UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 
 x
                QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the quarterly period ended March 31, 2010
 
 or
 
 o
                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
                  
                  41-2079252(State
      or other Jurisdiction of
                  
                  (I.R.S.
      Employer Identification No.)Incorporation
      or Organization)
 
 Room
2315, Kuntai International Mansion Building,
 Yi
No. 12, Chaoyangmenwai Ave.
 Chaoyang
District, Beijing, China 100020
 (Address
of Principal Executive Office, Including Zip Code)
 
 +86(10)58797346
 (Registrant's
Telephone Number, Including Area Code)
  Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes x No o
  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 
o No 
o
  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 o
                  
                  Accelerated
      filer x
                  
                  Non-accelerated
      filer o
                    (Do
      not check if a
                    smaller
      reporting
                    company)
                  
                  Smaller
      reporting company o
 
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes o No x
  As of May 7, 2010, 51,855,695 shares of
common stock, par value $0.001 per share, were issued and
outstanding.
  
 
  Table
of Contents
 
 PagePart
      I: FINANCIAL INFORMATION
                        3Item
      1.
                        Financial
      Statements.
                        3Consolidated
      Balance Sheets as of March 31, 2010 (Unaudited) and December 31,
      2009.
                        3Consolidated
      Statements of Operation and Other Comprehensive Income for the Three
      Months Ended March 31, 2010 and 2009 (Unaudited).
                        4Consolidated
      Statements of  Changes In Equity (Unaudited).
                        5Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2010 and
      2009 (Unaudited).
                        6Notes  to
      Consolidated Financial Statements (Unaudited).
                        7Item
      2.
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                        39Item
      3.
                        Quantitative
      and Qualitative Disclosures About Market Risk.
                        58Item
      4.
                        Controls
      and Procedures.
                        58Part
      II. OTHER INFORMATION
                        59Item
      1.
                        Legal
      Proceedings.
                        59Item
      6.
                        Exhibits.
                        59Signatures
                        
                        60
  2
  PART
I – FINANCIAL INFORMATION
 
 ITEM
1. FINANCIAL STATEMENTS.
  GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
 AS OF
MARCH 31, 2010 AND DECEMBER 31, 2009
 (In
thousands, except per share data)
  March 31,
                              
                              
                              December 31,2010
                              
                              
                              2009(Unaudited)ASSETSCURRENT
      ASSETS:Cash
                              
                              $
                              91,032
                              
                              
                              $
                              82,118Restricted
      cash
                              
                              
                              226,712
                              
                              
                              
                              192,041Notes
      receivable
                              
                              
                              24,423
                              
                              
                              
                              29,185Restricted
      notes receivable
                              
                              
                              24,225
                              
                              
                              
                              -Accounts
      receivable, net of allowance for doubtful accounts of $402 and $490 as of
      March 31, 2010 and December 31, 2009, respectively
                              
                              
                              22,174
                              
                              
                              
                              8,525Accounts
      receivable - related party
                              
                              
                              4,751
                              
                              
                              
                              -Other
      receivables, net of allowance for doubtful accounts of $10 and $14 as of
      March 31, 2010 and December 31, 2009, respectively
                              
                              
                              5,571
                              
                              
                              
                              5,357Other
      receivables - related parties
                              
                              
                              28,716
                              
                              
                              
                              32,670Dividend
      receivable
                              
                              
                              3,426
                              
                              
                              
                              2,372Inventories
                              
                              
                              237,695
                              
                              
                              
                              208,087Advances
      on inventory purchase
                              
                              
                              34,930
                              
                              
                              
                              29,099Advances
      on inventory purchase - related parties
                              
                              
                              48,791
                              
                              
                              
                              2,995Prepaid
      value added tax
                              
                              
                              11,502
                              
                              
                              
                              19,488Deferred
      tax assets
                              
                              
                              5,722
                              
                              
                              
                              3,341Total
      current assets
                              
                              
                              769,670
                              
                              
                              
                              615,278PLANT
      AND EQUIPMENT, net
                              
                              
                              552,851
                              
                              
                              
                              555,111OTHER
      ASSETS:Advances
      on equipment purchase
                              
                              
                              12,621
                              
                              
                              
                              8,419Investment
      in unconsolidated subsidiaries
                              
                              
                              20,180
                              
                              
                              
                              20,022Long-term
      deferred expense
                              
                              
                              1,973
                              
                              
                              
                              2,069Intangible
      assets, net of accumulated amortization
                              
                              
                              23,565
                              
                              
                              
                              23,733Note
      issuance cost
                              
                              
                              400
                              
                              
                              
                              406Plant
      and equipment to be disposed
                              
                              
                              2,684
                              
                              
                              
                              3,026Total
      other assets
                              
                              
                              61,423
                              
                              
                              
                              57,675Total
      assets
                              
                              $
                              1,383,944
                              
                              
                              $
                              1,228,064LIABILITIES
      AND EQUITYCURRENT
      LIABILITIES:Short
      term notes payable
                              
                              $
                              323,987
                              
                              
                              $
                              254,608Accounts
      payable
                              
                              
                              159,389
                              
                              
                              
                              158,126Accounts
      payable - related parties
                              
                              
                              52,300
                              
                              
                              
                              48,151Short
      term loans - bank
                              
                              
                              174,655
                              
                              
                              
                              148,968Short
      term loans - others
                              
                              
                              113,351
                              
                              
                              
                              110,358Short
      term loans - related parties
                              
                              
                              -
                              
                              
                              
                              11,751Other
      payables and accrued liabilities
                              
                              
                              15,808
                              
                              
                              
                              16,222Other
      payable - related parties
                              
                              
                              20,989
                              
                              
                              
                              3,706Customer
      deposit
                              
                              
                              220,623
                              
                              
                              
                              208,765Customer
      deposit - related parties
                              
                              
                              40,083
                              
                              
                              
                              3,791Deposit
      due to sales representatives
                              
                              
                              65,843
                              
                              
                              
                              49,544Taxes
      payable
                              
                              
                              5,676
                              
                              
                              
                              6,921Distribution
      payable to former shareholders
                              
                              
                              14,519
                              
                              
                              
                              16,434Total
      current liabilities
                              
                              
                              1,207,223
                              
                              
                              
                              1,037,345CONVERTIBLE
      NOTES PAYABLE, net of debt discount of $2,188 and $2,250 as of March 31,
      2010 and December 31, 2009, respectively
                              
                              
                              1,112
                              
                              
                              
                              1,050DERIVATIVE
      LIABILITIES
                              
                              
                              19,401
                              
                              
                              
                              23,340Total
      liabilities
                              
                              
                              1,227,736
                              
                              
                              
                              1,061,735COMMITMENT
      AND CONTINGENCIESEQUITY:Preferred
      stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares
      issued and outstanding as of March 31, 2010 and December 31, 2009,
      respectively
                              
                              
                              3
                              
                              
                              
                              3Common
      Stock, $0.001 par value, 200,000,000 shares authorized, 51,855,695 and
      51,618,595 shares  issued and outstanding as of March 31, 2010
      and December 31, 2009, respectively
                              
                              
                              52
                              
                              
                              
                              52Paid-in-capital
                              
                              
                              96,585
                              
                              
                              
                              95,588Statutory
      reserves
                              
                              
                              6,162
                              
                              
                              
                              6,162Accumulated
      deficits
                              
                              
                              (21,919
                              )
                              
                              
                              (16,410
                              )Accumulated
      other comprehensive income
                              
                              
                              8,037
                              
                              
                              
                              8,336Total
      shareholders' equity
                              
                              
                              88,920
                              
                              
                              
                              93,731NONCONTROLLING
      INTERESTS
                              
                              
                              67,288
                              
                              
                              
                              72,598Total
      equity
                              
                              
                              156,208
                              
                              
                              
                              166,329Total
      liabilities and equity
                              
                              $
                              1,383,944
                              
                              
                              $
                              1,228,064
  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
 (UNAUDITED)
 (In
thousands, except per share data)
  Three months ended March 31,2010
                            
                            
                            2009REVENUES
                            
                            $
                            317,628
                            
                            
                            $
                            262,414REVENUES
      - RELATED PARTIES
                            
                            
                            135,395
                            
                            
                            
                            60,379TOTAL
      REVENUES
                            
                            
                            453,023
                            
                            
                            
                            322,793COST
      OF REVENUES
                            
                            
                            317,576
                            
                            
                            
                            252,002COST
      OF REVENUES - RELATED PARTIES
                            
                            
                            129,714
                            
                            
                            
                            57,870TOTAL
      COST OF REVENUES
                            
                            
                            447,290
                            
                            
                            
                            309,872GROSS
      PROFIT
                            
                            
                            5,733
                            
                            
                            
                            12,921SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                            
                            
                            12,141
                            
                            
                            
                            9,168(LOSS)
      INCOME FROM OPERATIONS
                            
                            
                            (6,408
                            )
                            
                            
                            3,753OTHER
      INCOME(EXPENSE)Interest
      income
                            
                            
                            1,120
                            
                            
                            
                            879Finance/interest
      expense
                            
                            
                            (10,963
                            )
                            
                            
                            (2,939
                            )Change
      in fair value of derivative liabilities
                            
                            
                            3,939
                            
                            
                            
                            4,115Gain
      from debt extinguishment
                            
                            
                            -
                            
                            
                            
                            2,930Government
      grant
                            
                            
                            -
                            
                            
                            
                            3,520Income
      from equity investments
                            
                            
                            1,682
                            
                            
                            
                            (55
                            )Other
      non-operating (expense) income, net
                            
                            
                            (4
                            )
                            
                            
                            510Total
      other (expense) income, net
                            
                            
                            (4,226
                            )
                            
                            
                            8,960(LOSS)
      INCOME BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING
      INTEREST
                            
                            
                            (10,634
                            )
                            
                            
                            12,713PROVISION
      FOR INCOME TAXESCurrent
                            
                            
                            621
                            
                            
                            
                            164Deferred
                            
                            
                            (2,588
                            )
                            
                            
                            1,222Total
      (benefit) provision for income taxes
                            
                            
                            (1,967
                            )
                            
                            
                            1,386NET
      (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
                            
                            
                            (8,667
                            )
                            
                            
                            11,327Less:
      Net (Loss) income attributable to noncontrolling interest
                            
                            
                            (3,160
                            )
                            
                            
                            3,993NET
      (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                            
                            
                            (5,507
                            )
                            
                            
                            7,334OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation adjustments
                            
                            
                            (299
                            )
                            
                            
                            (177
                            )Comprehensive
      income (loss) attributable to noncontrolling interest
                            
                            
                            165
                            
                            
                            
                            (75
                            )COMPREHENSIVE
      (LOSS) INCOME
                            
                            $
                            (5,641
                            )
                            
                            $
                            7,082WEIGHTED
      AVERAGE NUMBER OF SHARESBasic
      & Diluted
                            
                            
                            51,652,843
                            
                            
                            
                            36,285,312(LOSS)
      EARNINGS PER SHAREBasic
      & Diluted
                            
                            $
                            (0.11
                            )
                            
                            $
                            0.20
  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)
  AccumulatedPreferred stock
                                      
                                      
                                      Common stock
                                      
                                      
                                      
                                      
                                      
                                      Retained earnings / Accumulated deficits
                                      
                                      
                                      
                                      
                                      
                                      otherPaid-in
                                      
                                      
                                      Statutory
                                      
                                      
                                      
                                      
                                      
                                      Contribution
                                      
                                      
                                      comprehensive
                                      
                                      
                                      NoncontrollingShares
                                      
                                      
                                      Par value
                                      
                                      
                                      Shares
                                      
                                      
                                      Par value
                                      
                                      
                                      capital
                                      
                                      
                                      reserves
                                      
                                      
                                      Unrestricted
                                      
                                      
                                      receivable
                                      
                                      
                                      income
                                      
                                      
                                      interest
                                      
                                      
                                      TotalsBALANCE,
      December 31, 2008
                                      
                                      
                                      3,092,899
                                      
                                      
                                      $
                                      3
                                      
                                      
                                      
                                      36,128,833
                                      
                                      
                                      $
                                      36
                                      
                                      
                                      $
                                      37,129
                                      
                                      
                                      $
                                      4,902
                                      
                                      
                                      $
                                      10,092
                                      
                                      
                                      $
                                      (960
                                      )
                                      
                                      $
                                      8,705
                                      
                                      
                                      $
                                      54,330
                                      
                                      
                                      $
                                      114,237Net
      income
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      7,335
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      3,993
                                      
                                      
                                      
                                      11,328Adjustment
      to statutory reserve
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      260
                                      
                                      
                                      
                                      (260
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -Common
      stock issued for compensation, $1.85
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      109,250
                                      
                                      
                                      
                                      0.11
                                      
                                      
                                      
                                      202
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      202Common
      stock issued for interest payment, $3.66
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      152,240
                                      
                                      
                                      
                                      0.15
                                      
                                      
                                      
