiugang Pipe      |  | Common control under CEO                                         |  |  |                            | 10,012 |        |                   |  
|Hancheng Haiyan Coking            |  | Investee of Long Steel Group                                     |  |  |                            | 37,867 |        |                   |  
|Total                             |  |                                                                  |  |  |                            | $      | 85,128 |                   |  



| | e. | Short-term loans - related parties:
| | -- | -----------------------------------



|Name of related parties            |  | Relationship                          |  |  | June 30, 2010  |   |   | December 31, 2009 |  
|---------------------------------- |  | ------------------------------------- |  |  | -------------- | - | - | ----------------- | -
|                                   |  |                                       |  |  | (Unaudited)    |   |   |                   |  
|                                   |  |                                       |  |  | (in thousands) |   |   | (in thousands)    |  
|Tianjin Dazhan Industry Co., Ltd   |  | Common control under CEO              |  |  | $              | - |   |                   | $
|Tianjin Hengying Trading Co., Ltd  |  | Common control under CEO              |  |  |                | - |   |                   |  
|Shaanxi Shenganda Trading Co., Ltd |  | Common control under Long Steel Group |  |  |                | - |   |                   |  
|Total                              |  |                                       |  |  |                | $ | - |                   |  



34











GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)



| | f. | Other payables - related parties:
| | -- | ---------------------------------



|Name of related parties          |  | Relationship                                        |  |  | June 30, 2010             |        |        | December 31, 2009 |  
|-------------------------------- |  | --------------------------------------------------- |  |  | ------------------------- | ------ | ------ | ----------------- | -
|                                 |  |                                                     |  |  | (Unaudited) (As restated) |        |        | (As restated)     |  
|                                 |  |                                                     |  |  | (in thousands)            |        |        | (in thousands)    |  
|Tianjin Hengying Trading Co, Ltd |  | Common control under CEO                            |  |  | $                         | 2,510  |        |                   | $
|Beijing Wendlar Co., Ltd         |  | Common control under CEO                            |  |  |                           | -      |        |                   |  
|Yangpu Capital Automobile        |  | Common control under CEO                            |  |  |                           | 1,311  |        |                   |  
|Tianjin General Qiugang Pipe     |  | Common control under CEO                            |  |  |                           | 18,924 |        |                   |  
|Tianjin Jin Qiu Steel Market     |  | Common control under CEO                            |  |  |                           | 1,340  |        |                   |  
|Long Steel Group                 |  | Noncontrolling shareholder of Longmen Joint Venture |  |  |                           | 2,162  |        |                   |  
|Wenchun  Han                     |  | Director of General Steel (china)                   |  |  |                           | -      |        |                   |  
|Total                            |  |                                                     |  |  |                           | $      | 26,247 |                   |  



| | g. | Customer deposits – related parties:
| | -- | ------------------------------------



|Name of related parties           |  | Relationship                                                     |  |  | June 30, 2010             |       |       | December 31, 2009 |  
|--------------------------------- |  | ---------------------------------------------------------------- |  |  | ------------------------- | ----- | ----- | ----------------- | -
|                                  |  |                                                                  |  |  | (Unaudited) (As restated) |       |       | (As restated)     |  
|                                  |  |                                                                  |  |  | (in thousands)            |       |       | (in thousands)    |  
|Tianjin Dazhan Industry Co., Ltd  |  | Common control under CEO                                         |  |  | $                         | 1,567 |       |                   | $
|Hancheng Haiyan Coking            |  | Investee of Long Steel Group                                     |  |  |                           | 1,245 |       |                   |  
|Long Steel Group                  |  | Noncontrolling shareholder of Longmen Joint Venture              |  |  |                           | 6,727 |       |                   |  
|Beijing Daishang Trading Co., Ltd |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |  |                           | -     |       |                   |  
|Other                             |  |                                                                  |  |  |                           |       | -     |                   |  
|Total                             |  |                                                                  |  |  |                           | $     | 9,539 |                   |  





35









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





The Company also guaranteed bank loans
of related parties amounting to $ 54.4 million and $93.6 million as of June 30, 2010 and December 31, 2009, respectively.



| | h. | Deferred lease income
| | -- | ---------------------



As discussed in Note 2, in connection to
construction of two new blast furnaces systems, to compensate the Company, in the fourth quarter of 2010, Shaanxi Steel reimbursed
Longmen JV USD 16.4 million (RMB 108 million) related to the value of assets dismantled, various site preparation costs incurred
by Longmen JV and rent under a 40-year property sub-lease that was entered into by the parties in June 2009 (the "Longmen
Sub-lease"), and USD 27.8 million (RMB 183 million) for the reduced production efficiency caused by the construction. In addition,
in 2010 and 2011, Shaanxi Steel reimbursed Longmen JV USD 13.5 million (RMB 89 million) each year for trial production costs related
to the two new blast furnaces, two new converters and one new sintering machine constructed and owned by Shaanxi Steel. The compensations
total USD 57.7 million (RMB 380 million), among which USD 31.5 million (RMB 207.4 million) as of June 30, 2010, were recorded as
a deferred sub-lease income from the land which was sub-leased by Longmen Joint Venture to Shaanxi Steel on the new furnaces constructed.
The deferred lease income is amortized to income over the remaining term of the 40-year sub-lease. As of June 30, 2010 and December
31, 2009, the balance of deferred lease income amounted to $31.8 million and $16.5 million.



|                                                        |  | June 30, 2010  |        |   | December 31, 2009 |  
|------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | -
|                                                        |  | (unaudited)    |        |   |                   |  
|                                                        |  | (in thousands) |        |   | (in thousands)    |  
|Beginning balance                                       |  | $              | 16,487 |   |                   | $
|Add: Compensation for dismantled assets                 |  |                | 552    |   |                   |  
|Add: Compensation for loss of efficiency                |  |                | 13,736 |   |                   |  
|Add: Compensation for trial production cost             |  |                | 939    |   |                   |  
|Add: Deferred depreciation cost during trial production |  |                | 365    |   |                   |  
|Less: Lease income realized                             |  |                | (320   | ) |                   |  
|Exchange rate effect                                    |  |                | 67     |   |                   |  
|Ending balance                                          |  | $              | 31,826 |   |                   | $



For the six month period ended June, 2010,
the Company recognized deferred lease income from Shaanxi Steel, a related party, amounting $320,340. For the three month period
ended June 30, 2010, the Company recognized deferred lease income from Shaanxi Steel, a related party, amounting $183,802.



Note 19 - Equity



2009 Equity Transactions



On March 9,
2009, the Company granted senior management and directors 109,250 shares of common stock at $1.85 per share, as compensation. The
shares were valued at the quoted market price on the date granted. The Company recorded compensation expense of $0.2 million.



On January 15, 2009, the Company granted
convertible notes holders 152,240 shares of common stock at $3.66 per share, as share payments for interest. The shares were computed
as 90% of the arithmetic average of the Weighted Average Price of the Common Shares on each for the ten consecutive Trading Days
immediately preceding the applicable Interest Date.



36









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)







From April to
November 2009, the Company issued 487,400 shares of common stock to management and a consulting firm as compensation. The shares
were valued at the quoted market price on the date granted. The Company recorded compensation expense of $1.6 million.



On July 15, 2009 and August 21, 2009 the
Company granted convertible notes holders 44,065 shares of common stock at price of $4.2511 as cash payments made for interest.



On May 8, 2009, the Company issued 300,000
shares of common stock to Maoming Hengda’s debtor, Guangzhou Hengda at $6.00 per share, as cash payments made for settling
other short term loan.



From May 7 to
December 31, 2009, $30.0 millionof notes was converted to 7,045,274 shares of common stock at
a conversion price of $4.2511. According to the convertible note agreement, the Company incurred the make whole interest expense
of $8.8 million and 1,795,977 shares of common stock were issued. See Note 11 for details.



On December 24, 2009, the Company entered
into a Securities Purchase Agreement with certain institutional investors issuing 5,555,556 shares and 2,777,778 warrants (the
“2009 Warrants”). The 2009 Warrants can be converted to common stock from June 24, 2010 to June 23, 2013 at $5.00 per
share. The 2009 Warrants have a strike price equal to $5.00 and a term of two and a half years. Because the 2009 Warrants are denominated
in U.S. dollars and the Company’s functional currency is the Renminbi, and the 2009 Warrants permit the holder to request
cash buy-back in the event of a Fundamental Transaction, which is a significant change in the Company structure and/or equity.
The 2009 Warrants do not meet the requirements of the accounting standards to be indexed only to the Company’s stock. Accordingly,
they are accounted for at fair value as derivative liabilities and marked to market each period.



The initial value of the 2009 Warrants
was determined using the Cox-Ross-Rubinstein binomial model using the following assumptions:



| | · | Expected volatility of 125%
| | - | ---------------------------

| | · | Expected dividend yield of 0%
| | - | -----------------------------

| | · | Risk-free interest rate of 1.28%
| | - | --------------------------------

| | · | Expected lives of two and a half years
| | - | --------------------------------------

| | · | Market price at issuance date of $4.57
| | - | --------------------------------------

| | · | Strike price of $5.00
| | - | ---------------------



The 2009 Warrants were valued at $8.5 million
when they were issued on December 24, 2009. At June 30, 2010 and December 31, 2009, the estimated fair value of the warrants was
$2.8 million and $8.1 million, resulting in a gain of $5.3 million and $0.4 million, respectively. The gain was recorded in the
Company’s consolidated statement of operations and other comprehensive income (loss).



The volatility of the Company’s common
stock was based on the Company’s historical stock prices, the risk free interest rate was based on Treasury Constant Maturity
Rates published by the U.S. Federal Reserve for periods applicable to the life of the warrants, the dividend yield was based on
the Company’s current and expected dividend policy and the expected term is equal to the contractual life of the warrants.
The value of the warrants was based on the Company’s common stock price on the date the warrants were issued.



2010 Equity Transactions



On March 19, 2010, the Company granted
senior management and directors 237,100 shares of common stock at $3.91 per share as compensation. The shares were valued at the
quoted market price on the date granted. The Company recorded compensation expense of $0.9 million.



37









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)







On June 7, 2010, the Company issued 928,163
shares of common stock to one of Maoming Hengda’s creditor to settle the other short-term loans.



On June 25, 2010, the Company granted senior
management and directors 168,650 shares of common stock at $2.62 per share as compensation. The shares were valued at the quoted
market price on the date granted. The Company recorded compensation expense of $0.4 million.



