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
      1934For
      the quarterly period ended September 30,
2010





or





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from __________ to
  __________




Commission
File Number 001-33717




General
Steel Holdings, Inc.


(Exact
name of registrant as specified in its charter)




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





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  ̈




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





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




As of November 8, 2010, 54,678,083
shares of common stock, par value $0.001 per share, were issued and
outstanding.












Table
of Contents
  PagePart
      I.  FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements.
              
              3Consolidated
      Balance Sheets as of September 30, 2010 (Unaudited) and December 31,
      2009.
              
              3Consolidated
      Statements of Operation and Other Comprehensive Income (Loss) for the
      Three Months and Nine Months Ended September 30, 2010 and 2009
      (Unaudited).
              
              4Consolidated
      Statements of Changes In Equity (Unaudited).
              
              5Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2010 and
      2009 (Unaudited).
              
              6Notes to
      Consolidate Financial Statements (Unaudited).
              
              7Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              
              37Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              
              56Item
      4.
              Controls
      and Procedures.
              
              56Part
      II. OTHER INFORMATIONItem
      1.
              Legal
      Proceedings.
              
              56Item
      6.
              Exhibits.
              
              57Signatures
              
              
              58
  2
  PART
I – FINANCIAL INFORMATION
 
 ITEM
1. FINANCIAL STATEMENTS.
 GENERAL
      STEEL HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSAS
      OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009(In
      thousands, except per share data)ASSETSSeptember
      30,
                                                                                                                    
                                                                                                                    December
      31,2010
                                                                                                                    
                                                                                                                    
                                                                                                                    2009(Unaudited)CURRENT
      ASSETS:Cash
                                                                                                                    
                                                                                                                    $
                                                                                                                    41,778
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    82,118Restricted
      cash
                                                                                                                    
                                                                                                                    
                                                                                                                    186,523
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    192,041Notes
      receivable
                                                                                                                    
                                                                                                                    
                                                                                                                    67,132
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    29,185Restricted
      notes receivable
                                                                                                                    
                                                                                                                    
                                                                                                                    12,752
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    -Accounts
      receivable, net
                                                                                                                    
                                                                                                                    
                                                                                                                    21,215
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    8,525Other
      receivables, net
                                                                                                                    
                                                                                                                    
                                                                                                                    14,881
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    7,729Other
      receivables - related parties
                                                                                                                    
                                                                                                                    
                                                                                                                    54,983
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    32,670Inventories
                                                                                                                    
                                                                                                                    
                                                                                                                    250,758
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    208,087Advances
      on inventory purchase
                                                                                                                    
                                                                                                                    
                                                                                                                    42,139
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    28,407Advances
      on inventory purchase - related parties
                                                                                                                    
                                                                                                                    
                                                                                                                    48,007
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,995Prepaid
      expense
                                                                                                                    
                                                                                                                    
                                                                                                                    4,358
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    691Prepaid
      value added tax
                                                                                                                    
                                                                                                                    
                                                                                                                    17,500
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    19,488Deferred
      tax assets
                                                                                                                    
                                                                                                                    
                                                                                                                    8,900
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3,341Total
      current assets
                                                                                                                    
                                                                                                                    
                                                                                                                    770,926
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    615,277PLANT
      AND EQUIPMENT, net
                                                                                                                    
                                                                                                                    
                                                                                                                    584,948
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    555,111OTHER
      ASSETS:Advances
      on equipment purchase
                                                                                                                    
                                                                                                                    
                                                                                                                    20,435
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    8,419Investment
      in unconsolidated subsidiaries
                                                                                                                    
                                                                                                                    
                                                                                                                    13,712
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    20,022Long-term
      deferred expense
                                                                                                                    
                                                                                                                    
                                                                                                                    608
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    2,069Intangible
      assets, net of accumulated amortization
                                                                                                                    
                                                                                                                    
                                                                                                                    23,568
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    23,733Note
      issuance cost
                                                                                                                    
                                                                                                                    
                                                                                                                    -
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    406Plant
      and equipment to be disposed
                                                                                                                    
                                                                                                                    
                                                                                                                    2,443
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3,026Total
      other assets
                                                                                                                    