                                      558
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      558Common
      stock transferred by CEO for compensation, $6.91
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      69
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      69Foreign
      currency translation adjustments
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (177
                                      )
                                      
                                      
                                      (75
                                      )
                                      
                                      
                                      (252
                                      )BALANCE,
      March 31, 2009, unaudited
                                      
                                      
                                      3,092,899
                                      
                                      
                                      $
                                      3
                                      
                                      
                                      
                                      36,390,323
                                      
                                      
                                      $
                                      36
                                      
                                      
                                      $
                                      37,958
                                      
                                      
                                      $
                                      5,162
                                      
                                      
                                      $
                                      17,167
                                      
                                      
                                      $
                                      (960
                                      )
                                      
                                      $
                                      8,528
                                      
                                      
                                      $
                                      58,248
                                      
                                      
                                      $
                                      126,142Net
      loss attributable to controlling interest
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (32,579
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (32,579
                                      )Net
      income attributable to noncontrolling interest
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      17,570
                                      
                                      
                                      
                                      17,570Disposal
      of subsidiaries
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (293
                                      )
                                      
                                      
                                      (293
                                      )Distribution
      of dividend to noncontrolling shareholders
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (3,305
                                      )
                                      
                                      
                                      (3,305
                                      )Adjustment
      to statutory reserve
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1,000
                                      
                                      
                                      
                                      (1,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -Common
      stock issued for compensation
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      487,400
                                      
                                      
                                      
                                      0.77
                                      
                                      
                                      
                                      1,673
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1,674Common
      stock issued for interest payments
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      44,065
                                      
                                      
                                      
                                      0.20
                                      
                                      
                                      
                                      187
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      187Common
      stock issued for repayment of debt, $6.00
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      300,000
                                      
                                      
                                      
                                      0.30
                                      
                                      
                                      
                                      1,800
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1,800Notes
      converted to common stock
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      7,045,274
                                      
                                      
                                      
                                      7.05
                                      
                                      
                                      
                                      32,072
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      32,079Make
      whole shares issued on notes conversion
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1,795,977
                                      
                                      
                                      
                                      1.80
                                      
                                      
                                      
                                      7,085
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      7,087Common
      stock transferred by CEO for compensation, $6.91
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      207
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      207Reduction
      of registered capital
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      960
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      960Common
      stock issued for private placement
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      5,555,556
                                      
                                      
                                      
                                      5.56
                                      
                                      
                                      
                                      14,607
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      14,613Foreign
      currency translation adjustments
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (192
                                      )
                                      
                                      
                                      378
                                      
                                      
                                      
                                      186BALANCE,
      December 31, 2009
                                      
                                      
                                      3,092,899
                                      
                                      
                                      $
                                      3
                                      
                                      
                                      
                                      51,618,595
                                      
                                      
                                      $
                                      52
                                      
                                      
                                      $
                                      95,589
                                      
                                      
                                      $
                                      6,162
                                      
                                      
                                      $
                                      (16,412
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      8,336
                                      
                                      
                                      $
                                      72,598
                                      
                                      
                                      $
                                      166,328Net
      loss attributable to controlling interest
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (5,507
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (5,507
                                      )Net
      loss attributable to noncontrolling interest
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (3,160
                                      )
                                      
                                      
                                      (3,160
                                      )Distribution
      of dividend to noncontrolling shareholders
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (1,045
                                      )
                                      
                                      
                                      (1,045
                                      )Noncontrolling
      interest acquired
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (1,270
                                      )
                                      
                                      
                                      (1,270
                                      )Common
      stock issued for compensation
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      237,100
                                      
                                      
                                      
                                      0.24
                                      
                                      
                                      
                                      927
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      927Common
      stock transferred by CEO for compensation, $6.91
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      69
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      69Foreign
      currency translation adjustments
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (299
                                      )
                                      
                                      
                                      165
                                      
                                      
                                      
                                      (134
                                      )BALANCE,
      March 31, 2010, unaudited
                                      
                                      
                                      3,092,899
                                      
                                      
                                      $
                                      3
                                      
                                      
                                      
                                      51,855,695
                                      
                                      
                                      $
                                      52
                                      
                                      
                                      $
                                      96,585
                                      
                                      
                                      $
                                      6,162
                                      
                                      
                                      $
                                      (21,919
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      8,037
                                      
                                      
                                      $
                                      67,288
                                      
                                      
                                      $
                                      156,208
  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
THREE MONTHS ENDED MARCH 31
 (UNAUDITED)
 (In
thousands, except per share data)
 
 Three months ended March 31,2010
                          
                          
                          2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income attributable to controlling interest
                          
                          $
                          (5,507
                          )
                          
                          $
                          7,334Net
      (loss) income attributable to noncontrolling interest
                          
                          
                          (3,160
                          )
                          
                          
                          3,993Consolidated
      net (loss) income
                          
                          
                          (8,667
                          )
                          
                          
                          11,327Adjustments
      to reconcile net (loss) income to cash (used in) provided by operating
      activities:Depreciation
      and amortization
                          
                          
                          9,586
                          
                          
                          
                          6,249Debt
      extinguishment
                          
                          
                          -
                          
                          
                          
                          (2,930
                          )Bad
      debt allowance
                          
                          
                          (94
                          )
                          
                          
                          (3,518
                          )Stock
      issued for services and compensation
                          
                          
                          996
                          
                          
                          
                          271Income
      from investment
                          
                          
                          (1,682
                          )
                          
                          
                          -Amortization
      of deferred note issuance cost and discount on convertible
      notes
                          
                          
                          68
                          
                          
                          
                          21Change
      in fair value of derivative instrument
                          
                          
                          (3,939
                          )
                          
                          
                          (4,115
                          )Deferred
      tax assets
                          
                          
                          (2,484
                          )
                          
                          
                          989Changes
      in operating assets and liabilities
                          
                          
                          -
                          
                          
                          
                          -Accounts
      receivable
                          
                          
                          (13,556
                          )
                          
                          
                          (11,764
                          )Accounts
      receivable - related parties
                          
                          
                          (4,750
                          )
                          
                          
                          -Notes
      receivable
                          
                          
                          4,760
                          
                          
                          
                          20,838Other
      receivables
                          
                          
                          256
                          
                          
                          
                          2,759Other
      receivables - related parties
                          
                          
                          (389
                          )
                          
                          
                          (1,736
                          )Inventories
                          
                          
                          (36,689
                          )
                          
                          
                          (48,394
                          )Advances
      on inventory purchases
                          
                          
                          (5,945
                          )
                          
                          
                          10,249Advances
      on inventory purchases - related parties
                          
                          
                          (44,257
                          )
                          
                          
                          (7,552
                          )Accounts
      payable
                          
                          
                          1,556
                          
                          
                          
                          1,285Accounts
      payable - related parties
                          
                          
                          8,699
                          
                          
                          
                          21,861Other
      payables
                          
                          
                          (1,384
                          )
                          
                          
                          7,230Other
      payables - related parties
                          
                          
                          17,291
                          
                          
                          
                          8,180Accrued
      liabilities
                          
                          
                          1,614
                          
                          
                          
                          3,883Customer
      deposits
                          
                          
                          14,521
                          
                          
                          
                          6,103Customer
      deposits - related parties
                          
                          
                          36,280
                          
                          
                          
                          (5,121
                          )Taxes
      payable
                          
                          
                          9,978
                          
                          
                          
                          190Net
      cash (used in) provided by operating activities
                          
                          
                          (18,231
                          )
                          
                          
                          16,305CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquired
      long term investment
                          
                          
                          -
                          
                          
                          
                          (6,593
                          )Dividend
      receivable
                          
                          
                          (1,554
                          )
                          
                          
                          -Deposits
      due to sales representatives
                          
                          
                          16,894
                          
                          
                          
                          35,723Advance
      on equipment purchases
                          
                          
                          (4,664
                          )
                          
                          
                          1,198Equipments
      purchase
                          
                          
                          (6,713
                          )
                          
                          
                          (41,415
                          )Intangible
      assets purchase
                          
                          
                          (103
                          )
                          
                          
                          (163
                          )Payments
      to original shareholders
                          
                          
                          (3,732
                          )
                          
                          
                          -Net
      cash provided by (used in) investing activities
                          
                          
                          128
                          
                          
                          
                          (11,250
                          )CASH
      FLOWS FINANCING ACTIVITIES:Restricted
      cash
                          
                          
                          (34,660
                          )
                          
                          
                          (43,802
                          )Notes
      receivable - restricted
                          
                          
                          (24,216
                          )
                          
                          
                          -Borrowings
      on short term loans - bank
                          
                          
                          95,015
                          
                          
                          
                          51,733Payments
      on short term loans - bank
                          
                          
                          (69,336
                          )
                          
                          
                          (33,548
                          )Borrowings
      on short term loan - others
                          
                          
                          27,945
                          
                          
                          
                          13,296Payments
      on short term loans - others
                          
                          
                          (24,954
                          )
                          
                          
                          (7,151
                          )Payments
      on short term loans - others-related parties
                          
                          
                          (11,747
                          )
                          
                          
                          -Borrowings
      on short term notes payable
                          
                          
                          251,725
                          
                          
                          
                          158,810Payments
      on short term notes payable
                          
                          
                          (182,369
                          )
                          
                          
                          (120,138
                          )Net
      cash provided by financing activities
                          
                          
                          27,403
                          
                          
                          
                          19,200EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                          
                          
                          (386
                          )
                          
                          
                          (22
                          )INCREASE
      IN CASH
                          
                          
                          8,914
                          
                          
                          
                          24,233CASH,
      beginning of period
                          
                          
                          82,118
                          
                          
                          
                          14,895CASH,
      end of period
                          
                          $
                          91,032
                          
                          
                          $
                          39,128
  The
accompanying notes are an integral part of these consolidated financial
statements.
  6
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
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 – 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:
 PercentageSubsidiary
                        
                        ofOwnershipGeneral
      Steel Investment Co., Ltd.
                        
                        British
      Virgin Islands
                        
                        
                        100.0
                        %General
      Steel (China) Co., Ltd.
                        
                        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.
                        
                        PRC
                        
                        
                        60.0
                        %Maoming
      Hengda Steel Group Co., Ltd.
                        
                        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 should be read in
conjunction with information included in the 2009 annual report filed on Form
10-K.
 
 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.
  7
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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 cash on hand and 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 March 31, 2010 and December 31, 2009 amounted
to $317.5million and
$274.2 million, respectively. As of March 31, 2010, $2.2 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 had five major customers, all distributors, which represented
approximately 31% and 30% of the Company’s total sales for the three months
ended March 31, 2010 and 2009, respectively. No accounts receivable was due from
the five major customers as of March 31, 2010 and 2009,
respectively.
 
 For the
three months ended March 31, 2010 and 2009, the Company purchased approximately
47% and 24%, respectively, of their raw materials from five major suppliers.
Five vendors accounted for 9% and 15% of total accounts payable as of March 31,
2010 and 2009, respectively.
 
 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
 
 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.
  8
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Translation
adjustments included in accumulated other comprehensive income amounted to $8.0
million and $8.3 million as of March 31, 2010 and December 31, 2009,
respectively. The balance sheet amounts, with the exception of equity at March
31, 2010 and December 31, 2009 were translated at 6.82 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 three
months ended March 31, 2010 and December 31, 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
Company 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.
 
 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.
 
 The
Company’s investment in unconsolidated subsidiaries amounted to $20.2 million as
of March 31, 2010. Since there is no quoted or observable market price for the
fair value of similar long term investments, the Company then used the level 3
inputs for its valuation methodology. The determination of the fair value was
based on the capital investment that the Company contributed and income from
investment. The carrying value of the long term investments approximated
the fair value as of March 31, 2010.
  9
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
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
March 31, 2010, the outstanding convertible note principal amounted to $3.3
million, and the carrying value of the convertible note amounted to
approximately $1.1 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.
 
 (inthousands)
                                  
                                  CarryingValueasof
                                    March31,2010
                                  
                                  FairValueMeasurementsatMarch31,
                                    2010UsingFairValueHierarchy(Unaudited)
                                  
                                  Level
      1
                                  
                                  Level
      2
                                  
                                  
                                  Level
      3Long-term
      investments
                                  
                                  $
                                  20,180
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  20,180Derivative
      liabilities
                                  
                                  $
                                  19,401
                                  
                                  
                                  
                                  $
                                  19,401Convertible
      notes payable
                                  
                                  $
                                  1,112
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  750
 
 Except
for the investments, 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:
  Longterm
                            Investment(in
      thousands)Balance,
      December 31, 2009
                          
                          $
                          20,022Current
      period additional investments
                          
                          
                          -Current
      period dispositions
                          
                          
                          -Dividend
      entitled
                          
                          
                          -Current
      period investment gain
                          
                          
                          158Balance,
      March 31, 2010 (Unaudited)
                          
                          $
                          20,180
  Convertible Notes(in
      thousands)Balance,
      December 31, 2009
                            
                            $
                            1,050Current
      period effective interest charges on notes
                            
                            
                            150Interest
      paid
                            
                            
                            (88
                            )Balance,
      March 31, 2010 (Unaudited)
                            
                            $
                            1,112
 Cash
 
 Cash
includes cash on hand and demand deposits in banks with original maturities of
less than three months.
  10
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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 account 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.
 