The Company has the following warrants
outstanding:



|Outstanding as of January 1, 2009           |  |  | 1,154,958 | 
|------------------------------------------- |  |  | --------- | 
|Granted                                     |  |  | 5,523,691 | 
|Forfeited                                   |  |  | -         | 
|Exercised                                   |  |  | -         | 
|Outstanding As of December 31, 2009         |  |  | 6,678,649 | 
|Granted                                     |  |  | -         | 
|Forfeited                                   |  |  | -         | 
|Exercised                                   |  |  | -         | 
|Outstanding As of June 30, 2010 (Unaudited) |  |  | 6,678,649 | 



|Outstanding Warrants |                |  | Exercisable Warrants | 
|-------------------- | -------------- |  | -------------------- | 
|                     | Exercise Price |  |                      | 
|$                    | 5              |  |                      | 



Note 20 – Retirement plan



Regulations
in the PRC require the Company to contribute to a defined contribution retirement plan for all employees. All Joint Venture employees
are entitled to a retirement pension amount calculated based upon their salary at their date of retirement and their length of
service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to the
retired staff. The Company is required to contribute20% of the employees’ monthly base salary. Employees are required
to contribute 8% of their base salary to the plan. Total pension expense incurred by the Company amounted to $1.1 million and $0.8
million for the three months ended June 30, 2010 and 2009, respectively, $2.2 million and $1.6 million for the six months ended
June 30, 2010 and 2009, respectively.



Note 21 –
Statutory reserves



The laws and
regulations of the People’s Republic of China require that before an enterprise distributes profits to its partners, it must
first satisfy all tax liabilities, provide for losses in previous years, and make allocations, in proportions determined at the
discretion of the board of directors, to the statutory reserves. The statutory reserves include the surplus reserve funds and the
enterprise fund and these statutory reserves represent restricted retained earnings.



Surplus reserve fund



The Company is required to transfer 10%
of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund
until such reserve balance reaches 50% of the Company’s registered capital.



38









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





The transfer to this reserve must be made
before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation
and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share
capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the
shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered
capital.



Note 22 – Commitment and contingencies



Commitments



GS (China) rented land for 50 years starting
September 2005. Total amount of the rent over the 50 years period is approximately $1.2 million (or RMB 8 million).



Baotou Steel Pipe Joint Venture has 5 years
rental agreement with Bao Gang Jianan for buildings. The agreement began June 2007 for $0.3 million (or RMB1.8 million) per year.



As of June 30, 2010, total future minimum
lease payments for the unpaid portion under an operating lease were as follows:



|Year ended June 30, |  | Amount         |      
|------------------- |  | -------------- | -----
|                    |  | (in thousands) |      
|2011                |  | $              | 264  
|2012                |  |                | 264  
|2013                |  |                | -    
|2014                |  |                | -    
|2015                |  |                | -    
|Thereafter          |  |                | 663  
|Total               |  | $              | 1,191



Total rental expense amounted to $0.07
and $0.1 million for the three months ended June 30, 2010 and 2009, respectively and total rental expense for the six months ended
June 30, 2010 and 2009, amounted to $0.1 million and $0.2 million, respectively,



Longmen Joint Venture has $110.2 million
contractual obligations in its construction project as of June 30 2010, see note 6.



The Company entered an agreement to build
a TRT Electricity Generator (“TRT”) inside Longmen Joint Venture’s production plant. The Company makes payments
for the cost via scheduled payments after the TRT was put into use in April 2009. The future payment schedule associated with the
arrangement is as follow:



|Year ended June 30, |  | Amount         |      
|------------------- |  | -------------- | -----
|                    |  | (in thousands) |      
|2011                |  | $              | 3,051
|Thereafter          |  |                | -    
|Total               |  | $              | 3,051



39









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





On May 13, 2010, the Company entered a
Joint Venture Framework Agreement with Shanxi Meijin Energy Group Co., Ltd, a corporation formed under the laws of PRC. The establishment
of the joint venture is subject to the receipt and satisfactory review by General Steel of a written appraisal and related due
diligence materials pertaining to Meijin Energy. As part of any consummation of the joint venture in accordance with a definitive
agreement, General Steel will contribute RMB440 million (approximately $64.7 million) in cash or stock and shall thereafter hold
a 55% interest in Meijin Steel. Meijin Energy will contribute facilities, inventory, equipment and land usage rights with an aggregate
value equal to RMB360 million (approximately $52.0 million) and shall thereafter retain a 45% interest in Meijin Steel.



Contingencies



As of June 30, 2010, the Company guaranteed
bank loans for related parties and third parties bank loans, including line of credit, amounting to $129.1 million.



Longmen Joint Venture had $358.5 million
guarantees as of June 30, 2010.



|Nature of                                               |  | Guarantee      |         |  |                 |                                         
|------------------------------------------------------- |  | -------------- | ------- |  | --------------- | ----------------------------------------
|guarantee                                               |  | amount         |         |  | Guaranty period |                                         
|                                                        |  | (In thousands) |         |  |                 |                                         
|Line of credit                                          |  | $              | 9,626   |  |                 | July 2009 to July 2010                  
|Bank loans                                              |  |                | 51,555  |  |                 | Various from July 2009 to June 2011     
|Notes payable                                           |  |                | 39,857  |  |                 | Various from July 2008 to September 2012
|Confirming storage                                      |  |                | 17,812  |  |                 | Various from September 2009 to June 2011
|Financing by the rights of goods delivery in the future |  |                | 4,375   |  |                 | Various from December 2009 to March 2011
|Total                                                   |  | $              | 123,225 |  |                 |                                         



Maoming Hengda had $5.9 million in guarantees
as of June 30, 2010.



|Nature of |  | Guarantee      |       |  |                 |                                       
|--------- |  | -------------- | ----- |  | --------------- | --------------------------------------
|guarantee |  | amount         |       |  | Guaranty period |                                       
|          |  | (In thousands) |       |  |                 |                                       
|          |  |                |       |  |                 |                                       
|Bank loan |  | $              | 5,892 |  |                 | Various from June 2009 to October 2010
|          |  |                |       |  |                 |                                       

The Company has evaluated the debt
guarantees and concluded that the likelihood of having to make payments under the guarantees is remote.



Note 23 – Segments



The Company sells steel which is used by
customers in various industries. The Company’s chief operating decision-makers (i.e. chief executive officer and his direct
reports) review financial information presented on a consolidated basis, accompanied by disaggregated information about revenues
by product lines for purposes of allocating resources and evaluating financial performance. There are no segment managers who are
held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Based
on qualitative and quantitative criteria established by the accounting standards, the Company considers itself to be operating
within one reportable segment.



40









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)





The Company does not have long-lived assets
located in foreign countries. In accordance with the enterprise-wide disclosure requirements of the accounting standard, the Company's
net revenue from external customers by main product lines is as follows:



|                         |  | For the three months ended |         |  | For the six months ended |  
|------------------------ |  | -------------------------- | ------- |  | ------------------------ | -
|(in thousands)           |  | 2010                       |         |  | 2009                     |  
|Products                 |  | (Unaudited) (As restated)  |         |  | (Unaudited)              |  
|Re-bar                   |  | $                          | 494,530 |  |                          | $
|Hot-Rolled Sheets        |  |                            | -       |  |                          |  
|High Speed Wire          |  |                            | 2,006   |  |                          |  
|Spiral-Welded Steel Pipe |  |                            | 5,143   |  |                          |  
|Total sales revenue      |  | $                          | 501,679 |  |                          | $



Note 24 – Subsequent event



On August 4, 2010, the investors in the
remaining outstanding Notes (the “Investors”) elected to convert all the amounts due under the Notes into the Company’s
common stock, par value per share $0.001. These are the only remaining notes outstanding from the Company’s December 13,
2007 private placement. The Notes were converted in accordance with their terms resulting in the issuance of a total of 1,559,675
shares of common Stock in the aggregate to the Investors (the “Conversion”). As a result of the Conversion, the Company
has no outstanding balance for the Notes.



41







ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.



Note Regarding Forward-Looking Statements



The following discussion of the financial condition and results
of operations should be read in conjunction with the consolidated financial statements and related notes thereto. The following
discussion contains forward-looking statements. General Steel Holdings, Inc. is referred to herein as “we” or “our.”
The words or phrases “would be,” “will allow,” “expect to”, “intends to,” “will
likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,”
or similar expressions are intended to identify forward-looking statements. Such statements include those concerning our expected
financial performance, our corporate strategy and operational plans. Actual results could differ materially from those projected
in the forward-looking statements as a result of a number of risks and uncertainties, including: (a) those risks and uncertainties
related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether
we are able to manage our planned growth efficiently and operate profitable operations, including whether our management will be
able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage
and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain financing
to sustain and grow our operations; and (d) whether we are able to successfully fulfill our primary requirements for cash which
are explained below under “Liquidity and Capital Resources.” Unless otherwise required by applicable law, we do not
undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments,
unanticipated events or circumstances after the date of such statement.



Recent Developments and Second Quarter Highlights



|• | For the three month period ended June 30, 2010, total revenue increased 22.7% to $501.7 million from $408.9 million in the second quarter of 2009.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------



|• | For the three month period ended June 30, 2010, shipment volume increased 5.2% to 1.01 million metric tons from 0.96 million metric tons.
|- | -----------------------------------------------------------------------------------------------------------------------------------------



|• | On May 13, 2010, we entered into a Joint Venture Framework Agreement with Shanxi Meijin Energy Group Co., Ltd. (“Meijin Energy”), a corporation formed under the laws of the People's Republic of China. The establishment of the joint venture is subject to our receipt and satisfactory review of a written appraisal of fixed assets and related due diligence materials pertaining to Meijin Energy.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our continuing growth demonstrates the following strengths:



| | • | our two-pronged growth strategy of upgrading our existing
operations and growing through merger and acquisition activities has proven successful; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | • | we are a direct beneficiary of the China economic stimulus
infrastructure spending program.
| | - | -------------------------------------------------------------------------------------------



Overview



We were incorporated
on August 5, 2002 in the State of Nevada. We are headquartered in Beijing, China and operate a diverse portfolio of Chinese steel
companies that serve several industries and produce a variety of steel products including reinforced bars (“rebar”),
spiral-weld pipes and high-speed wire. Our aggregate annual production capacity of steel products is 6.3 million metric tons, of
which the majority is rebar. Individual industry segments have unique demand drivers, such as agriculture equipment, infrastructure
construction and energy consumption. Domestic economic conditions drive demand for all of our products.



Our vision is to become one of the largest
and most profitable non-government owned steel companies in China.



Our mission is to acquire Chinese steel companies
and increase their profitability and efficiencies with the application of western management practices and advanced production
technologies, and the infusion of capital resources.



42







Our strategy is to grow through mergers,
joint ventures and acquisitions targeting state-owned enterprise steel companies and selected entities with outstanding potential.
We have executed this strategy in acquiring controlling interest positions in three joint ventures. Our business currently operates
through four steel-related subsidiaries and we are actively pursuing a plan to acquire additional assets.



Unless the context indicates otherwise, as
used herein the terms “General Steel”, the “company”, “Registrant”, “we”, “our”
and “us” refer to General Steel Holdings, Inc. and its subsidiaries.



Steel Related Subsidiaries



We presently have controlling interests
in four steel-related subsidiaries:





| |  | · | General Steel (China) Co., Ltd.;                                        
| |  | - | ------------------------------------------------------------------------
| |  | · | Baotou Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd.;
| |  | · | Shaanxi Longmen Iron and Steel Co., Ltd.; and                           
| |  | — | Maoming Hengda Steel Group, Ltd.                                        



General Steel (China) Co., Ltd.



General Steel (China) Co., Ltd., (“GS
(China)”), formerly known as Tianjin Daqiuzhuang Metal Sheet Co., Ltd., started operations in 1988. GS (China)’s core
business was manufacturing high quality hot-rolled carbon and silicon steel sheets mainly used in low-end light industrial applications
including the production of wiring cabinets, metal security doors, light agricultural vehicles and other specialty markets.



On March 31, 2010, GS (China) entered into
a lease agreement whereby GS (China) leased its facility located at No. 1, Tongda Street, Daqiuzhuang town, Jinghai County, Tianjin
municipality, to Tianjin Daqiuzhuang Steel Plates Co., Ltd. (“Lessee”). The lease provides approximately 776,078 square
feet of workshops, land, equipment and other facilities to the Lessee and reduces overhead costs while providing a recurring monthly
revenue stream resulting from payments due thereunder. The term of the lease is from January 1, 2010 to December 31, 2011 and the
monthly base rental rate due to GS (China) is approximately $246,096 (RMB1.68 million). The former General Manager of GS (China)
currently manages Tianjin Daqiuzhuang Steel Plates Co., Ltd. Changing the business model of this facility from a direct operations
model to a leased operations model reduces overhead costs and provides a steady revenue stream in the form of fixed monthly lease
revenue.



Baotou Steel - General Steel Special Steel Pipe Joint
Venture Co., Ltd.



On April 27, 2007, GS (China) and Baotou
Iron and Steel Group Co., Ltd. (“Baotou Steel”) entered into an Amended and Restated Joint Venture Agreement amending
the Joint Venture Agreement entered into on September 28, 2005 to increase GS (China)’s ownership interest in the related
joint venture to 80%. The joint venture company’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture Co.,
Ltd. (“Baotou Steel Pipe Joint Venture”). Baotou Steel Pipe Joint Venture obtained its business license from government
authorities in China on May 25, 2007, and started regular operations in July 2007. Baotou Steel Pipe Joint Venture has four production
lines capable of producing 100,000 metric tons of double spiral-weld pipes used mainly in the energy sector primarily to transport
oil, natural gas and steam. These pipes have a diameter ranging from 219mm to 1240mm, a wall thickness ranging from 6mm to 13mm,
and a length ranging from 6m to 12m. Presently, Baotou Steel Pipe Joint Venture sells its products using an internal sales force
to customers in the Inner Mongolia Autonomous Region and the northwest region of China.



Shaanxi Longmen Iron and Steel Co., Ltd.



Effective June 1, 2007, through two subsidiaries,
GS (China) and Tianjin Qiu Steel Investment Co., Ltd., we entered into a Joint Venture Agreement with Shaanxi Longmen Iron &
Steel Group Co., Ltd. (“Long Steel Group”) to form Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”).
Through our two subsidiaries, we invested a total of approximately $39 million cash and collectively hold approximately 60% of
the Longmen Joint Venture.



43







Longmen Group, located in Hancheng city,
Shaanxi province, in China’s central region, was founded in 1958 and incorporated in 2002. Longmen Group operates as a fully-integrated
steel production facility. Less than 10% of steel companies in China have fully-integrated steel production capabilities.



Currently, the Longmen Joint Venture has
five branch offices, five subsidiaries under direct control and six entities in which it has a non-controlling interest. It employs
approximately 6,300 full-time employees. In addition to steel production, the Longmen Joint Venture operates transportation services
through its Changlong Branch, located at Hancheng city, Shaanxi province. Changlong Branch owns 154 vehicles and provides transportation
services exclusively to the Longmen Joint Venture.



Coke Operation: Longmen Joint Venture owns
22.76% of Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”). Located in Hancheng city, Shaanxi province, Tongxing
produces second grade coke used as part of the fuel for our blast furnaces. Its annualized coke production capacity is 200,000
metric tons. Tongxing sells all of its output to Longmen Joint Venture. Longmen Joint Venture does not own iron pelletizing facilities.



Longmen Joint Venture’s products are
categorized within the steel industry as “longs” (referencing their shape) and are generally considered a regional
product because their weight and dimensions make the products ill-suited for cost-effective long-haul ground transportation. By
our estimates, the provincial market demand for rebar is six to eight million metric tons per year. Slightly more than half of
this demand comes from Xi’an, the capital of Shaanxi province, located 200km from the Longmen Joint Venture’s main
steel production site. We estimate that we currently provide the Xi’an market with approximately 72% of its market for rebar.



An established regional network of approximately
100 distributors and four sales offices sell the Longmen Joint Venture’s products. All Longmen Joint Venture products are
sold under the registered brand name of “Yulong,” which has strong regional recognition and brand awareness. Rebar
and billet products carry ISO 9001 and 9002 certification and many other products have won national quality awards. Products manufactured
at the facility have been used in the construction of the Yangtze River Three Gorges Dam, Xi’an International Airport, the
Xi’an city subway system and the Xi Luo Du and the Xiang Jia Ba hydropower projects.



Maoming Hengda Steel Group Limited



On June 25, 2008, through our subsidiary
Qiu Steel Investment, we paid approximately $7.1 million (RMB50 million) in cash, to purchase 99% of Maoming Hengda Steel Group,
Ltd. (“Maoming”). The total registered capital of Maoming is approximately $77.8 million (RMB544.6 million).



Maoming’s core business is the production
of high-speed wire and rebar products used in the construction industry. Located on 140 hectares (approximately 346 acres) in Maoming
city, Guangdong province. The Maoming facility has two production lines capable of producing 1.8 million metric tons of 5.5mm to
16mm diameter high-speed wire and 12mm to 38mm diameter rebar annually. The products are sold through nine distributors targeting
customers in Guangxi province and the eastern region of Guangdong province.



To take advantage of stronger market demand
in Shaanxi, in the second quarter of 2009, we relocated the 800,000 metric tons capacity rebar production line from the Maoming
facility to the Longmen Joint Venture. In the third quarter of 2010, we intend to relocate the 1,000,000 metric tons capacity high-speed
wire production line from the Maoming facility to the Longmen Joint Venture.



On February 3, 2010, Maoming entered into
a strategic alliance agreement with Zhuhai Yueyufeng Iron and Steel Co., Ltd. (“Yueyufeng”) whereby Yueyufeng will
fund construction of a new 400,000 metric tons capacity rebar production line to operate at the Maoming facility. In exchange for
the funding, Maoming will process 25,000 metric tons of rebar for Yueyufeng monthly from July 2010 to June 2012.



44







Production Capacity Information Summary by Subsidiaries



|                                         |  | GS (China)                    |  | Baotou Steel Pipe
        Joint Venture |  | Longmen Joint
        Venture           |  | Maoming                                
|---------------------------------------- |  | ----------------------------- |  | --------------------------------------- |  | --------------------------------------- |  | ---------------------------------------
|                                         |  |                               |  |                                         |  |                                         |  |                                        
|Annual Production Capacity (metric tons) |  | 400,000                       |  | 100,000                                 |  | 4.8 million                             |  | 1 million                              
|                                         |  |                               |  |                                         |  |                                         |  |                                        
|Main Products                            |  | Hot-rolled sheet              |  | Spiral-weld pipe                        |  | Rebar/High-speed wire                   |  | High-speed wire                        
|                                         |  |                               |  |                                         |  |                                         |  |                                        
|Main Application                         |  | Light industrial applications |  | Energy transport                        |  | Infrastructure and
        construction |  | Infrastructure and
        construction



Marketing and Customers



We sell our products primarily to distributors,
typically collecting payment from these distributors in advance. Our marketing efforts are mainly directed toward those customers
who have exacting requirements for on-time delivery, customer support and product quality. We believe that these requirements as
well as product planning are critical factors in our ability to serve this segment of the market.



Demand for our products



Overall, domestic economic growth is an important
demand driver of our products, especially construction and infrastructure projects, rural income growth and energy demand.



At Longmen Joint Venture, growth in
regional construction and infrastructure projects drives demand for our products. According to the 12th Five Year
National Economic and Social Development Plan (“NESDP”) (2011-2015), development of China’s western region
is one of the top-five economic priorities of the PRC. Shaanxi province, where the Longmen Joint Venture is located, has been
designated as a focal point for development into the western region. Our Longmen Joint Venture is 220 km from Xi’an and
does not have a major competitor within a 250 km radius. According to the information released by the Shaanxi Provincial
Development and Reform Commission, total fixed assets investment for Shaanxi province was approximately $21.3 billion (RMB
144.9 billion) for the year ended December 31, 2009, a 73.7% increase over the same period in 2008. There are 235
construction and infrastructure projects under construction in 2010. Among them 50 projects are scheduled to begin this year.
Some of the major projects include: nine new railways, one new airport, and expansion of the Xi’an airport, two new
ring subway systems and 4 new dams. Currently, our Longmen Joint Venture supplies construction steel products to many of
these projects including: the Xi’an No. 1 and 2 subway systems and the railway lines connecting Xi’an to Chengdu
and Xi’an to Ankang. We believe there will be sustained regional demand for several years as the government continues
to drive western region development efforts.



At Baotou Steel Pipe Joint Venture, energy
sector growth, which spurs the need to transport oil, natural gas and steam, drives demand for spiral-weld steel pipe. Presently,
demand is fueled by smaller pipeline projects and municipal energy infrastructure projects within the Inner Mongolia Autonomous
Region.



At Maoming, infrastructure growth and business
development in Maoming city, the surrounding Guangdong cities and the western region of Guangxi province, drive demand for our
construction steel products. As a second tier city, the industrialization and urbanization of Maoming is one of the focal points
of economic development in west Guangdong province.



Supply of raw materials



The primary raw materials we use for steel
production are iron ore, coke and steel billets. Baotou Steel Pipe Joint Venture uses hot-rolled steel coil as their main raw material.
Longmen Joint Venture uses iron ore and coke as its main raw materials. Maoming uses steel billets as its main raw material. Iron
ore is the main raw material used to produce hot-rolled steel coil and steel billets. As a result, the prices of iron ore and coke
are the primary raw material cost drivers for our products.