 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 $24.4 million and $29.2 million outstanding as
of March 31, 2010 and December 31, 2009, respectively.
 
 Restricted
notes receivable represents notes pledged as collaterals of short term loans
from banks. As of March 31, 2010 and December 31, 2009, restricted notes
receivable amounted to $24.2 million and $0, respectively.
 
 Inventories
 
 Inventories
are stated at the lower of cost or market using the weighted average 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 $2.1 million and $0.6 million for the three months ended March 31,
2010 and 2009, respectively.
 
 Intangible
assets
 
 All land
in the People’s Republic of China is owned by the government. However, the
government grants “land use rights”.   General Steel (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. However, General Steel
(China)'s initial business license had a ten-year term. Therefore, management
elected to amortize the land use rights over the ten-year business term. General
Steel (China) became a Sino-Foreign Joint Venture in 2004, and obtained a new
business license for twenty years; however, the Company decided to continue
amortizing the land use rights over the original ten-year business
term.
  11
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Longmen
Group contributed land use rights for a total amount of $21.8 million to the
Longmen Joint Venture. The land use rights are for 50 years and expire in 2048
to 2052.
 
 Maoming
has land use rights amounting to $2.2 million for 50 years and expires in
2054.
 
 Entity
                                      
                                      Original Cost
                                      
                                      Years of Expiration(in
      thousands)General
      Steel (China) Co., Ltd
                                      
                                      $
                                      3,481
                                      
                                      2051Longmen
      Joint Venture
                                      
                                      $
                                      21,851
                                      
                                      2045
      & 2054Maoming
      Hengda Steel Group Co., Ltd
                                      
                                      $
                                      2,240
                                      
                                      2054
 
 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 March 31, 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
      YearsMachinery
                    10-30
      YearsOther
      equipment
                    5
      YearsTransportation
      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 or 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. As of March 31, 2010, the Company expects these assets to be fully
recoverable.
  12
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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.
 
 The
Company’s direct subsidiaries, Longmen Joint Venture and indirect subsidiaries,
Hancheng Tongxing Metallurgy Co., Ltd. invested in several companies from 2004
to 2009.
 
 Unconsolidated subsidiary
                                  
                                  Year
                                    acquired
                                  
                                  Amount invested
                                    (In thousands)
                                  
                                  
                                  %
                                    ownedShaanxi
      Daxigou Mining Co., Ltd
                                  
                                  2004
                                  
                                  $
                                  2,924
                                  
                                  
                                  
                                  22.0Shaanxi
      Xinglong Thermoelectric Co., Ltd
                                  
                                  2004-2007
                                  
                                  
                                  7,845
                                  
                                  
                                  
                                  20.7Shaanxi
      Longgang Group Xian steel Co., Ltd
                                  
                                  2005
                                  
                                  
                                  107
                                  
                                  
                                  
                                  10.0Huashan
      Metallurgical Equipment Co. Ltd.
                                  
                                  2003
                                  
                                  
                                  1,733
                                  
                                  
                                  
                                  25.0Shanxi
      Longmen Coal Chemical Industry Co., Ltd
                                  
                                  2009
                                  
                                  
                                  6,602
                                  
                                  
                                  
                                  15.0Xian
      Delong Powder Engineering Materials Co., Ltd.
                                  
                                  2006
                                  
                                  
                                  969
                                  
                                  
                                  
                                  27.0Total
      (Unaudited)
                                  
                                  
                                  
                                  $
                                  20,180
 
 Total
investment in unconsolidated subsidiaries amounted to $20.2 million and $20.0
million as of March 31, 2010 and December 31, 2009, respectively.
 
 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.
 
 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.
  13
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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.
 
 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.
  14
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments in
this Accounting Standards Update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. The Company
does not expect the adoption of this ASU to have a material impact on its
consolidated financial statement.
 
 In
December 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. The Company does not expect the adoption of this ASU to
have a material impact on its consolidated financial statements.
 
 In
January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The Company adopted this standard and has determined the
standard does not have material effect on the Company’s consolidated financial
statements.
  15
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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 statements In 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.
 
 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.
  16
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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.
 
 Reclassifications
 
 Certain
prior period amounts have been reclassified to conform to the current period
presentation. These classifications have no effect on net income.
 
 Note
3 – Accounts receivable and allowance for doubtful accounts
 
 Accounts
receivable, including related party receivables, net of allowance for doubtful
accounts consists of the following:
 
 March 31,
                          2010
                        
                        
                        December 31,
                          2009(Unaudited)(in
      thousands)
                        
                        
                        (in
      thousands)Accounts
      receivable
                        
                        $
                        22,576
                        
                        
                        $
                        9,015Less:
      allowance for doubtful accounts
                        
                        
                        (402
                        )
                        
                        
                        (490
                        )Net
      accounts receivable
                        
                        $
                        22,174
                        
                        
                        $
                        8,525
 
 Movement
of allowance for doubtful accounts is as follows:
 
 March31,
                          2010
                        
                        
                        December31,
                          2009(Unaudited)(in
      thousands)
                        
                        
                        (in
      thousands)Beginning
      balance
                        
                        $
                        490
                        
                        
                        $
                        401Charge
      to expense
                        
                        
                        -
                        
                        
                        
                        246Addition
      from acquisition
                        
                        
                        -
                        
                        
                        
                        -Less
      Write-off
                        
                        
                        (88
                        )
                        
                        
                        (157
                        )Exchange
      rate effect
                        
                        
                        -
                        
                        
                        
                        -Ending
      balance
                        
                        $
                        402
                        
                        
                        $
                        490
 
  17
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Note
4 – Inventories
 
 Inventories
consist of the following:
 March31,
                        2010
                      
                      
                      December31,
                        2009(Unaudited)(in
      thousands)
                      
                      
                      (in
      thousands)Supplies
                      
                      $
                      1,201
                      
                      
                      $
                      1,025Raw
      materials
                      
                      
                      182,401
                      
                      
                      
                      146,084Finished
      goods
                      
                      
                      54,093
                      
                      
                      
                      60,978Total
      inventories
                      
                      $
                      237,695
                      
                      
                      $
                      208,087
 
 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. As of March 31, 2010, the
Company reserved $0.4 million for inventory allowance.
 
 Note
5 – 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 $83.7 million and $32.1 million as of
March 31, 2010 and December 31, 2009, respectively.
 
 Note 6 – Plant and equipment,
net
 
 Plant and
equipment consist of the following:
 March 31,
                            2010
                          
                          
                          December 31,
                            2009(Unaudited)(in
      thousands)
                          
                          
                          (in
      thousands)Buildings
      and improvements
                          
                          $
                          117,837
                          
                          
                          $
                          117,625Machinery
                          
                          
                          474,239
                          
                          
                          
                          467,595Transportation
      and other equipment
                          
                          
                          10,337
                          
                          
                          
                          12,824Construction
      in progress
                          
                          
                          34,282
                          
                          
                          
                          31,715Totals
                          
                          
                          636,695
                          
                          
                          
                          629,759Less
      accumulated depreciation
                          
                          
                          (83,844
                          )
                          
                          
                          (74,648
                          )Totals
                          
                          $
                          552,851
                          
                          
                          
                          555,111
  18
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Construction
in progress consisted of the following as of March 31, 2010:
 
 Constructioninprogress
                                    
                                    Value
                                    
                                    Estimated
                                      completion
                                    
                                    Estimated
                                      additional costdescription
                                    
                                    In thousands
                                    
                                    date
                                    
                                    In thousands(Unaudited)
                                    
                                    
                                    
                                    (Unaudited)Longmen
      employees cafeteria
                                    
                                    $
                                    1,723
                                    
                                    August,
      2010
                                    
                                    
                                    2,238#3
      lime stone grinding machine
                                    
                                    
                                    1,983
                                    
                                    June,
      2010
                                    
                                    
                                    364Installation
      under the Transformation Station 15
                                    
                                    
                                    552
                                    
                                    April,
      2010
                                    
                                    
                                    35#4
      continuous casting
                                    
                                    
                                    4,540
                                    
                                    April,
      2010
                                    
                                    
                                    888Rebar
      line
                                    
                                    
                                    16,307
                                    
                                    September,
      2010
                                    
                                    
                                    102,667Steel
      scrap cross
                                    
                                    
                                    1,282
                                    
                                    April,
      2010
                                    
                                    
                                    38Furnace
      after the screening system reform
                                    
                                    
                                    554
                                    
                                    June,
      2010
                                    
                                    
                                    620Others
                                    
                                    
                                    7,341
                                    
                                    by
      end of 2011
                                    
                                    
                                    4,395Total
                                    
                                    $
                                    34,282
 
 Depreciation,
including amounts in cost of sales, for the three months ended March 31, 2010
and 2009 amounted to $9.3 million and $6.0 million, respectively
 
 The
Company has fixed assets to be disposed amounting to $2.7 million and $3.0
million as of March 31, 2010 and December 31, 2009, respectively.
 
 Note
7 – Intangible assets, net
 
 Intangible
assets consist of the following:
 March 31,
                          2010
                        
                        
                        December 31,
                          2009(Unaudited)(in
      thousands)
                        
                        
                        (in
      thousands)Land
      use rights
                        
                        $
                        27,572
                        
                        
                        $
                        27,519Software
                        
                        
                        474
                        
                        
                        
                        424Subtotal
                        
                        
                        28,046
                        
                        
                        
                        27,943Accumulated
      Amortization – Land use right
                        
                        
                        (4,409
                        )
                        
                        
                        (4,143
                        )Accumulated
      Amortization – software
                        
                        
                        (72
                        )
                        
                        
                        (67
                        )Accumulated
      Amortization subtotal
                        
                        
                        (4,481
                        )
                        
                        
                        (4,210
                        )Intangible
      assets, net
                        
                        $
                        23,565
                        
                        
                        $
                        23,733
 
 The gross
amount of the intangible assets amounted to $28.0 million and 27.9 million as of
March 31, 2010 and December 31, 2009, respectively. The remaining weighted
average amortization period is 35.6 years.
  19
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Total
amortization expense for the three months ended March 31, 2010 and 2009 amounted
to $0.3 million, $0.2 million, respectively.
 
 The
estimated aggregate amortization expense for each of the five succeeding years
is as follows:
 Yearsended
                        
                        EstimatedAmortization
                          Expense
                        
                        
                        Grosscarrying
                          Amount(in
      thousands)
                        
                        
                        (in
      thousands)March
      31, 2010
                        
                        $
                        1,041
                        
                        
                        $
                        22,524March
      31, 2011
                        
                        
                        1,041
                        
                        
                        
                        21,483March
      31, 2012
                        
                        
                        1,041
                        
                        
                        
                        20,442March
      31, 2013
                        
                        
                        1,041
                        
                        
                        
                        19,401March
      31, 2014
                        
                        
                        1,041
                        
                        
                        
                        18,360Thereafter
                        
                        
                        18,360
                        
                        
                        
                        -Total
                        
                        
                        23,565
 
 Note
8 – Debt
 
 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 $226.7 million and $192.0 million as of March 31, 2010 and
December 31, 2009, respectively.
  20
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 The
Company had the following short-term notes payable:
 
 March31,
                            2010
                          
                          
                          December31,
                            2009(Unaudited)(in
      thousands)
                          
                          
                          (in
      thousands)General
      Steel (China): Notes payable from banks in China, due various dates from
      April 2010 to September 2010. Restricted cash required of $5.8 million and
      $4.0 million for March 31, 2010 and December 31, 2009, respectively;
      guaranteed by third parties.
                          
                          $
                          9,389
                          
                          
                          $
                          7,628Longmen
      Joint Venture: Notes payable from banks in China, due various dates from
      April 2010 to September 2010. Restricted cash of $214.9 million and $162.3
      million for March 31, 2010 and December 31, 2009, respectively; some notes
      are guaranteed by third parties while others are secured by equipments and
      land use rights.
                          
                          
                          303,376
                          
                          
                          
                          216,173Bao
      Tou: Notes payable from banks in China, due various dates from June 2010
      to September 2010.Restricted cash of $6.1 million and $5.1 million for
      March 31, 2010 and December 31, 2009, respectively; pledged by
      buildings.
                          
                          
                          11,222
                          
                          
                          
                          10,269Maoming:
      Notes payable from banks in China, Restricted cash of $0 and $20.6 million
      for March 31, 2010 and December 31, 2009, respectively.
                          
                          
                          -
                          
                          
                          
                          20,538Total
      short-term notes payable
                          
                          $
                          323,987
                          
                          
                          $
                          254,608
 
 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.
 