Longmen Joint Venture accounts for 4.8 million
metric tons of our aggregate 6.3 million metric tons annual production capacity. At Longmen Joint Venture, approximately 95% of
production costs are associated with raw materials, with iron ore being the largest component.



45







According to the China Iron and Steel Association,
approximately 60% of the China’s domestic steel industry demand for iron ore must be filled by imports. At Longmen Joint
Venture, we purchase iron ore from four primary sources: the Mulonggou mine (owned by the Longmen Joint Venture), the Daxigou mine
(owned by Longmen Group, our partner in the Longmen Joint Venture), surrounding local mines and from abroad. The Daxigou mine has
300 million metric tons of iron ore reserves. According to the terms of our Longmen Joint Venture Agreement with the Longmen Group,
we have first rights of refusal for sales from the mine and for its development. We presently purchase all of the production from
this mine.



Coke



Coke, produced from metallurgical coal (also
known as coking coal), is our second most consumed raw material, after iron ore. It requires approximately 550kg to 600kg of coke
to make one metric ton of crude steel.



Longmen Joint Venture facility is located
in the center of China’s coal belt. We source all coke used at Longmen Joint Venture from the town in which Longmen Joint
Venture is located. This ensures dependable supply and minimal transportation costs.



The major suppliers of our raw materials are as follows (1):



Longmen Joint Venture



|Name of the Major Supplier                      |  | Raw Material Purchased |            |  | % of Total Raw Material Purchased |  |      | Relationship with General Steel | 
|----------------------------------------------- |  | ---------------------- | ---------- |  | --------------------------------- |  | ---- | ------------------------------- | 
|Shaanxi Longmen Iron & Steel Group Co., Ltd.    |  |                        | Iron Ore   |  |                                   |  | 22.7 | %                               | 
|Shaanxi Haiyan Coal Chemical Industry Co., Ltd. |  |                        | Coke       |  |                                   |  | 11.9 | %                               | 
|Shaanxi Huanghe Material Co., Ltd.              |  |                        | Coke       |  |                                   |  | 6.5  | %                               | 
|Baotou Bangli Industry Co., Ltd                 |  |                        | Iron Ore   |  |                                   |  | 3.1  | %                               | 
|Hejing Xinbo Commercial Trade Co., Ltd.         |  |                        | Iron Block |  |                                   |  | 3.0  | %                               | 
|                                                |  |                        | Total      |  |                                   |  | 47.2 | %                               | 



Baotou Steel Pipe Joint Venture



|Name
of the Major Supplier                |  | Raw Material Purchased |            |  | %
                                                                                                                                                                                       of
                                                                                                                                                                                       Total
                                                                                                                                                                                       Raw Material Purchased |  |      | Relationship with General Steel | 
|----------------------------------------- |  | ---------------------- | ---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------------------------------- | 
|Inner Monglia Chenggang Material Co., Ltd |  |                        | Steel Coil |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 23.1 | %                               | 
|Tianjin Dazhan Industry Co., Ltd          |  |                        | Steel Coil |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 14.7 | %                               | 
|Baotou Shunye Material Co., Ltd           |  |                        | Steel Coil |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 12.2 | %                               | 
|Tianjin Shengze Industry & Trade Co., Ltd |  |                        | Steel Coil |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 11.6 | %                               | 
|Tianjin Jinchang I&E Co., Ltd.            |  |                        | Steel Coil |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 6.0  | %                               | 
|                                          |  |                        | Total      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 67.6 | %                               | 



Maoming



|Name
                                                                                                                                                                                                                                                                            of
                                                                                                                                                                                                                                                                            the
                                                                                                                                                                                                                                                                            Major
                                                                                                                                                                                                                                                                            Supplier |  | Raw
                                                                                                                                                                                                             Material Purchased |           |  | % of Total Raw Material Purchased |  |      | Relationship with General Steel | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- |  | --------------------------------- |  | ---- | ------------------------------- | 
|Maoming Dazhongmao Petrochem Co., Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                     | Heavy Oil |  |                                   |  | 23.5 | %                               | 
|Maoming Zhenmao Development Co.,Ltd                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                     | Heavy Oil |  |                                   |  | 23.5 | %                               | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                     | Total     |  |                                   |  | 47.0 | %                               | 



46







| | (1) | For purposes of the above tables, the term “Related Party” refers to a company over whose operating policies we
can exercise control or significantly influence.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Industry consolidation



The central government has a long-stated
goal to consolidate 50% of domestic steel production among the top ten producers by 2010 and 70% by 2020. In September 2009, the
central government published an industry target to eliminate 80 million metric tons of inefficient capacity from the steel industry
by the end of 2011. Along with this target, the government added new steel making operational and environmental restrictions and
tasked several government agencies with enforcing these measures.



On July 12, 2010, the Ministry of Industry
& Information Technology Commission issued the Steel Industry Admittance and Operation Qualifications. The new standard specified
requirement of all aspects which include: size of blast furnace, size of converters, emission of waste water, dust per ton of steel
producing, quantity of coal used for each process of steel making and output capacity of year 2009. The new policy once again confirms
the central government’s resolution to push forward the consolidation of this fragmented industry of more than 800 players.
While the operational conditions become tougher and tougher, more small and medium size players will aggressively look for valued
partners which will raise the opportunities of high quality acquisitions for us. We believe the directives indirectly strengthen
our position as an industry consolidator by creating quantitative measures we can use to better qualify potential acquisition targets.



Results of Operations for the Three Months Period Ended



Sales Revenues



Three months ended June 30, 2010 compared with three months
ended June 30, 2009



The following table sets forth sales revenue and volume in metric
tons for Longmen Joint Venture.





|SALES REVENUE                    |  | Three
                                                                                                                                                                                                                            months
                                                                                                                                                                                                                            ended |           |  |               |   |         |           | 
|-------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- |  | ------------- | - | ------- | --------- | 
|                                 |  | June 30, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                                              |           |  | June 30, 2009 |   |         | Change    | 
|in thousands, except metric tons |  | Volume                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |           |  | Revenue       |   |         | %         | 
|                                 |  | Unaudited                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |  |               |   |         | Unaudited | 
|Longmen Joint Venture            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 928,380   |  |               | $ | 499,361 |           | 
|Other                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 82,375    |  |               | $ | 2,318   |           | 
|Total Revenue of General Steel   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 1,010,755 |  |               |   | 501,679 |           | 





Total Sales Revenues for the three months
ended June 30, 2010 increased 22.7% to $501.7 million from $408.9 million for the same period last year.



The increase in sales revenue compared to
the same period last year is predominantly due to the sales volume increase of 5.8% and average selling price of rebar increase
of 24.4% at Longmen Joint Venture from RMB2,950 (approximately $434) in the second quarter of 2009 to RMB3,666 (approximately $540)
in the second quarter of 2010.



Longmen Joint Venture comprised 99.5% of
total sales for the second quarter of 2010. We run at 86% of our total capacity in the second quarter of 2010 which was fueled
by stable demand for construction steel in our addressable markets.



Maoming comprised less than 1% of total sales
for the second quarter of 2010. The decrease in sales revenue compared to the same period last year is primarily due to a greater
number of processing contracts compared to production contracts. In the second quarter of 2010, Maoming only completed processing
contracts, which generate less sales revenue, whereas in the second quarter of 2009, it completed both processing and production
contracts.



47







Baotou Steel Pipe Joint Venture comprised
less than 1% of total sales for the second quarter of 2010. Sales from Baotou Steel Pipe Joint Venture increased in second quarter
2010 compared to the same period last year due to higher average selling price.



Six months ended June 30, 2010 compared with six months
ended June 30, 2009



The following table sets forth sales revenue and volume in metric
tons for each of our Longmen Joint Venture



|SALES REVENUE                     |  | Six
                                                                                                                                                                                                                     months
                                                                                                                                                                                                                     ended |           |  |               |   |         |           | 
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- |  | ------------- | - | ------- | --------- | 
|                                  |  | June 30, 2010                                                                                                                                                                                                                                                                                                                                                                                                                                              |           |  | June 30, 2009 |   |         | Change    | 
|in thousands, 
except metric tons |  | Volume                                                                                                                                                                                                                                                                                                                                                                                                                                                     |           |  | Revenue       |   |         | %         | 
|                                  |  | Unaudited                                                                                                                                                                                                                                                                                                                                                                                                                                                  |           |  |               |   |         | Unaudited | 
|Longmen Joint Venture             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 1,838,111 |  |               | $ | 934,187 |           | 
|Other                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 208,014   |  |               | $ | 20,515  |           | 
|Total Revenue of General Steel    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 2,046,125 |  |               |   | 954,702 |           | 



Total Sales Revenues for the six months ended
June 30, 2010 increased 30.5% to $954.7 million from $731.7 million for the same period last year.



The increase in sales revenue compared to
the same period last year is predominantly due to the sales volume increase of 22.3% and a 15.5% increase in the average selling
price of rebar of at our Longmen Joint Venture from RMB3, 000 (approximately $441) in the first half of 2009 to RMB3, 465 (approximately
$509) in the first half of 2010.



Longmen Joint Venture comprised 97.9% of
total sales for first half of 2010. We run at about 86% of our total capacity in the first half of 2010 which resulted from stable
demand for our construction steel products.



Maoming comprised less than 1% of our total
sales for the first half of 2010. The decrease in sales revenue compared to the same period last year is primarily due to the elimination
of production contracts. In the second quarter of 2010, Maoming only completed processing contracts, which generate less sales
revenue, whereas in the second quarter of 2009, it completed both processing and production contracts.



Baotou Steel Pipe Joint Venture comprised
less than 1% of our total sales for the first half of 2010. The 60.2% sales amount increase is due to higher average selling prices.
Sales from Baotou Steel Pipe Joint Venture increased in the first half of 2010compared to the first half of 2009 due to higher
average selling prices.



Gross Profit



Three months ended June 30, 2010 compared with three months
ended June 30, 2009



The following table sets forth gross profit and volume in metric
tons of each of our Longmen Joint Venture.



|GROSS PROFIT                        |  | Three months
    ended |           |  |               |  
|----------------------------------- |  | ---------------------- | --------- |  | ------------- | -
|in thousands, except metric tons    |  | June 30, 2010          |           |  | June 30, 2009 |  
|                                    |  | Unaudited              |           |  |               |  
|                                    |  | Volume                 |           |  | Gross 
Profit |  
|Longmen Joint Venture               |  |                        | 928,380   |  |               | $
|Other                               |  |                        | 82,375    |  |               |  
|Total Gross Profit of General Steel |  |                        | 1,010,755 |  |               |  



48







Longmen Joint Venture



Gross profit for the three months ended June
30, 2010 decreased 67.1% to $8.1 million from $24.7 million for the same period last year. The decrease is primarily attributable
to a drop in gross profit at Longmen Joint Venture.



The Gross Profit Margin at Longmen Joint Venture was negatively
affected by the following factors:



| | 1) | Average selling prices of our products declined approximately 15% from the middle of April to the end of June mainly due to the implementation of a series of macro-control measures issued by the Chinese government to impede the rising price of property which slowed down real estate projects.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2) | The price of our primary raw materials including iron ore and coke stayed at relatively high levels in the second quarter of 2010.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------



Maoming



We have not realized a gross profit at Maoming
due to its relatively low utilization rate of the products from that facility. In the second quarter of 2010, Maoming discontinued
its performance of production contracts and only performed processing contracts, which generate less sales revenue than production
contracts, By comparison, in the second quarter of 2009, Maoming completed both processing and production contracts. The decrease
in gross profit also contributed by decrease in sales revenue.



Baotou Steel



At our Baotou Steel Pipe Joint Venture, gross
margin increased to 8.5% in the second quarter of 2010 from -0.1% in the same period last year. The increase was due to higher
average selling price in the second quarter of 2010 compare to the same period last year.



Six months ended June 30, 2010 compared with six months
ended June 30, 2009



The following table sets forth gross profit and volume in metric
tons of each of Longmen Joint Venture.



|GROSS PROFIT                        |  | Six months ended |           |  |               |  
|----------------------------------- |  | ---------------- | --------- |  | ------------- | -
|in thousands, except metric tons    |  | June 30, 2010    |           |  | June 30, 2009 |  
|                                    |  | Unaudited        |           |  |               |  
|                                    |  | Volume           |           |  | Gross Profit  |  
|Longmen Joint Venture               |  |                  | 1,838,111 |  |               | $
|Other                               |  |                  | 208,014   |  |               |  
|Total Gross Profit of General Steel |  |                  | 2,046,125 |  |               |  



Gross profit for the six months ended June
30, 2010 decreased 63.0% to $13.1 million from $35.4 million for the same period last year. The decrease is primarily attributable
to a drop in gross profit at Longmen Joint Venture.



Selling, General and Administrative Expenses



Three months ended June 30, 2010 compared with three months
ended June 30, 2009



|(in thousands)                                 |  | Three months ended |        |   |               |  
|---------------------------------------------- |  | ------------------ | ------ | - | ------------- | -
|                                               |  | June 30, 2010      |        |   | June 30, 2009 |  
|                                               |  | Unaudited          |        |   | Unaudited     |  
|Selling, General And Administrative Expenses   |  | $                  | 13,677 |   |               | $
|SG&A Expenses As A Percentage Of Total Revenue |  |                    | 2.7    | % |               |  



49







Selling, general and administrative expenses,
such as executive compensation, office expenses, legal and accounting charges, travel charges, equipment maintenance and various
taxes increased 43.0% to $13.7 million for the three months ended June 30, 2010, compared to $9.6 million for the same period of
2009. The increase is mainly due to increased transportation and agent charges at Longmen Joint Venture following shipping volume
increases and more sales deliveries made to markets outside of Shaanxi.



Selling, general and administrative expenses
as a percentage of revenue increased slightly to 2.7% for the second quarter of 2010 from 2.3% for the same period in 2009.



Six months ended June 30, 2010 compared with six months
ended June 30, 2009

|in thousands                                   |  | Six months ended |        |   |               |  
|---------------------------------------------- |  | ---------------- | ------ | - | ------------- | -
|                                               |  | June 30, 2010    |        |   | June 30, 2009 |  
|                                               |  | Unaudited        |        |   | Unaudited     |  
|Selling, General And Administrative Expenses   |  | $                | 25,813 |   |               | $
|SG&A Expenses As A Percentage Of Total Revenue |  |                  | 2.7    | % |               |  



Selling, general and administrative expenses,
such as executive compensation, office expenses, legal and accounting charges, travel charges, equipment maintenance and various
taxes increased 37.8% to $25.8 million for the six months ended June 30, 2010, compared to $18.7 million for the same period of
2009. The increase is mainly due to increased transportation and agent charges at Longmen Joint Venture following shipping volume
increases and more sales deliveries made to markets outside of Shaanxi.



Selling, general and administrative expenses
as a percentage of revenue increased slightly to 2.7% for the first half of 2010 from 2.6% in the same period in 2009.



(Loss) income from operations



Three months ended June 30, 2010 compared with three months
ended June 30, 2009



|(in thousands)                |  | Three months ended                                                                                                                                                                                                                                                                                                                                                            |        |   |               | 
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | - | ------------- | 
|                              |  | June
                                                                                                                                                                                30,
                                                                                                                                                                                2010 |        |   | June 30, 2009 | 
|                              |  | (Unaudited)                                                                                                                                                                                                                                                                                                                                                                   |        |   | (Unaudited)   | 
|(Loss) Income From Operations |  | $                                                                                                                                                                                                                                                                                                                                                                             | (6,313 | ) |               | 



Income from operations for the three months
ended June 30, 2010 decreased to a loss of $6.3 million from $12.9 million income for the same period last year.



|(in thousands)                |  | Six months ended                                                                                                                                                                                                                                                                                                                                                                            |         |   |               | 
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | - | ------------- | 
|                              |  | June
                                                                                                                                                                                       30,
                                                                                                                                                                                       2010 |         |   | June 30, 2009 | 
|                              |  | (Unaudited)                                                                                                                                                                                                                                                                                                                                                                                 |         |   | (Unaudited)   | 
|(Loss) Income From Operations |  | $                                                                                                                                                                                                                                                                                                                                                                                           | (12,703 | ) |               | 



Income from operations for the six months
ended June 30, 2010 decreased to a loss of $12.7 million from $16.7 million income for the same period last year.



The decrease in income from operations for
the three months and six months ended June 30, 2010 was due to a decrease in gross profit margin caused by average selling price
decline while cost of production stayed at relatively high level for the second quarter of 2010 which adversely affected our gross
margin.



50







Other income (expense)



Three months ended June 30, 2010 compared with three months
ended June 30, 2009



|(In thousands)                                 |  | Three months ended    |         |   |               |  
|---------------------------------------------- |  | --------------------- | ------- | - | ------------- | -
|                                               |  | June 30, 2010         |         |   | June 30, 2009 |  
|                                               |  | As restated Unaudited |         |   | Unaudited     |  
|Other Income (Expenses)                        |  |                       |         |   |               |  
|Interest income                                |  | $                     | 617     |   |               | $
|Finance/Interest expense                       |  |                       | (16,464 | ) |               |  
|Change in fair value of derivative liabilities |  |                       | 10,729  |   |               |  
|Income from equity investment                  |  |                       | 3,074   |   |               |  
|Lease income                                   |  |                       | 184     |   |               |  
|Other non-operating income, net                |  |                       | 628     |   |               |  
|Total other expenses, net                      |  | $                     | (1,232  | ) |               | $



Total other expense for the three months
ended June 30, 2010 was $1.2 million compared to $34.4 million for the same period last year.



The difference between the $1.2 million expense
recorded for the three months ended June 30, 2010 and the $34.4 million expense recorded for the three months ended June 30, 2009
was caused by the net effect of a $5.2 million increase in finance and interest expense and a gain of $10.7 million on the change
in fair value of derivative liabilities.



Six months ended June 30, 2010 compared with six months
ended June 30, 2009



|(In thousands)                                 |  | Six months ended      |         |   |               |  
|---------------------------------------------- |  | --------------------- | ------- | - | ------------- | -
|                                               |  | June 30, 2010         |         |   | June 30, 2009 |  
|                                               |  | As restated Unaudited |         |   | Unaudited     |  
|Other Income (Expenses)                        |  |                       |         |   |               |  
|Interest income                                |  | $                     | 1,737   |   |               | $
|Finance/Interest expense                       |  |                       | (27,427 | ) |               |  
|Change in fair value of derivative liabilities |  |                       | 14,668  |   |               |  
|Gain from debt extinguishment                  |  |                       | -       |   |               |  
|Government grant                               |  |                       | -       |   |               |  
|Income from equity investment                  |  |                       | 3,229   |   |               |  
|Lease income                                   |  |                       | 320     |   |               |  
|Other non-operating income, net                |  |                       | 671     |   |               |  
|Total other expenses, net                      |  | $                     | (6,802  | ) |               | $



Total other expense for the six months ended
June 30, 2010 was $6.8 million compared to $25.4 million for the same period last year.



The difference between the $6.8 million expense
recorded for the six months ended June 30, 2010 and the $25.4 million expense recorded for the six months ended June 30, 2009 was
caused by the net effect of a $13.2 million increase in finance and interest expense and a gain of $14.7 million in the change
in fair value of derivative liabilities.



51







Change in fair value of derivative liabilities



According to GAAP, our December 2007 Notes
and the December 2007 Warrants (as defined below) are considered a derivative and therefore must be “marked to market.”
One of the drivers used to calculate the value of this derivative is stock price. Changes in our stock price cause gains or losses
to this income statement item.



The change in fair value of derivative liabilities
for the three months ended June 30, 2010 was a gain of $10.7 million compared to a loss of $26.7 million for the same period last
year. The change in fair value of derivative liabilities for the six months ended June 30, 2010 was a gain of $14.7 million compared
to a loss of $22.6 million for the same period last year. This gain was due to a lower stock price of our common stock in the second
quarter of 2010 compared to fiscal year-ended December 31, 2009. According to GAAP rules in valuing derivatives, the drop in our
share price required us to record a $10.7 million gain for the three months ended June 30, 2010 and a $14.7 million gain for the
six months ended June 30, 2010 in change in fair value of derivative liabilities.



Net loss before noncontrolling interest



Three months ended June 30, 2010 compared with three months
ended June 30, 2009





|(in thousands)                          |  | Three months ended      |        |   |                | 
|--------------------------------------- |  | ----------------------- | ------ | - | -------------- | 
|                                        |  | June 30, 2010           |        |   | June 30, 
2009 | 
|                                        |  | As restated (Unaudited) |        |   | (Unaudited)    | 
|Net Loss Before Noncontrolling Interest |  | $                       | (4,742 | ) |                | 



Net loss before noncontrolling interest for
the three months ended June 30, 2010 decreased to 4.8 million from $23.4 million for the same period last year.



Six months ended June 30, 2010 compared with six months
ended June 30, 2009



|(in thousands)                          |  | Six months ended        |         |   |                | 
|--------------------------------------- |  | ----------------------- | ------- | - | -------------- | 
|                                        |  | June 30, 2010           |         |   | June 30, 
2009 | 
|                                        |  | As restated (Unaudited) |         |   | (Unaudited)    | 
|Net Loss Before Noncontrolling Interest |  | $                       | (14,765 | ) |                | 



Net loss before noncontrolling interest for
the six months ended June 30, 2010 increased to $14.8 million from $12.1 million for the same period last year.