 Short
term loans due to banks, related parties and other parties consisted of the
following:
 
 March 31,
                            2010
                          
                          
                          December31,
                            2009(Unaudited)(inthousands)
                          
                          
                          (inthousands)General
      Steel (China): Loan from banks in China, due various dates from April 2010
      to March 2011. Weighted average interest rate 5.7% per annum; some are
      guaranteed by third parties while others are secured by
      equipment/inventory.
                          
                          $
                          24,009
                          
                          
                          $
                          25,476Longmen
      Joint Venture: Loan from banks in China, due various dates from May 2010
      to February 2011. Weighted average interest rate 5.9% per annum; some are
      guaranteed by third parties or notes receivables while others are secured
      by equipment/buildings/land use right.
                          
                          
                          150,646
                          
                          
                          
                          123,492Total
      – short-term loans - bank
                          
                          $
                          174,655
                          
                          
                          $
                          148,968
  21
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 March31,
                            2010
                          
                          
                          December31,
                            2009(Unaudited)(in
      thousands)
                          
                          
                          (in
      thousands)Longmen
      Joint Venture: Loans from various unrelated companies and individuals, due
      various dates in 2010, and interest rates up to 12.0% per
      annum.
                          
                          $
                          97,032
                          
                          
                          $
                          91,106Maoming:
      Loans from one unrelated parties and one related party, due on demand,
      none interest bearing.
                          
                          
                          16,319
                          
                          
                          
                          19,252Total
      – short-term loans - others
                          
                          $
                          113,351
                          
                          
                          $
                          110,358
 
 March31,
                              2010
                            
                            
                            December31,
                              2009(Unaudited)(in
      thousands)
                            
                            
                            (in
      thousands)Longmen
      Joint Venture: Loans from Sheng An Da, due on 2010, and interest rates
      12.0% per annum.
                            
                            $
                            -
                            
                            
                            $
                            4,401Qiu
      Steel: Related party loans from Tianjin Heng Ying and Tianjin Da Zhan, due
      on 2010. Annual interest rate of 5.0%.
                            
                            
                            -
                            
                            
                            
                            7,350Total
      – related party loans
                            
                            $
                            -
                            
                            
                            $
                            11,751
 
 The
Company had various loans from unrelated companies. The balances amounted to
$113.4 million and $110.4 million as of March 31, 2010 and December 31, 2009,
respectively. Of the $113.4 million, $16.3 million loans carry no interest and
the remaining $97.1 million are subject to interest rates ranging from 3.6% to
12.0%. All short term loans from unrelated companies are due on demand and
unsecured.
 
 Total
interest expense, excluding capitalized interest, for the three months ended
March 31, 2010, and 2009 on the debt listed above amounted to $4.1 million and
$3.1 million, respectively.
 
 Capitalized
interest amounted to $0.4 million and $2.3 million for the three months ended
March 31, 2010 and 2009, respectively.
  22
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Note
9 – Customer deposits
 
 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 March 31, 2010 and December 31, 2009, customer
deposits amounted to $260.7 million and $212.6 million, including related
parties deposits of $40.1 and $3.8 million, respectively.
 
 Note
10 – 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 $65.8 million and
$49.5 million in deposits due to sales representatives as of March 31, 2010 and
December 31, 2009, respectively. For the three months ended March 31, 2010,
the Company received deposits amounting to $16.3 million from sales
representatives to secure the sales quantity.
 
 Note
11 – 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.
 
 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
  23
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 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 Notes was converted to 7,045,274 shares of common stock at a
conversion price of $4.2511. Pursuant to generally 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 $1.1 million as of March 31, 2010 and December
31, 2009. The effective interest charges on the Notes totaled $0.2 million and
$1.0 million for the three months ended March 31, 2010 and 2009,
respectively.
 
 Note
issuance cost was amortized to interest expense for the three months ended March
31, 2010 and 2009 amounted to $0.01 million and $0.02 million,
respectively.
 
 Reset of Warrants Exercise
Price
 
 On
December 24, 2009, the holders of the existing warrants 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 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.
 
 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 March 31 2010,
the balance of derivative liabilities was $19.4 million, which consisted of
$17.3 million for the warrants and $2.1 million for the conversion
option.
 
 Note
12 – Supplemental disclosure of cash flow information
 
 Interest
paid amounted to $2.4 million and $2.6 million for the three months ended March
31, 2010 and 2009, respectively.
 
 Income
tax payments amounted to $0.8 million and $0.5 million for the three months
ended March 31, 2010 and 2009, respectively.
  24
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Effective
Interest charges on the Notes of $0.2 million and $1 million was capitalized
into construction in progress and subsequently transferred to fixed assets for
the three months ended March 31, 2010 and 2009, respectively.
 
 Note
13 - Gain from debt extinguishment and Government grant
 
 Debt
extinguishment
 
 For the
three months ended March 31, 2009, the Company recorded gain from debt
extinguishment totaling $2.9 million. In 2009, Maoming, 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 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 three months ended March 31, 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 three months ended March 31, 2009.
 
 Note
14 – Taxes
 
 Income
tax
 
 Significant
components of the provision for income taxes on earnings and deferred taxes on
net operating losses from operation for the three months ended March 31, 2010
and 2009 are as follows:
 March31,2010
                                  
                                  
                                  March31,2009(Unaudited)
                                  
                                  
                                  (Unaudited)Current
                                  
                                  $
                                  621
                                  
                                  
                                  $
                                  164Deferred
                                  
                                  
                                  (2,588
                                  )
                                  
                                  
                                  1,222Total
      (benefit) provision for income taxes
                                  
                                  $
                                  (1,967
                                  )
                                  
                                  
                                  1,386
 
 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.
  25
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 The
principal component of the deferred income tax assets is as
follows:
 
 March31,
                          2010
                        
                        
                        December31,
                          2009(Unaudited)(in
      thousands)
                        
                        
                        (inthousands)Beginning
      balance
                        
                        $
                        3,341
                        
                        
                        $
                        7,487Net
      operating loss carry-forward (tax assets realized) for
      subsidiaries
                        
                        
                        432
                        
                        
                        
                        (864
                        )Effective
      tax rate
                        
                        
                        25
                        %
                        
                        
                        25
                        %Deferred
      tax asset
                        
                        $
                        108
                        
                        
                        $
                        (216
                        )Long
      Gang Headquarter, net operating loss carry-forward (tax asset
      realized)
                        
                        
                        15,160
                        
                        
                        
                        (26,193
                        )Effective
      tax rate
                        
                        
                        15
                        %
                        
                        
                        15
                        %Deferred
      tax asset
                        
                        $
                        2,274
                        
                        
                        $
                        (3,929
                        )Exchange
      difference
                        
                        
                        (1
                        )
                        
                        
                        (1
                        )Totals
                        
                        $
                        5,722
                        
                        
                        $
                        3,341
 
 Under the
Income Tax Laws of the PRC, the Company’s subsidiary, General Steel (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. General Steel (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. General Steel (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 March 31, 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
until December 31, 2010.
 
 Baotou
Steel Pipe Joint Venture is located in Inner Mongolia Autonomous Region and
is subject to an income tax at an effective rate of 25%.
 
 Maoming
is located in Guangdong province and is subject to an income tax at an effective
rate of 25%.
  26
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the three months ended March 31, 2010 and 2009 are as
follows:
 
 March 31, 2010
                          
                          
                          March 31, 2009(Unaudited)
                          
                          
                          (Unaudited)U.S.
      Statutory rates
                          
                          
                          34.0
                          %
                          
                          
                          34.0
                          %Foreign
      income not recognized in the US
                          
                          
                          (34.0
                          )%
                          
                          
                          (34.0
                          )%China
      income taxes
                          
                          
                          25.0
                          %
                          
                          
                          25
                          %Tax
      effect of income not taxable for tax purposes (1)
                          
                          
                          3.5
                          %
                          
                          
                          (2.2
                          )%Effect
      of different tax rate of subsidiaries operating in other
      jurisdictions
                          
                          
                          (10.0
                          )%
                          
                          
                          (10.2
                          )%Total
      provision for income taxes
                          
                          
                          18.5
                          %
                          
                          
                          12.6
                          %
 
 (1)
                  This
      represents derivative expenses (income) and stock compensation expenses
      incurred by GSI that are not deductible/taxable in the PRC for the three
      months ended March 31, 2010 and
2009.
 
 The
Company has cumulative undistributed earnings of foreign subsidiaries of
approximately $17.3 million as of March 31, 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 three months ended March
31, 2010 and for the year ended December 31, 2009. The net operating
loss carry forwards for United States income taxes amounted to $2.1 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 March 31, 2010 was $2.1 million. The net change
in the valuation allowance for the three months ended March 31,
2010 was $0.3 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.
  27
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 VAT on
sales and VAT on purchases amounted to $117.5 million  and $87.8
million for the three months ended March 31, 2010, $86.1 million and $67.7
million for the three months ended March 31, 2009, respectively. 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:
 March31,
                          2010
                        
                        
                        December31,
                          2009(Unaudited)(in thousands)
                        
                        
                        (in thousands)VAT
      taxes payable
                        
                        $
                        2,947
                        
                        
                        $
                        3,861Income
      taxes payable
                        
                        
                        1,125
                        
                        
                        
                        1,633Misc
      taxes
                        
                        
                        1,604
                        
                        
                        
                        1,427Totals
                        
                        $
                        5,676
                        
                        
                        $
                        6,921
 
 Note
15 – Earnings per share
 
 The
calculation of earnings per share is as follows:
 
 March31,
                          2010
                        
                        
                        March31,
                          2009(Unaudited)
                        
                        
                        (Unaudited)(in
      thousands except per share data)(Loss)
      Income attributable to holders of common shares
                        
                        $
                        (5,507
                        )
                        
                        $
                        7,334Basic
      weighted average number of common shares outstanding
                        
                        
                        51,652,843
                        
                        
                        
                        36,285,312Diluted
      weighted average number of common shares outstanding
                        
                        
                        51,652,843
                        
                        
                        
                        36,285,312(Loss)Earnings
      per shareBasic
                        
                        $
                        (0.11
                        )
                        
                        $
                        0.20Diluted
                        
                        $
                        (0.11
                        )
                        
                        $
                        0.20
 
 For the
three month end March 31, 2010, the Company incurred a net loss; therefore there
is no dilutive effect for its earnings per share.
 
 For the
three months ended March 31, 2009, 1,154,958 warrants with exercise price of
$13.51 and $32.5 million convertible notes with a conversion price of $12.47
were excluded from the diluted income per share due to anti-diluted
effect.
  28
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Note
16 – Related party transactions and balances
 
 Related party
transactions
 
 On March
31, 2010, General Steel (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 General Steel (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 General Steel (China) is
approximately $0.2 million (RMB1.68 million). The lessee is partly owned by a
related party, Beijing Wendlar and is managed by the former general manager of
General Steel (China). For the three months ended March 31, 2010, General Steel
(China) realized rental income in the amount of $0.7 million from the
Lessee.
 
 The
future rental payments to be received associated with the Lease Agreement are as
follow:
 
 YearendedMarch31,
                        
                        Amount(in
      thousands)2011
                        
                        $
                        2,9572012
                        
                        
                        2,221Thereafter
                        
                        
                        -Total
                        
                        $
                        5,178
 
 The
following charts summarize sales to the related party transactions for the three
months ended March 31 2010 and 2009.
 
 Nameofrelatedparties
                                
                                Relationship
                                
                                March31,
                                  2010
                                
                                
                                March31,
                                  2009(Unaudited)
                                
                                
                                (Unaudited)(inthousands)
                                
                                
                                (inthousands)Shaanxi
      Longmen (Group) Co, Ltd and its subsidiaries (“LG Group”)
                                
                                Noncontrolling
      shareholder of Longmen Joint Venture
                                
                                
                                104,453
                                
                                
                                
                                59,519Hengying
      and Dazhan
                                
                                Common
      control under CEO
                                
                                
                                9,850
                                
                                
                                
                                510Mao
      Ming Sheng Zhe
                                
                                Common
      control under CEO
                                
                                
                                -
                                
                                
                                
                                350Tianjin
      Daqiuzhuang Steel Plates Co., Ltd.
                                
                                Common
      control under CEO
                                
                                
                                8,312
                                
                                
                                
                                -Hancheng
      Haiyan Coking and its subsidiary
                                
                                Investee
      of LG Group
                                
                                
                                10,325
                                
                                
                                
                                -Beijing
      Daishang Trade Co., Ltd.
                                
                                Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                                
                                
                                2,405
                                
                                
                                
                                -Others
                                
                                
                                
                                
                                50
                                
                                
                                
                                -Total
                                
                                
                                
                                $
                                135,395
                                
                                
                                $
                                60,379
 
  29
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 The
following charts summarize purchase from the related party transactions for the
three months ended March 31 2010 and 2009.
 