Net Loss attributable to General Steel Holdings, Inc.



Three months ended June 30, 2010 compared with three months
ended June 30, 2009





|(in thousands)                                                      |  | Three months ended      |        |   |                |  
|------------------------------------------------------------------- |  | ----------------------- | ------ | - | -------------- | -
|                                                                    |  | June 30, 2010           |        |   | June 30, 
2009 |  
|                                                                    |  | As restated (Unaudited) |        |   | (Unaudited)    |  
|Net Loss Before Noncontrolling Interest                             |  | $                       | (4,742 | ) |                | $
|LESS: Net Income (Loss) Attributable to the Noncontrolling Interest |  |                         | (2,738 | ) |                |  
|Net Loss Attributable To Controlling Interest                       |  | $                       | (2,004 | ) |                | $



52







Net loss attributable to General Steel Holdings,
Inc. for the three months ended June 30, 2010 decreased to a $2.0 million compared to $31.8 million for the same period of 2009.



Six months ended June 30, 2010 compared with six months
ended June 30, 2009



|(in thousands)                                                      |  | Six months ended        |         |   |                |  
|------------------------------------------------------------------- |  | ----------------------- | ------- | - | -------------- | -
|                                                                    |  | June 30, 2010           |         |   | June 30, 
2009 |  
|                                                                    |  | As restated (Unaudited) |         |   | (Unaudited)    |  
|Net Loss Before Noncontrolling Interest                             |  | $                       | (14,765 | ) |                | $
|LESS: Net Income (Loss) Attributable to the Noncontrolling Interest |  |                         | (7,149  | ) |                |  
|Net Loss Attributable To Controlling Interest                       |  | $                       | (7,616  | ) |                | $



Net loss attributable to General Steel Holdings,
Inc. for the six months ended June 30, 2010 decreased to $7.6 million compared to $24.5 million for the same period of 2009.



The income or loss attributable
to the non-controlling interests are calculated by the income or loss after tax shared in percentage by the minority group in any
subsidiaries which are not 100% owned by us. Long Steel Group’s non-controlling interest is calculated by using Longmen Joint
Venture’s consolidated net income (loss) after tax, multiplied by the share percentage of Longmen Group in Longmen Joint
Venture. Net income (loss) attributable to Long Steel Group is then equal to the net income (loss) of Longmen Joint Venture multiplied
by the 40% non-controlling interest held by Long Steel Group.



At the consolidation
level of Longmen Joint Venture, there are subsidiaries where Longmen Joint Venture does not have 100% ownership. Income/loss allocation
to these non-controlling interests is based on their equity percentages and the actual results.



Earnings per share



Three months ended June 30, 2010 compared with three months
ended June 30, 2009



|Earnings per Share                            |  | Three months ended    |        |   |               |  
|--------------------------------------------- |  | --------------------- | ------ | - | ------------- | -
|In thousands, except earnings per share       |  | June 30, 2010         |        |   | June 30, 2009 |  
|                                              |  | As restated Unaudited |        |   | Unaudited     |  
|Net Loss Attributable To Controlling Interest |  | $                     | (2,004 | ) |               | $
|                                              |  |                       |        |   |               |  
|Weighted Average Number Of Shares             |  |                       |        |   |               |  
|Basic                                         |  |                       | 52,112 |   |               |  
|Diluted                                       |  |                       | 52,112 |   |               |  
|                                              |  |                       |        |   |               |  
|Loss Per Share                                |  |                       |        |   |               |  
|Basic                                         |  | $                     | (0.04  | ) |               | $
|Diluted                                       |  | $                     | (0.04  | ) |               | $



Basic and diluted earnings per share for
the three months ended June 30, 2010 decreased to $0.04 compared to $0.80 for the same period of 2009.



53







Six months ended June 30, 2010 compared with six months
ended June 30, 2009



|Earnings per Share                            |  | Six months ended      |        |   |               |  
|--------------------------------------------- |  | --------------------- | ------ | - | ------------- | -
|In thousands, except earnings per share       |  | June 30, 2010         |        |   | June 30, 2009 |  
|                                              |  | As restated Unaudited |        |   | Unaudited     |  
|Net Loss Attributable To Controlling Interest |  | $                     | (7,616 | ) |               | $
|                                              |  |                       |        |   |               |  
|Weighted Average Number Of Shares             |  |                       |        |   |               |  
|Basic                                         |  |                       | 51,883 |   |               |  
|Diluted                                       |  |                       | 51,883 |   |               |  
|                                              |  |                       |        |   |               |  
|Loss Per Share                                |  |                       |        |   |               |  
|Basic                                         |  | $                     | (0.15  | ) |               | $
|Diluted                                       |  | $                     | (0.15  | ) |               | $



Basic and diluted earnings per share for
the six months ended June 30, 2010 decreased to $0.15 from $0.64 for the same period of 2009.



Income taxes



We did not conduct any business and did not
maintain any branch office in the United States during the three months ended June 30, 2010 and 2009. Therefore, no provision for
withholding of U.S. federal or state income taxes or tax benefits on the undistributed earnings and/or losses of our company has
been made.



GS (China) is located in Tianjin Costal Economic
Development Zone and under the Income Tax Laws of Tianjin City of PRC, and therefore was eligible for an income tax rate of 24%.
Thus, GS (China) was entitled to a 50% income tax reduction of the special income tax rate of 24%, which is a rate of 12% for the
years ended December 31, 2009 due to its foreign joint venture status. Beginning in 2010, the effective income tax rate at GS (China)
becomes 25%.



Longmen Joint Venture is located in the mid-west
region of China. It qualifies for the “Go-West” tax rate of 15% promulgated by the government.



Baotou Steel Pipe Joint Venture is located
in Inner Mongolia Autonomous Region and is subject to an effective income tax rate of 25%.



Maoming is located in Guangdong province
and subject to an effective income tax rate of 25%.



For the three months ended June 30, 2010,
we had a total tax benefit of $2.8 million.



For the six months ended June 30, 2010, we
had a total tax benefit of $4.7 million.



We have cumulative undistributed earnings
of foreign subsidiaries of approximately $1.1 million as of June 30, 2010. Such earnings are included in consolidated retained
earnings and will continue to be indefinitely reinvested in internal operations. Accordingly, no provision has been made for U.S.
deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that
would have to be provided if we concluded that such earnings will be remitted in the future.



We were incorporated in the United States
and have incurred net operating losses for income tax purposes for the six months ended June 30, 2010 and for the year ended December
31, 2009. The net operating loss carry forwards for United States income taxes amounted to $5.6 million which may be available
to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2030. Management believes
that the realization of the benefits from these losses appears uncertain due to our limited operating history and continuing losses
for United States income tax purposes. Accordingly, we have provided a 100% valuation allowance on the deferred tax asset benefit
to reduce the asset to zero. The valuation allowance as of June 30, 2010 was $1.9 million. The net change in the valuation allowance
for the three months ended June 30, 2010 was $0.1 million. Management will review this valuation allowance periodically and make
adjustments as warranted.



54







Noncontrolling Interest



Noncontrolling interest mainly consists of
Long Steel Group’s 40% interest in Longmen Joint Venture, Baotou Iron and Steel Group’s 20% interest in Baotou Steel
Pipe Joint Venture and 1% interest in Maoming by another entity.



Accounts Receivable



Accounts receivable and accounts
receivable-related party were $22.1 million as of June 30, 2010 compared to $27.4 million on December 31, 2009. This increase
was mainly due to we have extended the payment terms with the government projects..



We recognize revenue when we ship out products
and pass the titles of the products to our customers and distributors. We extended short-term credit to our customers and distributors
with good reputations and long-term business relationships. We have not experienced any bad debt in these accounts. Also, we review
our accounts receivable on a regular basis to determine if the bad debt allowance is adequate and adjust the allowance amount if
needed. We believe the accounts receivable amount is collectible. Nevertheless, to be conservative and prudent in our management
practice, as of June 30, 2010, we reserved $0.4 million for bad debt allowance based on our reasonable estimate.



Inventory



We had an inventory balance of $250.6 million
as of June 30, 2010 compared to $177.4 million on December 31, 2009. Such balance is comprised of raw material and finished products.
We increased our stock of raw materials in the second quarter believing that raw material prices will increase in the upcoming
months.



Liquidity and capital resources



The steel business is capital intensive and
we utilize leverage greater than our industry peers which enables us to generate revenue compared to our shareholder equity at
a rate higher than our industry peers. We utilize leverage in the form of credit from banks, vendor financing, customer deposits
and others. This blended form of financing reduces our reliance on any single source.



Short-term notes payable



As of June 30, 2010, we had $388.1 million
in short-term notes payables liabilities, which are secured by restricted cash of $269.7 million and our assets. These are lines
of credit extended by banks for a maximum of six months and used to finance working capital. The short-term notes payables must
be paid in full at maturity and credit availability is continued upon payment at maturity. There are no additional significant
financial covenants.



Short-term notes payable is one of the lowest
cost form of financing available in China. We pay zero interest on this type of credit. This is a monetary tool used by China’s
central bank to inject liquidity into the Chinese monetary system.



Short-term loans – banks



As of June 30, 2010, we had $177.4 million
in short-term bank loans. These are bank loans with a one year maturity and must be paid in full upon maturity. There are no additional
significant financial covenants tied to these loans. Chinese banks have not been impacted as heavily by the financial crisis as
U.S. banks and we believe our current creditors will renew their lending to us after our loans mature as they have in the past.



We are able to repay our short-term notes
payables and short term bank loans upon maturity using available capital resources.



55







For more details about our debts, please
see note 9 in our Notes to the financial statements included in this report.



Cash-flow



Operating activities



Net cash used by operating activities for
the six months ended June 30, 2010 was $45.4 million compared to cash provided by operating activities of $29.0 million in the
same period of 2009. This change was mainly due to the combination of the following factors:



| | ● | Some non-cash items include in net income such as depreciation and amortization, impairment of long-lived assets, (Gain) Loss on disposal of equipment, stock issued for service and compensation, amortization of deferred note issuance cost, amortization of discount on convertible notes, change in fair value of derivative instrument, income from investment and deferred tax assets, totaled outflow of $15.2 million.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Cash outflow resulting from accounts receivable, notes receivable, inventory, other receivables, advances on inventory purchases and customer deposit was $174.0 million, compared to the same period last year with an outflow of $136.8 million. This increase of $37.2 million cash outflow is mainly due to increase in notes receivable and the decrease in customer deposit.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Cash inflow due to the increase in accounts payable, other payables and accrued liabilities, customer deposit-related parties, taxes payable and deferred lease income totaled of $143.8 million compared to the same period last year with an inflow of $141.6 million. The increase of $2.2 million is mainly due to increase in customer deposit-related parties and deferred lease income.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Investing activities



Net cash used in investing activities was
$117.6 million for the six months ended June 30, 2010 compared to $58.3 million used in the same period of 2009. This increase
in cash outflow is mainly due to increase of restricted cash.