 Nameofrelatedparties
                                    
                                    Relationship
                                    
                                    March31,
                                      2010
                                    
                                    
                                    March31,
                                      2009(Unaudited)
                                    
                                    
                                    (Unaudited)(inthousands)
                                    
                                    
                                    (inthousands)Shaanxi
      Longmen (Group) Co, Ltd and its subsidiaries (“LG Group”)
                                    
                                    Noncontrolling
      shareholder of Longmen Joint Venture
                                    
                                    
                                    107,925
                                    
                                    
                                    
                                    72,095Hengying
      and Dazhan
                                    
                                    Common
      control under CEO
                                    
                                    
                                    4,827
                                    
                                    
                                    
                                    6,829Jingma
      Jiaohua
                                    
                                    Investee
      of Longmen Joint Venture’s subsidiary (unconsolidated)
                                    
                                    
                                    3,472
                                    
                                    
                                    
                                    5,010Hancheng
      Haiyan Coking
                                    
                                    Investee
      of LG Group
                                    
                                    
                                    52,058
                                    
                                    
                                    
                                    33,130Beijing
      Daishang Trade Co., Ltd.
                                    
                                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                                    
                                    
                                    1,011
                                    
                                    
                                    
                                    6,249Others
                                    
                                    
                                    
                                    
                                    31
                                    
                                    
                                    
                                    9Total
                                    
                                    
                                    
                                    $
                                    169,324
                                    
                                    
                                    $
                                    123,322
 
 Related party
balances
 
 a.
                  Account  receivables
      - related parties:
 
 Nameofrelatedparties
                            
                            Relationship
                            
                            March31,
                              2010
                            
                            
                            December31,
                              2009(Unaudited)(inthousands)
                            
                            
                            (inthousands)Tianjin
      Daqiuzhuang Steel Plates Co., Ltd
                            
                            Common
      control under CEO
                            
                            $
                            4,747
                            
                            
                            $
                            -Tianjin
      Tongyong Qiugang Pipe
                            
                            Common
      control under CEO
                            
                            
                            4
                            
                            
                            
                            -Total
                            
                            
                            
                            
                            4,751
                            
                            
                            
                            -
 
 b.
                  Other
      receivables - related parties:
 
 Nameofrelatedparties
                                  
                                  Relationship
                                  
                                  March31,
                                    2010
                                  
                                  
                                  December31,
                                    2009(Unaudited)(inthousands)
                                  
                                  
                                  (inthousands)Beijing
      Wendlar Co., Ltd
                                  
                                  Common
      control under CEO
                                  
                                  $
                                  349
                                  
                                  
                                  $
                                  -LG
      Group
                                  
                                  Noncontrolling
      shareholder of Longmen Joint Venture
                                  
                                  
                                  13,482
                                  
                                  
                                  
                                  19,226Mao
      Ming Sheng Zhe
                                  
                                  Common
      control under CEO
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,021Tianjin
      Dazhan Industry Co, Ltd
                                  
                                  Common
      control under CEO
                                  
                                  
                                  14,670
                                  
                                  
                                  
                                  10,268Baotou
      Shengda Steel Pipe Co., Ltd
                                  
                                  Common
      control under CEO
                                  
                                  
                                  81
                                  
                                  
                                  
                                  -Tianjin
      Jin Qiu Steel Market
                                  
                                  Common
      control under CEO
                                  
                                  
                                  134
                                  
                                  
                                  
                                  147Tianjing
      General Steel Management Service Co., Ltd
                                  
                                  Common
      control under CEO
                                  
                                  
                                  -
                                  
                                  
                                  
                                  8Total
                                  
                                  
                                  
                                  $
                                  28,716
                                  
                                  
                                  $
                                  32,670
 
  30
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 c.
                  Advances
      on inventory purchases – related
parties:
 
 Nameofrelatedparties
                            
                            Relationship
                            
                            March31,
                              2010
                            
                            
                            December31,
                              2009(Unaudited)(inthousands)
                            
                            
                            (inthousands)Mao
      Ming Sheng Ze
                            
                            Common
      control under CEO
                            
                            $
                            4,554
                            
                            
                            $
                            -LG
      Group
                            
                            Noncontrolling
      shareholder of Longmen Joint Venture
                            
                            
                            39,297
                            
                            
                            
                            -Tianjin
      Jin Qiu Steel Market
                            
                            Common
      control under CEO
                            
                            
                            -
                            
                            
                            
                            2,995Tianjin
      Dazhan Industry Co., Ltd
                            
                            Common
      control under CEO
                            
                            
                            4,940
                            
                            
                            
                            -Total
                            
                            
                            
                            $
                            48,791
                            
                            
                            $
                            2,995
 
 d.
                  Accounts
      payable - related parties:
 
 Name of related
                                                      parties
                                                    
                                                    Relationship
                                                    
                                                    March 31,
                                                      2010
                                                    
                                                    
                                                    December31,
                                                      2009(Unaudited)(in
      thousands)
                                                    
                                                    
                                                    (inthousands)Tianjin
      Hengying Trading Co., Ltd
                                                    
                                                    Common
      control under CEO
                                                    
                                                    $
                                                    8,553
                                                    
                                                    
                                                    $
                                                    17,256Tianjin
      Dazhan Industry Co., Ltd
                                                    
                                                    Common
      control under CEO
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    6,047Henan
      Xinmi Kanghua
                                                    
                                                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                                                    
                                                    
                                                    763
                                                    
                                                    
                                                    
                                                    960Zhengzhou
      Shenglong
                                                    
                                                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                                                    
                                                    
                                                    91
                                                    
                                                    
                                                    
                                                    91ShanXi  Fangxin
                                                    
                                                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    373Baogang
      Jianan
                                                    
                                                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                                                    
                                                    
                                                    104
                                                    
                                                    
                                                    
                                                    38Jingma
      Jiaohua
                                                    
                                                    Investee
      of Longmen Joint Venture’s subsidiary (unconsolidated)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,360Huashan
      metallurgy
                                                    
                                                    Investee
      of Longmen Joint Venture’s subsidiary (unconsolidated)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    601Beijing
      Daishang Trading Co., Ltd
                                                    
                                                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                                                    
                                                    
                                                    184
                                                    
                                                    
                                                    
                                                    1,315LG
      Group
                                                    
                                                    Noncontrolling
      shareholder of Longmen Joint Venture
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    15,310Tianjin
      Tongyong Qiugang Pipe
                                                    
                                                    Common
      control under CEO
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    4,800Tianjin
      Jin Qiu Steel Market
                                                    
                                                    Common
      control under CEO
                                                    
                                                    
                                                    5,109
                                                    
                                                    
                                                    
                                                    -Hancheng
      Haiyan Coking
                                                    
                                                    Investee
      of LG Group
                                                    
                                                    
                                                    37,496
                                                    
                                                    
                                                    
                                                    -Total
                                                    
                                                    
                                                    
                                                    $
                                                    52,300
                                                    
                                                    
                                                    $
                                                    48,151
  31
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 e.
                  Short-term
      loans - related parties:
 
 Nameofrelated
                            parties
                          
                          Relationship
                          
                          March31,
                            2010
                          
                          
                          December31,
                            2009(Unaudited)(in
      thousands)
                          
                          
                          (in
      thousands)Tianjin
      Dazhan Industry Co., Ltd
                          
                          Common
      control under CEO
                          
                          $
                          -
                          
                          
                          $
                          3,946Tianjin
      Hengying Trading Co., Ltd
                          
                          Common
      control under CEO
                          
                          
                          -
                          
                          
                          
                          3,404Shaanxi
      Shenganda Trading Co., Ltd
                          
                          Common
      control under LG Group
                          
                          
                          -
                          
                          
                          
                          4,401Total
                          
                          
                          
                          $
                          -
                          
                          
                          $
                          11,751
 
 f.
                  Other
      payables - related parties:
 
 Nameofrelatedparties
                          
                          Relationship
                          
                          March31,
                            2010
                          
                          
                          December31,
                            2009(Unaudited)(in
      thousands)
                          
                          
                          (in
      thousands)Tianjin
      Hengying Trading Co, Ltd
                          
                          Common
      control under CEO
                          
                          
                          2,500
                          
                          
                          
                          2,415Beijing
      Wendlar Co., Ltd
                          
                          Common
      control under CEO
                          
                          
                          -
                          
                          
                          
                          704Yangpu
      Capital Automobile
                          
                          Common
      control under CEO
                          
                          
                          1,174
                          
                          
                          
                          587Tianjin
      Qiugang Steel Tub Co., Ltd
                          
                          Under
      common control
                          
                          
                          17,315
                          
                          
                          
                          -Total
                          
                          
                          
                          $
                          20,989
                          
                          
                          $
                          3,706
  32
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 g.
                  Customer
      deposit – related parties:
 
 Name of related
                                parties
                              
                              Relationship
                              
                              March 31,
                                2010
                              
                              
                              December 31,
                                2009(Unaudited)(in
      thousands)
                              
                              
                              (inthousands)Tianjin
      Dazhan Industry Co., Ltd
                              
                              Common
      control under CEO
                              
                              
                              12,766
                              
                              
                              $
                              1,544Tianjin
      Hengying Trading Co., Ltd
                              
                              Common
      control under CEO
                              
                              
                              492
                              
                              
                              
                              203Hancheng
      Haiyan Coking
                              
                              Investee
      of LG Group
                              
                              2,987
                              
                              
                              
                              1,316LG
      Group
                              
                              Noncontrolling
      shareholder of Longmen Joint Venture
                              
                              
                              20,453
                              
                              
                              
                              -Beijing
      Daishang Trading Co., Ltd
                              
                              Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                              
                              
                              3,340
                              
                              
                              
                              728Maoming
      Sheng Ze
                              
                              Common
      control under CEO
                              
                              
                              45
                              
                              
                              
                              -Total
                              
                              
                              
                              $
                              40,083
                              
                              
                              $
                              3,791
 
 The
Company also guaranteed bank loans of related parties amounting to $106.8
million and $93.6 million as of March 31, 2010 and December 31, 2009,
respectively.
 
 Note
17 - 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.
 
 From
April to November 2009, the Company issued 487,400 shares of common stock to
management and consulting firms 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.
  33
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 On May 8,
2009, the Company issued 300,000 shares of common stock to Maoming’s debtor,
Guangzhou Hengda at $6 per share, as cash payments made for settling other short
term loan.
 
 From May
7 to December 31, 2009, $30.0 million of notes was converted to 7,045,274 shares
of common stock at Conversion Price, $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 had been 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 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 holder to request cash buy-back in
the event of a Fundamental Transaction, which is significant changes 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 March 31, 2010 and December 31, 2009, the estimated fair value of the 2009
Warrants was $6.6 million and $8.1 million, resulting in a gain of $1.5 million
and $0.4 million, which 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 2009 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 2009 Warrants.  The value of the 2009 Warrants
was based on the Company’s common stock price on the date the 2009 Warrants were
issued.
 
 2010
Equity Transaction
 
 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.
  34
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 The
Company has the following warrants outstanding:
 
 Outstanding
      as of January 1, 2009
                        
                        
                        1,154,958Granted
                        
                        
                        5,523,691Forfeited
                        
                        
                        -Exercised
                        
                        
                        -Outstanding
      As of December 31, 2009
                        
                        
                        6,678,649Granted
                        
                        
                        -Forfeited
                        
                        
                        -Exercised
                        
                        
                        -Outstanding
      As of March 31, 2010 (Unaudited)
                        
                        
                        6,678,649
 
 Outstanding Warrants
                            
                            
                            Exercisable WarrantsExercise
                              Price
                            
                            
                            Number
                            
                            
                            Average
                              Remaining
                              Contractual
                              Life
                            
                            
                            Average
                              Exercise
                              Price
                            
                            
                            Number
                            
                            
                            Average
                              Remaining
                              Contractual Life$
                            5
                            
                            
                            
                            6,678,649
                            
                            
                            
                            2.75
                            
                            
                            $
                            5
                            
                            
                            
                            3,900,871
                            
                            
                            
                            3.12
 
 Note
18 – 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 contribute 20% 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 March 31 2010 and 2009,
respectively.
 
 Note19–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.
 
 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.
  35
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Note
20 – Commitment and contingencies
 
 Commitments
 
 General
Steel (China) rented land for 50 years starting September 2005. The total amount
of the rent over the 50 years period is approximately $1.0 million (or RMB 8
million).
 
 Baotou
Steel Pipe Joint Venture has 5 years rental agreement with Bao Gang Jianan for
buildings. The agreement began in June 2007 for lease payments of $0.3
million (or RMB1.8 million) per year.
 
 As of
March 31, 2010, total future minimum lease payments for the unpaid portion under
an operating lease were as follows:
 
 YearendedMarch31,
                        
                        Amount(in
      thousands)2011
                        
                        $
                        2642012
                        
                        
                        2642013
                        
                        
                        662014
                        
                        
                        -2015
                        
                        
                        -Thereafter
                        
                        
                        661Total
                        
                        $
                        1,255
 
 Total
rental expense amounted to $0.1 million and $0.1 million for the three months
ended March 31, 2010 and 2009, respectively.
 