Financing activities



Net cash provided by financing activities
was $131.8 million for the six months ended June 30, 2010 compared to $78.3 million in the same period of 2009.



Substantially all of
our operations are conducted in China and substantially all of our assets are located within the PRC. In addition, substantially
all of our transactions are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as
a result, China has strict rules for converting RMB to other currencies and the transfer of funds from PRC subsidiaries to the
offshore structure and the U.S. holding companies. Under the laws of the PRC governing foreign invested enterprises, dividend distribution
and other funds transfers are allowed but subject to special procedures under relevant rules and regulations. Foreign-invested
enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside at least 10.0% of its after-tax
profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reaches
50.0% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested
enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be
distributed to equity owners except in the event of liquidation. Under PRC regulations, RMB is currently convertible into U.S.
Dollars under a company’s “current account” which includes dividends, trade and service-related foreign exchange
transactions, without prior approval of the State Administration of Foreign Exchange (SAFE). Transfers from a company’s “capital
account,” which includes foreign direct investments and loans, can’t be executed without the prior approval of the
SAFE.



There are no restrictions
to distribute or transfer other funds from General Steel Investment to us.



56







We have never declared
or paid any cash dividends to our shareholders. We do not plan to pay any dividends out of our retained earnings for the year ending
December 31, 2010. With respect to retained earnings accrued after such date, the Company’s Board of Directors may declare
dividends after taking into account our operations, earnings, financial condition, cash requirements and availability and other
factors as it may deem relevant at such time. Any declaration and payment, as well as the amount, of dividends will be subject
to our By-Laws, charter and applicable Chinese and U.S. state and federal laws, including the approval from the shareholders of
each subsidiary which intents to declare such dividends, if applicable.



We have previously
raised money in the U.S. capital markets which has provided the capital needed for our operations and investments activities. Thus
the foreign currency restrictions and regulations in the PRC on the dividends distribution will not have a material impact on our
liquidity, financial condition, and results of operation.



Shelf Registration SEC Form S-3



On October 22, 2009, our shelf registration
statement on Form S-3 was declared effective by the SEC. From time to time we may sell common stock, preferred stock, warrants,
debt securities, rights and units in one or more offerings, for an aggregate offering price of up to $60 million. As discussed
below, in December 2009 we consummated a registered direct offering using the Form S-3 shelf registration statement to issue common
stock and warrants. We may sell the remaining securities registered on the Form S-3 shelf registration statement to or through
underwriters, directly to investors, through agents or any combination of the foregoing.



Each time we offer securities under our Form
S-3 shelf registration statement, we will file a prospectus supplement with the SEC containing more specific information about
the particular offering. The prospectus supplements may also add, update or change information contained in this prospectus. The
Form S-3 shelf registration statement may not be used to offer or sell securities without a prospectus supplement which includes
a description of the method of sale and terms of the offering.



Impact of inflation



We are subject to commodity price risks arising
from price fluctuations in the market prices of the raw materials. We have generally been able to pass on cost increases through
price adjustments. However, the ability to pass on these increases depends on market conditions influenced by the overall economic
conditions in China. We manage our price risks through productivity improvements and cost-containment measures. We do not believe
that inflation risk is material to our business or our financial position, results of operations or cash flows.



Compliance with environmental laws and regulations



Longmen Joint Venture:



Since 2002, our joint venture partner, Long
Steel Group, has invested $76 million (RMB580 million) in a series of comprehensive projects to reduce its waste emissions of coal
gas, water, and solid waste. In 2005, it received ISO 14001 certification for its overall environmental management system. Long
Steel Group has received several awards from the Shaanxi provincial government for its increasing effort in environmental protection.



Long Steel Group has spent more than $4.3
million (RMB33 million) on a comprehensive waste water recycling and water treatment system. The 2,000 cubic meter/h treatment
capacity system was implemented at the end of 2005. In 2010, 1.1 metric tons of new water was consumed per metric ton of steel
produced.



Long Steel Group has one 10,000 cubic meter
coke-oven gas tank and one 50,000 cubic meter blast furnace coal gas tank to collect the residual coal gas produced from its own
facility and that of surrounding enterprises. Long Steel Group also has a thermal power plant with two 25 Kilowatt dynamos that
uses the residual coal gas from the blast furnaces and converters as fuel to generate power.



Long Steel Group also has several plants
to further process solid waste generated from the steel making process into useful products such as construction materials, building
blocks, porcelain tiles, curb tops, ornamental tiles, etc. The plants are capable of processing 400,000 metric tons of solid waste
and generate revenue of more than $7.3 million (RMB50 million) each year.



57







Off-balance sheet arrangements



There was no off-balance sheet arrangements
in the fiscal quarter ended June 30, 2010.



Critical Accounting Policies



Management’s discussion and analysis
of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. Our financial statements reflect the selection
and application of accounting policies which require management to make significant estimates and judgments. See Note 3 to our
consolidated financial statements, “Summary of Significant Accounting Policies.” Management bases its estimates on
historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or conditions.



We believe that the following reflect the
more critical accounting policies that currently affect our financial condition and results of operations.



Principles of consolidation – subsidiaries



We follow ASC 810-10-15
“Consolidation – Scope and Scope Exceptions” when determining whether to consolidate an entity in our financial
statements. All legal entities which we own directly or indirectly more than 50 percent of the outstanding voting shares are required
to be consolidated given that control rests with the majority owner. Entities in which we own less than 50 percent voting shares
are evaluated in accordance with generally accepted account principles to determine whether we may hold the power of control. If
we hold established power of control in such entities, we consolidate the entities with recognition of the non-controlling interest
in them accordingly.



Revenue recognition



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



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 financial statements and accompanying notes. Significant accounting estimates
reflected in our financial statements include the useful lives of and impairment for property, plant and equipment, potential losses
on uncollectible receivables and convertible notes. Actual results could differ from these estimates.



Derivative instruments



In December 2007, we entered into a Securities
Purchase Agreement with certain institutional investors (the “Buyers”) whereby we agreed to sell to the Buyers (i)
senior convertible notes in the aggregate principal amount of $40 million (“December 2007 Notes”) and (ii) warrants
to purchase an additional aggregate amount of 1,154,958 shares of common stock (the “December 2007 Warrants”), which
have since been adjusted pursuant to the terms of our warrant reset agreements as discussed above and are now exercisable for an
aggregate amount of 3,900,871 shares of common stock. Both the December 2007 Warrants and the conversion option included in the
December 2007 Notes meet the definition of a derivative instrument as per the accounting standard for accounting for derivative
instruments and hedging activities. Therefore these instruments are accounted for as derivative liabilities and periodically marked-to-market.
The change in the value of the derivative liabilities is charged against or credited to income.



58







Financial instruments



The accounting standard regarding “Disclosures
about fair value of financial instruments” defines financial instruments and requires disclosure of the fair value of financial
instruments held by us. We consider the carrying amount of cash, accounts receivable, other receivables, accounts 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, we concluded the carrying values are a reasonable estimate
of fair value because of the short period of time between the origination and repayment and their stated interest rate approximates
current rates available.



We also analyze all financial instruments
with features of both liabilities and equity under the accounting standard establishing, “accounting for certain financial
instruments with characteristics of both liabilities and equity,” the accounting standard regarding “accounting for
derivative instruments and hedging activities” and “accounting for derivative financial instruments indexed to, and
potentially settled in, a company’s own stock.” Additionally, we analyze registration rights agreements associated
with any equity instruments issued to determine if penalties triggered for late filing should be accrued under accounting standard
establishing “accounting for registration payment arrangements.”



Fair value measurements



The accounting standards regarding fair value
of financial instruments and related fair value measurement defines fair value, establishes a three-level valuation hierarchy for
disclosures of fair value measurement and enhances disclosures requirements for fair value measures. The three levels are defined
as follow:



Level 1 inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities in active markets.



Level 2 inputs to the valuation methodology
include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability,
either directly or indirectly, for substantially the full term of the financial instruments.



Level 3 inputs to the valuation methodology
are unobservable and significant to the fair value.



In 2007, the conversion feature on the December
2007 Notes, as well as the December 2007 Warrants and reset warrants issued in December 2009 issued in conjunction with the December
2007 Notes is carried at fair value. The fair value was determined using the Cox Rubenstein Binomial Model, defined in the accounting
standard as level 2 inputs, and recorded the change in earnings. As a result, the derivative liability is carried on the balance
sheet at its fair value.



As of June 30, 2010, the outstanding principal
amounted to $3.3 million, and the carrying value of the December 2007 Notes amounted to $1.3 million. We used Level 3 inputs for
our valuation methodology for the December 2007 Notes, and their fair values are determined using cash flows discounted at relevant
market interest rates in effect at the period close since there is no observable market price. The December 2007 Warrants and December
2009 Warrants and their conversion feature are valued by using level 2 inputs to the Binomial Model and determined that the fair
value amounted to approximately $8.7 million due to the decrease in our common stock price.



Noncontrolling interest



Effective January 1, 2009, we adopted generally
accepted accounting principles regarding noncontrolling interest in consolidated financial statements. Certain provisions of this
statement are required to be adopted retrospectively for all periods presented. Such provisions include a requirement that the
carrying value of noncontrolling interests (previously referred to as minority interests) be removed from the mezzanine section
of the balance sheet and reclassified as equity.



Further, as a result of adoption of this
accounting standard, net income attributable to noncontrolling interests is now excluded from the determination of consolidated
net income. In addition, foreign currency translation adjustment is allocated between controlling and noncontrolling interests.



59







Noncontrolling interests were $60.8 million
and $70.1 million as of the June 30, 2010 and December 31, 2009 balance sheets, respectively.