 Hancheng
Tongxing Metallurgy Co., Ltd., one subsidiary of Longmen Joint Venture, is
obligated to contribute $33.0 million (RMB 225 million), as registered capital
to Shaanxi Longmen Coal and Chemical Co., Ltd by the end of 2010. Tongxing had
contributed $6.6 million as of March 31, 2010.
 
 Long Men
Joint Venture has a $11.1 million contractual obligation in its construction
project as of March 31 2010, see note 6.
 
 The
Company entered an agreement to build a TRT Electricity Generator inside the
subsidiary, 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:
 
 YearendedMarch31,
                        
                        Amount(in
      thousands)2011
                        
                        $
                        3,3152012
                        
                        
                        829Thereafter
                        
                        
                        -Total
                        
                        $
                        4,144
  36
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Contingencies
 
 As of
March 31, 2010, the Company guaranteed bank loans for related parties and third
parties bank loans, including line of credit, amounting to $219.5
million.
 
 Longmen
Joint Venture had $213.6 million guarantees as of March 31, 2010.
 
 Natureof
                        
                        Guaranteeguarantee
                        
                        amount
                        
                        Guarantyperiod(In
      thousands)Importation
      Letters of Credit
                        
                        $
                        17,604
                        
                        July
      2009 to July 2010Domestic
      Letters of Credit
                        
                        
                        1,467
                        
                        July
      2009 to July 2010Bank
      loans
                        
                        
                        185,722
                        
                        Various
      from April 2009 to March 2011Notes
      payable
                        
                        
                        8,802
                        
                        Various
      from July 2009 to February 2011Total
                        
                        $
                        213,595
 
 Maoming
had $5.9 million in guarantees as of March 31, 2010.
 
 Nature
      of
                        
                        Guaranteeguarantee
                        
                        amount
                        
                        Guaranty period(In
      thousands)Bank
      loan
                        
                        $
                        5,868
                        
                        Various
      from June 2009 to October
2010
 
 The
Company has evaluated the guarantee and concluded that the likelihood of having
to make payments under the guarantee is remote.
 
 Note
21 – 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.
 
 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:
 
 March31,2010
                        
                        
                        March31,2009(Unaudited)
                        
                        
                        (Unaudited)(inthousands)
                        
                        
                        (inthousands)Re-bar
                        
                        $
                        439,658
                        
                        
                        $
                        292,715Hot-Rolled
      Sheets
                        
                        
                        8,312
                        
                        
                        
                        12,698High
      Speed Wire
                        
                        
                        3,874
                        
                        
                        
                        17,250Spiral-Welded
      Steel Pipe
                        
                        
                        1,179
                        
                        
                        
                        1,310Total
      Revenues
                        
                        $
                        453,023
                        
                        
                        $
                        322,793
  37
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 March 31,
2010
 (Unaudited)
 
 Note
22 – Subsequent event
 
 The
Company evaluated subsequent events through the date these unaudited
consolidated financial statements were issued.
  38


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 First Quarter Highlights
 
 l
              For
      the three month period ended March 31, 2010, total revenue increased 40.3%
      to $453.0 million from $322.8 million in the first quarter of
      2009.
 
 l
              Shipment
      volume increased 44.2% to 1.0 million metric tons from 0.7 million metric
      tons.
 
 l
              On
      March 31, 2010, General Steel (China) entered into a lease agreement to
      lease its workshops, land, equipment and other facilities to Tianjin
      Daqiuzhuang Steel Plates Co., Ltd.  This agreement reduces overhead
      costs while providing a recurring monthly revenue stream resulting from
      payments due
thereunder.
 
 l
              On
      February 3, 2010, Maoming Hengda Steel Group Limited. (“Maoming”) entered
      into a strategic alliance agreement with Zhuhai Yueyufeng Iron and Steel
      Co., Ltd (“Yueyufeng”). As part of the agreement 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.
 
 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;
 ·
              we are a direct beneficiary of
      the China economic stimulus infrastructure spending program;
      and
 ·
              the developing regions of China
      are growing and have not been as significantly impacted by the global
      economic slowdown as other regions in
  China.
  39
  Overview
  Our
company was 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. Our companies serve various 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 rural income, 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.
 
 Our
strategy is to grow through aggressive 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”, “we”, “our” and “us” refer to General Steel Holdings,
Inc.
 
 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.,
(“General Steel (China)”), formerly known as Tianjin Daqiuzhuang Metal
Sheet Co., Ltd., started operations in 1988. General Steel (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, General Steel
(China) entered into a lease agreement whereby General Steel (China) leases its
facility located at No. 1, Tonga Street, Daqizhuang town, Junghai 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 General Steel
(China) is approximately $246,096 (RMB1.68 million).  The former
General Manager of General Steel (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.
  40
  Baotou Steel - General Steel Special
Steel Pipe Joint Venture Co., Ltd.
 
 On April 27, 2007, General Steel
(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 General Steel (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., a Chinese limited liability company (“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, General Steel (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 an aggregate of approximately $39 million cash and
collectively hold approximately 60% of the Longmen Joint Venture.
 
 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 four branch offices, six subsidiaries under direct control and six entities
in which it has a non-controlling interest.  It employs approximately
6,317 full-time workers.  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).
Rebar is generally considered a regional product because its weight and
dimension make it 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 180km 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 products sell under the registered brand name of
“Yulong,” which enjoys strong regional recognition and awareness. Rebar and
billet products carry ISO 9001 and 9002 certification and many other products
have won national quality awards. Products produced 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.
  41
  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
western region of Guangdong province.  Previously, the Maoming
facility had been operating at approximately 10% of its capacity which we
believe was the result of the previous owners focus on matters unrelated to the
Maoming facility.
  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.
 
 Production
Capacity Information Summary by Subsidiaries
 
 General Steel (China)
                              
                              Baotou Steel Pipe
                                Joint Venture
                              
                              Longmen Joint
                                Venture
                              
                              MaomingAnnual
      ProductionCapacity
      (metric tons)
                              
                              400,000
                              
                              100,000
                              
                              4.8
      million
                              
                              1
      millionMain
      Products
                              
                              Hot-rolled
      sheet
                              
                              Spiral-weld
      pipe
                              
                              Rebar/High-speed
      wire
                              
                              High-speed
      wireMain
      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
and 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 Longmen Joint Venture is located, has been
designated as a focal point for development into the western region, and Xi’an,
the provincial capital, has been designated as a focal point for this
development. Our Longmen Joint Venture is 180 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 139 construction and infrastructure projects
under construction in 2010. Among them 44 projects are scheduled to begin this
year. Some of the major projects include: nine new railways, one new airport,
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.
  42
  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 use 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 90% of production
costs are associated with raw materials, with iron ore being the largest
component.
 
 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.
 
 Our 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 SteelShaanxi
      Longmen Iron & Steel Group Co., Ltd.
                                          
                                          Iron
      Ore
                                          
                                          
                                          19.8
                                          %
                                          Related
      partyShaanxi
      Haiyan Coal Chemical Industry Co., Ltd.
                                          
                                          Coke
                                          
                                          
                                          11.9
                                          %
                                          Related
      partyShaanxi
      Huanghe Material Co., Ltd.
                                          
                                          Coke
                                          
                                          
                                          7.5
                                          %
                                          NoneHejing
      Xinbo Commercial Trade Co., Ltd.
                                          
                                          Alloy
                                          
                                          
                                          4.6
                                          %
                                          NoneXian
      Pinghe Iron & Steel Raw Material  Co., Ltd.
                                          
                                          Iron
      Ore
                                          
                                          
                                          4.5
                                          %
                                          Related
      partyTotal
                                          
                                          
                                          48.3
                                          %
  43
 
 Baotou Steel Pipe Joint
Venture
 
 Name of the Major Supplier
                                    
                                    Raw Material
                                      Purchased
                                    
                                    % of Total Raw
                                      Material
                                      Purchased
                                    
                                    Relationship with
                                      General SteelTianjin
      Jinchang I&E Co., Ltd.
                                    
                                    Steel
      coil
                                    
                                    
                                    52.7
                                    %
                                    NoneBaotou
      Steel Sheet Co., Ltd
                                    
                                    Steel
      coil
                                    
                                    
                                    10.5
                                    %
                                    NoneBaichuan
      Iron & Steel Co., Ltd.
                                    
                                    Steel
      coil
                                    
                                    
                                    7.8
                                    %
                                    NoneTangshan
      Fengrun Xinhong Welding Raw Material Co., Ltd.
                                    
                                    Steel
      coil
                                    
                                    
                                    2.6
                                    %
                                    NoneYusheng
      Welding Co., Ltd.
                                    
                                    Steel
      coil
                                    
                                    
                                    2.1
                                    %
                                    NoneTotal
                                    
                                    
                                    75.7
                                    %
  Maoming
 
 Name of the Major Supplier
                                
                                Raw Material
                                  Purchased
                                
                                % of Total Raw
                                  Material
                                  Purchased
                                
                                Relationship with
                                  General SteelMaoming
      Dazhongmao Petrochem Co., Ltd.
                                
                                Billet
                                
                                
                                94.2
                                %
                                NoneTotal
                                
                                
                                94.2
                                %
 
 
 (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. In 2010, the government plans to issue
revised steel industry guidelines which are expected to further strengthen
measures to minimize old and inefficient steel production.  We believe
these government actions demonstrate an increased resolve to bring about
industry consolidation.  We see the pace of industry consolidation
quickening in the coming years.
 
 Intellectual Property
Rights
 
 “Baogang
Tongyong” is the trademark under which we sell spiral-weld steel pipes products
produced at Baotou Steel Pipe Joint Venture.
 
 “Yu Long”
is the registered trademark under which we sell rebar and high-speed wire
products produced in Longmen Joint Venture. The trademark is registered under
the ISO9001:2000 international quality standard.
  “Heng Da”
is the registered trademark under which we sell high-speed wire and rebar
products produced at our Maoming facility. The trademark is registered under the
ISO9001:2000 international quality standard.
  44
 
 Results
of Operations
 
 The
following table sets forth, for the periods indicated, our operations
data.
 
 Three months endedin
      thousands, except earnings per share and gross profit
    margin
                    
                    March 31,
                    
                    
                    %2010
                    
                    
                    2009
                    
                    
                    ChangeUnaudited
                    
                    
                    UnauditedTOTAL
      REVENUES
                    
                    $
                    453,023
                    
                    
                    $
                    322,793
                    
                    
                    
                    40.3
                    %GROSS
      PROFIT
                    
                    $
                    5,733
                    
                    
                    $
                    12,921
                    
                    
                    
                    -55.6
                    %GROSS
      PROFIT MARGIN
                    
                    
                    1.27
                    %
                    
                    
                    4.00
                    %SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                    
                    $
                    12,141
                    
                    
                    $
                    9,168
                    
                    
                    
                    32.4
                    %(LOSS)
      INCOME FROM OPERATIONS
                    
                    $
                    (6,408
                    )
                    
                    $
                    3,753Total
      OTHER (EXPENSE) INCOME,NET
                    
                    $
                    (4,226
                    )
                    
                    $
                    8,960(LOSS)
      INCOME BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING
      INTEREST
                    
                    $
                    (10,634
                    )
                    
                    $
                    12,713NET
      (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
                    
                    $
                    (8,667
                    )
                    
                    $
                    11,327NET
      (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                    
                    $
                    (5,507
                    )
                    
                    $
                    7,334(LOSS)
      EARNING PER SHAREBasic
                    
                    $
                    (0.11
                    )
                    
                    $
                    0.20Diluted
                    
                    $
                    (0.11
                    )
                    
                    $
                    0.20
 
 Sales
Revenues
 
 Three
months ended March 31, 2010 compared with three months ended March 31,
2009
 
 The
following table sets forth sales revenue and volume in metric tons for each of
our reporting segments.
 
 SALES
      REVENUE
                        
                        Three
      months endedMarch
      31, 2010
                        
                        
                        March
      31, 2009
                        
                        
                        Change
                        
                        
                        Changein
      thousands, except metric tons
                        
                        Volume
                        
                        
                        Revenue
                        
                        
                        %
                        
                        
                        Volume
                        
                        
                        Revenue
                        
                        
                        %
                        
                        
                        Volume
      %
                        
                        
                        Revenue
      %Unaudited
                        
                        
                        
                        
                        
                        UnauditedLongmenJoint
      Venture
                        
                        
                        909,731
                        
                        
                        $
                        434,826
                        
                        
                        
                        95.9
                        %
                        
                        
                        649,327
                        
                        
                        $
                        292,715
                        
                        
                        
                        90.8
                        %
                        
                        
                        40.1
                        %
                        
                        
                        48.5
                        %Maoming
                        
                        
                        96,591
                        
                        
                        $
                        3,874
                        
                        
                        
                        0.9
                        %
                        
                        
                        42,369
                        
                        
                        $
                        17,250
                        
                        
                        
                        5.3
                        %
                        
                        
                        128.0
                        %
                        
                        
                        -77.5
                        %General
      Steel (China)
                        
                        
                        26,781
                        
                        
                        $
                        13,145
                        
                        
                        
                        2.9
                        %
                        
                        
                        25,672
                        
                        
                        $
                        12,698
                        
                        
                        
                        3.9
                        %
                        
                        
                        4.3
                        %
                        
                        
                        3.5
                        %Baotou
      Steel Pipe Joint Venture
                        
                        
                        2,268
                        
                        
                        $
                        1,178
                        
                        
                        
                        0.3
                        %
                        
                        
                        768
                        
                        
                        $
                        130
                        
                        
                        
                        0.0
                        %
                        
                        
                        195.3
                        %
                        
                        
                        806.2
                        %Total
                        
                        
                        1,035,371
                        
                        
                        
                        453,023
                        
                        
                        
                        100
                        %
                        
                        
                        718,136
                        
                        
                        
                        322,793
                        
                        
                        
                        100
                        %
                        
                        
                        44.2
                        %
                        
                        
                        40.3
                        %
 
 Total Sales Revenues for the three
months ended March 31, 2010 increased 40.3% to $453.0 million from $322.8
million for the same period last year.
 