Deferred lease income



From June 2009 to March
2011, we worked with Shaanxi Steel to build new state-of-the-art equipment at the site of our principal subsidiary, Longmen Joint
Venture. As a result, Longmen Joint Venture incurred certain costs of construction as well as economic losses on suspended production
of certain small furnaces and other equipment to accommodate the construction of the new equipment, on behalf of Shaanxi Steel.
To compensate us, in the fourth quarter of 2010, Shaanxi Steel reimbursed Longmen Joint Venture $16.4 million (RMB 108
million) related to the value of assets dismantled, various site preparation costs incurred by Longmen Joint Venture and rent under
a 40-year property sub-lease that was entered into by the parties in June 2009 (the "Longmen Sub-lease"), and $27.8 million
(RMB 183 million) for the reduced production efficiency caused by the construction. Applying the lease accounting guidance (ASC
840-20-25-1), we concluded that, except for the reimbursement for site preparation costs, the amount of reimbursement
should be deferred and recognized as a component of the property that was sub-leased during the construction, to be amortized to
income over the remaining terms of the 40-year sub-lease.



Deferred lease income
represents the remaining balance of compensation being deferred.  As of December 31, 2010 and December 31, 2009, the balance
of $31.8 million and $16.5 million represented the balance of remaining deferred lease income respectively.



New Accounting Pronouncements



In January 2010, FASB issued ASU No. 2010-06
– Improving Disclosures about Fair Value Measurements. This update provides amendments to Subtopic 820-10 that requires new
disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. 2)
Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs
(Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is,
on a gross basis rather than as one net number).This update provides amendments to Subtopic 820-10 that clarify existing disclosures
as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of
assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position.
A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities. 2) Disclosures about
inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements
that fall in either Level 2 or Level 3.The new disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal years. We have adopted this standard.



In February 2010, the FASB issued Accounting
Standards Update 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,”
or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement that, for listed companies, financial statements clearly disclose
the date through which subsequent events have been evaluated. Subsequent events must still be evaluated through the date of financial
statement issuance; however, the disclosure requirement has been removed to avoid conflicts with other SEC guidelines. ASU 2010-09
was effective immediately upon issuance and was adopted in February 2010.



In April 2010, the FASB issued Accounting
Standards Update 2010-13, “Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of
a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” or ASU 2010-13.
ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated
in currency of a market in which a substantial porting of the entity’s equity securities trades should not be considered
to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an
award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2010. We do not expect the adoption of ASU 2010-17 to have
a significant impact on its consolidated financial statements.



60







In April 2010, the FASB issued Accounting Standard Update 2010-17,
“Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition” orASU 2010-17.This Update provides guidance on the recognition of revenue under the milestone method, which allows a vendor to adopt an accounting
policy to recognize all of the arrangement consideration that is contingent on the achievement of a substantive milestone (milestone
consideration) in the period the milestone is achieved. The pronouncement is effective on a prospective basis for milestones achieved
in fiscal years and interim periods within those years, beginning on or after June 15, 2010. We do not expect the adoption of ASU
2010-17 to have a significant impact on its consolidated financial statements.



Contractual obligations and commercial commitments



We have certain fixed contractual obligations
and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest
rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the
timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination
of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated
financial position, results of operations, and cash flows.



The following tables summarize our contractual
obligations as of June 30, 2010 and the effect these obligations are expected to have on our liquidity and cash flows in future
periods.





|                                               |  | Payment due
    by period    |        
|---------------------------------------------- |  | ---------------------------- | -------
|                                               |  |                              |        
|Contractual obligations                        |  | Total                        |        
|                                               |  | As restated                  |        
|                                               |  | Dollars amounts in thousands |        
|Bank loans                                     |  | $                            | 177,404
|Other loans                                    |  |                              | 177,434
|Notes payable                                  |  |                              | 388,080
|Deposits due to sales representatives          |  |                              | 64,482 
|Lease with Bao Gang Group                      |  |                              | 528    
|Longmen Joint Venture construction obligations |  |                              | 12,302 
|Convertible notes (1)                          |  |                              | 4,171  
|Total                                          |  | $                            | 824,401





| | (1) | On August 4, 2010, the investors in the remaining outstanding December 2007 Notes elected to convert all the amounts due under the December 2007 Notes into the Company’s common stock. These are the only remaining notes outstanding from the Company’s December 13, 2007 private placement. The Notes were converted in accordance with their terms resulting in the issuance of a total of 1,559,675 shares of common Stock in the aggregate to the Investors (the “Conversion”). As a result of this Conversion, the Company has no outstanding balance for the December 2007 Notes.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.



Commodity Price Risk and Related Risks



In the normal course of our business, we
are exposed to market risk or price fluctuations related to the purchase, production or sale of steel products over which we have
little or no control. We do not use any derivative commodity instruments to manage the price risk. Our market risk strategy has
generally been to obtain competitive prices for our products and allow operating results to reflect market price movements dictated
by supply and demand. Based upon a 2009 annual production capacity of 3.8 million metric tons, a $1 change in the annual average
price would change annual pre-tax profits by approximately $3.8 million.



61







Interest Rate Risk



We are subject to interest rate risk since
our outstanding debts are short-term and bear interest at variable interest rates. The future interest expense would fluctuate
in case of any change in the borrowing rates. We do not use swaps or other interest rate protection agreements to hedge this risk.
We believe our exposure to interest rate risk is not material.



Foreign Currency Exchange Rate Risk



Our operating units, GS (China), Longmen
Joint Venture, Baotou Steel Pipe Joint Venture and Maoming, are all located in China. They produce and sell all of their products
domestically in the PRC. They are subject to the foreign currency exchange rate risks due to the effects of fluctuations in the
Chinese Renminbi on revenues and operating costs and existing assets or liabilities. We have not generally used derivative instruments
to manage this risk. Generally, a ten percent (10%) decrease in Renminbi exchange rate would result in a $1.9 million decrease
in net income.



ITEM 4. CONTROLS AND PROCEDURES.



In the Original 10-Q,
with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the design and
operation of our disclosure controls and procedures, as defined under Rule 13a-15(e) under the Securities Exchange Act of 1934,
as amended (the Exchange Act), as of March 31, 2011. Our disclosure controls and procedures are designed (i) to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required
to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



Subsequent
to the Original 10-Q, we have restated our financial statements as set forth in Item 1 of this Amendment No. 1 based on the specific
guidance of the OCA pertaining to the appropriate accounting treatment for certain reimbursements received related to our collaboration
with Shaanxi Steel for the construction of equipment by Shaanxi Steel since June 2009. Based on the guidance received from the
OCA, which provided materially different accounting treatment for such reimbursements, management has concluded that the
restatements resulted from control deficiencies that represent material weaknesses in our disclosure controls and procedures.



Solely as a result
of the material weakness indentified with respect to our reporting of complex non-routine transactions, management has
re-evaluated our disclosure controls and procedures, and on June 8, 2012, concluded that our disclosure controls and
procedures were not effective as of June 30, 2010. Despite the existence of this material weakness, we believe that the
consolidated financial statements included in this Amendment No. 1 present, in all
material aspects, our financial position, results of operations, comprehensive income (loss) and cash flows for the periods
presented in conformity with U.S. GAAP.



Remediation



Our management has dedicated
significant resources to correcting the accounting items discussed with the OCA and to ensuring that we take proper steps to improve
our internal control over financial reporting in the areas of accounting for complex and non-routing transactions.



We have taken a number
of remediation actions that we believe will improve the effectiveness of our internal control over financial reporting including
the following:



| | · | We have engaged an outside professional
consulting firm to supplement us with our internal control over financial reporting;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | · | We have engaged accounting experts to
identify some complicated accounting transactions and apply applicable accounting policies; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | · | We have established and enhanced staff's training
program to update our employees updated on current accounting pronouncement.
| | - | ------------------------------------------------------------------------------------------------------------------------------



62







Subsequent to June 8,
2012, management believes the foregoing efforts will effectively remediate the material weakness described above.



Changes in Internal Control Over Financial Reporting



Except as described
above, there has been no change in our internal control over financial reporting during the most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II – OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS.



From time to time, we
are subject to certain legal proceedings, claims and disputes that arise in the ordinary course of our business. Although we cannot
predict the outcomes of these legal proceedings, we do not believe these actions; in the aggregate will have a material adverse
impact on our financial position, results of operations or liquidity.



ITEM 6. EXHIBITS.



(a) Exhibits



|3.1  | Articles of Incorporation of General Steel Holdings, Inc. (included as Exhibit 3.1 to the
    Form SB-2 filed with the Commission on June 6, 2003 and incorporated herein by reference).                                                                                                    
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                             
|3.2  | Amendment to the Articles of Incorporation dated February 22, 2005 (included as Exhibit 3.2
    to the Form 10-K filed March 16, 2010 and incorporated herein by reference).                                                                                                                
|     |                                                                                                                                                                                                                                                                                             
|3.3  | Amendment to the Articles of Incorporation dated November 14, 2007 (included as Exhibit 3.3
    to the Form 10-K filed March 16, 2010 and incorporated herein by reference).                                                                                                                
|     |                                                                                                                                                                                                                                                                                             
|3.4  | Certificate of Designation of Series A Preferred Stock of the registrant (included as
    Exhibit 10.6 to the Form 10-K filed March 31, 2008 and incorporated herein by reference).                                                                                                         
|     |                                                                                                                                                                                                                                                                                             
|3.5  | Bylaws of General Steel Holdings, Inc. (included as Exhibit 3.5 to the Form 10-K filed March
    16, 2010 and incorporated herein by reference).                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                             
|10.1 | Lease Agreement, dated March 31, 2010, by and between General Steel (China) Co., Ltd. and Tianjin Daqiuzhuang Steel Plates Co., Ltd. (included as Exhibit 10.1 to the Form 8-K filed on April 6, 2010 and incorporated herein by reference).                                                
|     |                                                                                                                                                                                                                                                                                             
|10.2 | Joint Venture Framework Agreement, dated May 13, 2010, by and between General Steel Holdings, Inc. and Shanxi Meijin Energy Group Co., Ltd. (included as Exhibit 10.1 to the Form 8-K filed on May 18, 2010 and incorporated herein by reference).                                          
|     |                                                                                                                                                                                                                                                                                             
|10.3 | Debt Repayment Agreement, dated June 7, 2010, by and between General Steel Holdings, Inc., Maoming Hengda Steel Group Ltd., Guangzhou Hengda Industrial Group Ltd. and Ms. Ding Yumei (included as Exhibit 10.1 to the Form 8-K filed on June 9, 2010 and incorporated herein by reference).
|     |                                                                                                                                                                                                                                                                                             
|31.1 | Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                             
|31.2 | Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                             
|32.1 | Certification of the CEO and CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                             



63







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
thereunto duly authorized.



|                      | General Steel Holdings, Inc.        
|--------------------- | ------------------------------------
|                      |                                     
|Date: August 29, 2012 | By: /s/ Zuosheng Yu                 
|                      | Zuosheng Yu                         
|                      | Chief Executive Officer and Chairman
|                      |                                     
|Date: August 29, 2012 | By: /s/ John Chen                   
|                      | John Chen                           
|                      | Chief Financial Officer and Director



64