 The increase in sales revenue compared
to the same period last year is predominantly due to the production volume
increase of 40.1% at our Longmen Joint Venture. During the first quarter of
2009, our second new 1280 cubic meter blast furnace came on-line at the Longmen
Joint Venture which resulted in increased production capabilities.
 
 Longmen Joint Venture comprised 95.9%
of total sales for the first quarter of 2010. The 40.1% production volume
increase was fueled by stable demand for construction steel in our addressable
markets and increased production capacity from our two new 1,280 cubic meter
blast furnaces.
  45
 
 Maoming  comprised 0.9% of
total sales for the first 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 first
quarter of 2010, Maoming only completed processing contracts, which generate
less sales revenue, whereas in the first quarter of 2009, it completed both
processing and production contracts.
 
 General Steel (China) comprised 2.9% of
total sales for the first quarter of 2010. On March 31, 2010, General Steel
(China) entered into a lease agreement with Tianjin Daqiuzhuang Steel Plates
Co., Ltd. to lease workshops, land, equipment and other facilities with a
fixed monthly rental incomeofapproximately US$0.2
million (RMB1.68 million). The increase in sales revenue compared to the same
period last year is a result of selling all of General Steel (China)’s finished
products and raw material inventories to Tianjin Daquizhuang Steel Plates Co.,
Ltd. for a one-time revenue gain of $8.3 million.
 
 Baotou Steel Pipe Joint Venture
comprised 0.3% of total sales for the first quarter of 2010. The 195.3% volume
increase is due to a contract for natural gas pipes that was not in place
during the same period last year.
 
 Gross
Profit
 
 Three
months ended March 31, 2010 compared with three months ended March 31,
2009
 
 The
following table sets forth gross profit and volume in metric tons of each of our
reporting segments.
 
 GROSS
      PROFIT
                    
                    Three
      months endedin
      thousands, except metric tons
                    
                    March
      31, 2010
                    
                    
                    March
      31, 2009
                    
                    
                    Change
      %Unaudited
                    
                    
                    
                    
                    
                    UnauditedVolume
                    
                    
                    Gross
      Profit
                    
                    
                    Margin
      %
                    
                    
                    Volume
                    
                    
                    Gross
      Profit
                    
                    
                    Margin
      %
                    
                    
                    Gross
      ProfitLongmen
      Joint Venture
                    
                    
                    909,731
                    
                    
                    $
                    6,012
                    
                    
                    
                    1.4
                    %
                    
                    
                    649,327
                    
                    
                    $
                    14,735
                    
                    
                    
                    5.0
                    %
                    
                    
                    -59.2
                    %Maoming
                    
                    
                    96,591
                    
                    
                    $
                    (317
                    )
                    
                    
                    -8.2
                    %
                    
                    
                    42,369
                    
                    
                    $
                    (2,242
                    )
                    
                    
                    -13.0
                    %
                    
                    
                    -85.9
                    %General
      Steel (China)
                    
                    
                    26,781
                    
                    
                    $
                    5
                    
                    
                    
                    0.0
                    %
                    
                    
                    25,672
                    
                    
                    $
                    422
                    
                    
                    
                    3.3
                    %
                    
                    
                    -98.8
                    %Baotou
      Steel Pipe Joint Venture
                    
                    
                    2,268
                    
                    
                    $
                    33
                    
                    
                    
                    2.7
                    %
                    
                    
                    768
                    
                    
                    $
                    6
                    
                    
                    
                    4.7
                    %
                    
                    
                    433.3
                    %Total
                    
                    
                    1,035,371
                    
                    
                    
                    5,733
                    
                    
                    
                    1.3
                    %
                    
                    
                    718,136
                    
                    
                    
                    12,921
                    
                    
                    
                    4.0
                    %
                    
                    
                    -55.6
                    %
 
 Gross profit for the three months ended
March 31, 2010 decreased 55.6% to $5.7 million from $12.9 million for the same
period last year.  The decrease is primarily attributable to a drop in
gross profit at our Longmen Joint Venture.
 
 Longmen Joint
Venture
 
 The Gross
Profit Margin of our largest subsidiary, Longmen Joint Venture, was negatively
affected by the following factors.
 
 1)
              The
      price of our primary raw materials, iron ore and coke, increased in the
      beginning of first quarter 2010 compared with the same period in
      2009.
 2)
              While
      we are the largest integrated producer of construction steel products in
      the region and have a great ability to pass higher production costs to our
      customers, a lag-time exists between the time when the production costs go
      up and the time when the selling price can be raised to cover the increase
      in costs.  As such, we were unable to immediately pass on the
      higher raw material costs to our customers. The average selling price of
      rebar stayed at a relatively low level for January and February 2010
      and  began to increase at the end of
  March.
 3)
              The
      depreciation expense of the two new blast furnaces was not included in the
      cost of sales in the first quarter of 2009 since the construction in
      progress wasn’t capitalized until the second quarter of
      2009.
  46
 
 Maoming
 
 Although the Gross Profit at Maoming
improved in the first quarter of 2010 compared to the first quarter of 2009,
Gross Profit of this subsidiary remains negative due to its relatively low
utilization rate.
 
 General Steel
(China)
 
 Gross margin at General Steel (China)
decreased to 0.04% compared to 3.3% in the first quarter in 2009. This reflects
the change of the operating model of this facility in the first quarter. The
fixed lease payment is recorded under the “Other non-operating income” on the
income statement.
 
 Baotou
Steel
 
 At our Baotou Steel Pipe Joint Venture,
gross margin decreased to 2.7%, down from 4.7% in the first quarter
of  2009.  The decrease was due to higher raw material
prices.
 
 Selling,
General and Administrative Expenses
 
 Three
months ended March 31, 2010 compared with three months ended March 31,
2009
 
 in
      thousands
                  
                  Three months endedMarch 31, 2010
                  
                  
                  March 31, 2009
                  
                  
                  Change %Unaudited
                  
                  
                  UnauditedSELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                  
                  $
                  12,141
                  
                  
                  $
                  9,168
                  
                  
                  
                  32.4
                  %SG&A
      EXPENSES AS A PERCENTAGE OF TOTAL REVENUE
                  
                  
                  2.7%
                  
                  
                  
                  2.8%
 
 Selling, general and administrative
expenses, such as executive compensation, office expenses, legal and accounting
charges, travel charges, equipment maintenance and various taxes increased
32.43% to $12.1 million for the three months ended March 31, 2010, compared to
$9.2 million for the same period of 2009. The increase is mainly due to
increased transportation and agent charges at the Longmen Joint Venture
following shipping volume increases.
 
 SG&A expenses as a percentage of
revenue decreased slightly to 2.7% for the first quarter of 2010 from 2.8% in
the same period in 2009.
 
 (Loss)
income from operations
 
 Three
months ended March 31, 2010 compared with three months ended March 31,
2009
  in
      thousands
                  
                  Three months endedMarch 31, 2010
                  
                  
                  March 31, 2009
                  
                  
                  Change %Unaudited
                  
                  
                  Unaudited(LOSS)
      INCOME FROM OPERATIONS
                  
                  $
                  (6,408
                  )
                  
                  $
                  3,753
 
 Income
from operations for the three months ended March 31, 2010 decreased to a loss of
$(6.4) million from $3.8 million income for the same period last year. This was
due to the following factors.
 
 1)
              The
      price of our primary raw materials, iron ore and coke, increased in the
      beginning of first quarter 2010.
 2)
                While
      we are the largest integrated producer of construction steel products in
      the region and have a great ability to pass higher production costs to our
      customers, a lag-time exists between the time when the production costs go
      up and the time when the selling price can be raised to cover the increase
      in costs. Thus, we were unable to immediately pass on the higher raw
      material costs. The average selling price of rebar stayed at a relatively
      low level for January and February 2010 and began to increase at the end
      of March.
  47
 
 3)
              The
      depreciation expense of the two new blast furnaces wasn’t included in the
      cost of sales in the first quarter of 2009 since the construction in
      progress wasn’t capitalized until the second quarter of
      2009.
 
 Other
income (expense)
 
 Three
months ended March 31, 2010 compared with three months ended March 31,
2009
 
 Total
other income (expense) for the three months ended March 31, 2010 was an expense
of $4.2 million compared to an income of $9.0 million for the same period last
year.
 
 In
      thousands
                  
                  Three months endedMarch 31, 2010
                  
                  
                  March 31, 2009
                  
                  
                  Change %Unaudited
                  
                  
                  UnauditedOTHER
      INCOME (EXPENSES)Interest
      income
                  
                  $
                  1,120
                  
                  
                  $
                  879
                  
                  
                  
                  27.4
                  %Finance/Interest
      expense
                  
                  $
                  (10,963
                  )
                  
                  $
                  (2,939
                  )
                  
                  
                  273.0
                  %Change
      in fair value of derivative liabilities
                  
                  $
                  3,939
                  
                  
                  $
                  4,115
                  
                  
                  
                  -4.3
                  %Gain
      from debt extinguishment
                  
                  
                  
                  
                  
                  $
                  2,930Government
      grant
                  
                  
                  
                  
                  
                  $
                  3,520Income
      from equity investment
                  
                  $
                  1,682
                  
                  
                  $
                  (55
                  )Other
      non-operating (expense) income, net
                  
                  $
                  (4
                  )
                  
                  $
                  510Total
      other (expenses) income, net
                  
                  $
                  (4,226
                  )
                  
                  $
                  8,960
 
 The
difference between the $4.2 million expense recorded for the three months ended
March 31, 2010 and the $9.0 million income recorded for the three months ended
March 31, 2009 was caused by the following factors:
 
 ·
              The 27.4% increase in interest
      income is as a result of greater cash deposits in banks in
      2010;
 ·
              The 273.0% increase in
      finance/interest expense is as a result of an increase in short-term loans
      and discounted notes borrowed by Longmen Joint Venture for the purpose of
      buying low priced inventory in the fourth quarter of 2009. In addition,
      interest expense increased in the first quarter of 2010 compared to the
      same period in 2009 because increased production capacity and volume
      required more bank loans to provide working
  capital;
 ·
              The change in the fair value of
      derivative liabilities was a gain of $3.9 million for the three months
      ended March 31, 2010 compared to a gain of $4.1 million for the period
      last year;
 ·
              There was no debt extinguishment
      recorded for the three months ended March 31, 2010 compared to a gain of
      $2.9 million in debt extinguishment realized as a result of activities at
      our Maoming facility for the three months ended March 31, 2009;
      and
 ·
              There was no government grant for
      the three months ended March 31, 2010 compared to a $3.5 million
      government grant at our Longmen Joint Venture recorded for the three
      months ended March 31, 2009.
 
 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.
  48
  The
change in fair value of derivative liabilities for the three months ended March
31, 2010 was a gain of $3.9 million compared to a gain of  $4.1
million for the same period last year. This gain was due to a lower stock price
of our common stock in the first quarter of 2010 compared to fiscal year-ended
2009. According to GAAP rules in valuing derivatives, the drop in our share
price required us to record a $3.9 million gain in change in fair value of
derivative liabilities.
 
 Net
income before noncontrolling interest
  Three
months ended March 31, 2010 compared with three months ended March 31,
2009
 
 in
      thousands
                    
                    Three months endedMarch 31, 2010
                    
                    
                    March 31, 2009Unaudited
                    
                    
                    UnauditedNET
      (LOSS) INCOME BEFORE
    NONCONTROLLING  INTEREST
                    
                    $
                    (8,667
                    )
                    
                    $
                    11,327
 
 Net
Income before noncontrolling interest for the three months ended March 31, 2010
decreased to loss of $8.7 million from $11.3 million for the same period last
year. The primary reasons for the decrease are due to margin compression and an
increase in other expenses.
 
 Net
Income Attributable to General Steel Holdings, Inc.
 
 Three
months ended March 31, 2010 compared with three months ended March 31,
2009
 
 In
      thousands
                    
                    Three months endedMarch 31, 2010
                    
                    
                    March 31, 2009Unaudited
                    
                    
                    UnauditedNET
      (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
                    
                    $
                    (8,667
                    )
                    
                    $
                    11,327LESS:
      Net (loss) income attributable to the noncontrolling
    interest
                    
                    $
                    (3,160
                    )
                    
                    $
                    3,993NET
      (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                    
                    $
                    (5,507
                    )
                    
                    $
                    7,334
 
 Net
income attributable to General Steel Holdings, Inc. for the three months ended
March 31, 2010 decreased to a $5.5 million loss compared to a $7.3 million
income for the same period of 2009.
  For the three months ended March 31,
2010 net loss was $8.7 million of which $3.2 million was distributed to a
non-controlling interest. For the three months ended March 31, 2009 net income
was $11.3 million of which a $4.0 million gain was distributed to a
non-controlling interest.
  49
 
 Earnings
per share
 
 Three
months ended March 31, 2010 compared with three months ended March 31,
2009
 
 (Loss)
      Earning per Share
                    
                    Three months endedIn
      thousands, except earning per share
                    
                    March 31, 2010
                    
                    
                    March 31, 2009
                    
                    
                    Change %Unaudited
                    
                    
                    UnauditedNET
      (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                    
                    $
                    (5,507
                    )
                    
                    $
                    7,334WEIGHTED
      AVERAGE NUMBER OF SHARESBasic
                    
                    
                    51,653
                    
                    
                    
                    36,285
                    
                    
                    
                    42.4
                    %Diluted
                    
                    
                    51,653
                    
                    
                    
                    36,285
                    
                    
                    
                    42.4
                    %(LOSS)
      EARNING PER SHAREBasic
                    
                    $
                    (0.11
                    )
                    
                    $
                    0.20Diluted
                    
                    $
                    (0.11
                    )
                    
                    $
                    0.20
 
 Earnings
per share (basic) and (diluted) for the three months ended March 31, 2010
decreased to a loss of $0.11 compared to a gain of $0.20 for the same period of
2009.
 
 Income
taxes
 
 We did not carry on any business and
did not maintain any branch office in the United States during the three months
ended March 31, 2010 and 2009. Therefore, no provision for withholding or U.S.
federal or state income taxes or tax benefits on the undistributed earnings
and/or losses of our company has been made.
 
 Under the Income Tax Laws of PRC, our
subsidiary, General Steel (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.  General Steel (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.  General Steel (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, General Steel
(China) was exempt from income taxes for the years ended December 31, 2005 and
2006 and 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, 2007, 2008
and 2009. Beginning in 2010, the effective income tax rate at General Steel
(China) will be 25%.
 
 Our subsidiary, 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 March 31,
2010, we had a tax expense of $(2.0) million.
 
 We have cumulative undistributed
earnings of foreign subsidiaries of approximately $17.3 million as of March 31,
2010. Such earnings are 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.
  50




General
Steel Holdings, Inc. was incorporated in the United States and has incurred net
operating losses for income tax purposes for the three months ended March 31,
2010 and for the year ended December 31, 2009. The net operating loss carry
forwards for United States income taxes amounted to $2.1 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 March
31, 2010 was $2.1 million. The net change in the valuation allowance for the
three months ended March 31, 2010 was $0.3 million. Management will review this
valuation allowance periodically and make adjustments as warranted.





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 $26.9 million as of March 31, 2010 compared to
$8.5 million on December 31, 2009. This increase was mainly due to Longmen Joint
Venture’s deliveries made to a major government project and this receivable will
be collected in the coming months.





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 March 31, 2010, we reserved $0.4 million for bad debt allowance
based on our reasonable estimate.





Inventory





We had an inventory balance of $237.7
million as of March 31, 2010 compared to $208.1 million on December 31,
2009.  Such balance is comprised of raw material and finished
products. We increased our stock of raw materials in the first 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 March 31, 2010, we had $324.0
million in short-term notes payables liabilities, which are secured by
restricted cash of $226.7 million and other 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 are 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 March 31, 2010, we had $174.7
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.


51





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





For more details about our debts,
please see note 8 in our notes to the financial statements included in this
report.





Registered
Direct Offering and Warrant Reset Agreements





On
December 30, 2009, we sold 5,555,556 shares of our common stock and warrants to
purchase 2,777,778 shares of our common stock (the “December 2009 Warrants”), in
a registered direct offering.





The December 2009 Warrants represent
the right to purchase an aggregate of up to 2,777,778 shares of common stock at
an initial exercise price of $5.00 per share. Each such warrant has a two year
term and may be exercised at any time on or after six months and one day
following December 30, 2009. Because the December 2009 Warrants are denominated
in U.S. dollars and our functional currency is the Renminbi, and the December
2009 Warrants permit the warrant holder to request cash buy-back in the event of
a Fundamental Transaction, which includes a significant change in our structure
and/or equity, these warrants do not meet the requirements of accounting
standards to be indexed only to our stock.  Accordingly, the
December 2009 Warrants are accounted for at fair value as derivative liabilities
and marked to market each fiscal period.





On December 24, 2009, the holders of
the December 2007 Warrants entered into Warrant Reset Agreements with us that
resulted in the exercise price of the warrants being reduced from $13.51 per
share to $5.00 per share and the number of shares of common stock issuable upon
exercise of the warrants was increased by 2.3775 times from 1,154,958 to
3,900,871. This loss of fair value as derivative liabilities was booked in 2009
accordingly.





Cash-flow





Operating
activities





Net cash used by operating activities
for the three months ended March 31, 2010 was $18.2 million compared to cash
provided by operating activities of $16.3 million in the same period of 2009.
This change was mainly due to the combination of the following
factors:





·
            Cash outflow after the
      adjustments of some non-cash items to the net income such as depreciation
      and amortization, (Gain) Loss from debt extinguishment, (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, make
      whole expense on note conversion, income from investment and deferred tax
      assets, totaled of $ 6.2
million;





·
            Cash outflow resulting from
      accounts receivable, accounts receivables-related parties, other
      receivable – related parties, inventories, advance on inventory purchase,
      advance on inventory purchase-related parties, other payable, which were
      $107.0 million, compared to the same period last year an outflow of $74.6
      million. The increase of $32.4 million is mainly due to advances on
      inventory purchases - related parties;
  and





·
            Cash inflow due to the increase
      in note receivable, other receivables, accounts payable, accounts
      payable-related parties, other payable-related parties, accrued
      liabilities, customer deposits and customer deposits-related parties and
      tax payable totaled of $95.0million compared to the same period last year
      an inflow of $82.6 million. The increase of $12.4 million is mainly due to
      increase of customer deposits and customer deposits-related
      parties.


52


Investing
activities





Net cash provided by investing
activities was $0.1 million for the three months ended March 31, 2010 compared
to $11.3 million used in the same period of 2009. This reduction in cash outflow
is mainly due to an  increase in deposits due to sales representatives
and reduction of equipment purchases.





Financing
activities





Net cash provided by financing
activities was $27.4 million for the three months ended March 31, 2010 compared
to $19.2 million in the same period of 2009.





Shelf
Registration SEC Form S-3





On October 22, 2009, our shelf
registration statement on Form S-3 was declared effective by the Securities and
Exchange Commission (“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.





Registered
Direct Offering





On December 30, 2009, we sold under our
shelf registration statement, an aggregate of 5,555,556 shares of common stock,
and warrants to purchase an aggregate of 2,777,778 shares of common stock
pursuant to a securities purchase agreement.  The warrants are
exercisable beginning six months from the date of issuance for a period of two
years from the initial exercise date, and carry an initial exercise price per
share equal to $5.00.  We raised gross proceeds of $25,000,000. The
net offering proceeds to us from the sale of the securities, after deducting
placement agents’ fees and other estimated offering expenses payable by the us,
was approximately $23.1 million.




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 2009, 1.1 metric tons of new water was
consumed per metric ton of steel produced.


53





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 $2.6
million (RMB20 million) each year.





Off-balance
sheet arrangements




There were no off-balance sheet
arrangements in the fiscal quarter ended March 31, 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 2 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.





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.


54


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.





Our investment in unconsolidated
subsidiaries amounted to $20.2 million as of March 31, 2010. Since there is no
quoted or observable market price for the fair value of similar long term
investment, we then used the level 3 inputs for its valuation methodology. The
determination of the fair value was based on the capital investment that we
contributed and income from investment. The carrying value of the long term
investments approximated the fair value as of March 31, 2010.





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 March 31, 2010, the outstanding
principal amounted to $3.3 million, and the carrying value of the December 2007
Notes amounted to $1.1 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 $19.4 million due to the decrease in our common stock
price.


55


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.





Noncontrolling interests were
$67.3 million and $72.6 million as of the March 31, 2010 and December 31,
2009 balance sheets, respectively.





New
Accounting Pronouncements




In
December 2009, FASB issued ASU No. 2009-16, Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140.The amendments in
this Accounting Standards Update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to because
of its continuing involvement in transferred financial assets. Comparability and
consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on
portions of financial assets that are eligible for sale accounting. The Company
does not expect the adoption of this ASU to have a material impact on its
consolidated financial statement.




In
December 2009, FASB issued ASU No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for the
issuance of FASB Statement No. 167, Amendments to FASB Interpretation
No. 46(R). The amendments in this Accounting Standards Update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this Update also
require additional disclosures about a reporting entity’s involvement in
variable interest entities, which will enhance the information provided to users
of financial statements. We do not expect the adoption of this ASU to have a
material impact on its consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. We adopted this standard and has determined the standard
does not have material effect on our consolidated financial
statements.


56


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 statements In 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. We
adopted this standard and has determined the standard does not have material
effect on our consolidated financial statements.





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.





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.


57





The following tables summarize our
contractual obligations as of March 31, 2010 and the effect these obligations
are expected to have on our liquidity and cash flows in future
periods.




Payment due by periodLess thanContractual obligations
                      
                      Total
                      
                      
                      1 year
                      
                      
                      1-3 years
                      
                      4- 5 yearsDollars
      amounts in thousandsBank
      loans (1)
                      
                      $
                      174,655
                      
                      
                      $
                      174,655
                      
                      
                      $
                      
                      
                      $Other
      loans
                      
                      
                      113,351
                      
                      
                      
                      113,351Notes
      payable
                      
                      
                      323,987
                      
                      
                      
                      323,987Deposits
      due to sales representatives
                      
                      
                      65,843
                      
                      
                      
                      65,843Lease
      with Bao Gang
                      
                      
                      594
                      
                      
                      
                      264
                      
                      
                      
                      330Longmen
      Joint Venture construction obiligation
                      
                      
                      11,100
                      
                      
                      
                      11,100Convertible
      notes ( Principal plus Interest )
                      
                      
                      4,171
                      
                      
                      
                      240
                      
                      
                      
                      3,931Total
                      
                      $
                      693,701
                      
                      
                      $
                      689,440
                      
                      
                      $
                      4,261
                      
                      $




(1) Bank
loans in China are due on demand or normally within one year. These loans can be
renewed with the banks. This amount includes estimated interest payments as well
as debt maturities.





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.





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, General Steel (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 $0.9
million decrease in net income.





ITEM
4. CONTROLS AND PROCEDURES.




The Company, with the participation of
our Chief Executive Officer and Chief Financial Officer, conducted an evaluation
of the design and operation of our disclosure controls and procedures, as
defined under Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the Exchange Act), as of March 31, 2010.  Our
disclosure controls and procedures are designed (i) to ensure that information
required to be disclosed by it in the reports that it files or submits 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, to allow timely decisions
regarding required disclosure.  Based on their evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures were effective as of March 31, 2010 in alerting
management on a timely basis to information required to be included in our
submissions and filings under the Exchange Act.


58





There were no changes in the Company’s
internal control over financial reporting during its most recently completed
fiscal quarter that have materially affected or are reasonably likely to
materially affect its internal control over financial reporting, as defined in
Rule 13a-15(f) under the Exchange Act.





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





10.1
                Securities
      Purchase Agreement, dated as of December 24, 2009, between General Steel
      Holdings, Inc. and each purchaser signatory thereto.10.2
                Voting
      Agreement, dated as of December 24, 2009, between General Steel Holdings,
      Inc., Zuosheng Yu and Victory New Holdings Ltd.10.3
                Warrant
      Reset Agreement, dated as of December 24, 2009, between General Steel
      Holdings, Inc. and Hudson Bay Fund, LP and Hudson Bay Overseas Fund
      Ltd.10.4
                Warrant
      Reset Agreements, dated as of December 24, 2009, between General Steel
      Holdings, Inc. and the holders of the December 2007 Warrants (not
      including Hudson Bay Fund, LP and Hudson Bay Overseas Fund
      Ltd.).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 pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002, as filed
  herewith.32.2
                Certification
      of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002, as filed
  herewith.


59





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:
      May 10, 2010
              By: /s/ Zuosheng YuZuosheng
      YuChief
      Executive Officer and ChairmanDate:
      May 10, 2010
              By: /s/ John ChenJohn
      ChenDirector
      and Chief Financial
Officer


60