                                                                                                                    
                                                                                                                    60,766
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    57,675TOTAL
      ASSETS
                                                                                                                    
                                                                                                                    $
                                                                                                                    1,416,640
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    1,228,063LIABILITIES AND EQUITYCURRENT
      LIABILITIES:Short
      term notes payable
                                                                                                                    
                                                                                                                    $
                                                                                                                    302,113
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    254,608Accounts
      payable
                                                                                                                    
                                                                                                                    
                                                                                                                    174,012
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    158,126Accounts
      payable - related parties
                                                                                                                    
                                                                                                                    
                                                                                                                    65,756
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    48,151Short
      term loans - bank
                                                                                                                    
                                                                                                                    
                                                                                                                    178,122
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    148,968Short
      term loans - others
                                                                                                                    
                                                                                                                    
                                                                                                                    100,707
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    110,358Short
      term loans - related parties
                                                                                                                    
                                                                                                                    
                                                                                                                    92,814
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    11,751Other
      payables and accrued liabilities
                                                                                                                    
                                                                                                                    
                                                                                                                    13,922
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    16,222Other
      payable - related parties
                                                                                                                    
                                                                                                                    
                                                                                                                    22,615
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3,706Customer
      deposit
                                                                                                                    
                                                                                                                    
                                                                                                                    190,691
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    208,765Customer
      deposit - related parties
                                                                                                                    
                                                                                                                    
                                                                                                                    47,809
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3,791Deposit
      due to sales representatives
                                                                                                                    
                                                                                                                    
                                                                                                                    45,845
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    49,544Taxes
      payable
                                                                                                                    
                                                                                                                    
                                                                                                                    2,195
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,921Distribution
      payable to former shareholders
                                                                                                                    
                                                                                                                    
                                                                                                                    13,071
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    16,434Total
      current liabilities
                                                                                                                    
                                                                                                                    
                                                                                                                    1,249,672
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,037,345CONVERTIBLE
      NOTES PAYABLE, net of debt discount of $0 and $2,250as
      of September 30, 2010 and December 31, 2009, respectively
                                                                                                                    
                                                                                                                    
                                                                                                                    -
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,050DERIVATIVE
      LIABILITIES
                                                                                                                    
                                                                                                                    
                                                                                                                    7,049
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    23,340Total
      liabilities
                                                                                                                    
                                                                                                                    
                                                                                                                    1,256,721
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    1,061,735COMMITMENTS
      AND CONTIGENCIESEQUITY:Preferred
      stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899
      sharesissued
      and outstanding as of September 30, 2010 and December 31, 2009,
      respectively
                                                                                                                    
                                                                                                                    
                                                                                                                    3
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    3Common
      Stock, $0.001 par value, 200,000,000 shares authorized,
      54,678,083and
      51,618,595 shares issued and outstanding as of September 30,
      2010and
      December 31, 2009, respectively
                                                                                                                    
                                                                                                                    
                                                                                                                    55
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    52Paid-in-capital
                                                                                                                    
                                                                                                                    
                                                                                                                    104,510
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    95,588Statutory
      reserves
                                                                                                                    
                                                                                                                    
                                                                                                                    6,341
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    6,162Accumulated
      deficits
                                                                                                                    
                                                                                                                    
                                                                                                                    (26,307
                                                                                                                    )
                                                                                                                    
                                                                                                                    
                                                                                                                    (16,411
                                                                                                                    )Accumulated
      other comprehensive income
                                                                                                                    
                                                                                                                    
                                                                                                                    10,860
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    8,336Total
      shareholders' equity
                                                                                                                    
                                                                                                                    
                                                                                                                    95,462
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    93,730NONCONTROLLING
      INTERESTS
                                                                                                                    
                                                                                                                    
                                                                                                                    64,457
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    72,598Total
      equity
                                                                                                                    
                                                                                                                    
                                                                                                                    159,919
                                                                                                                    
                                                                                                                    
                                                                                                                    
                                                                                                                    166,328TOTAL
      LIABILITIES AND EQUITY
                                                                                                                    
                                                                                                                    $
                                                                                                                    1,416,640
                                                                                                                    
                                                                                                                    
                                                                                                                    $
                                                                                                                    1,228,063
  The
accompanying notes are an integral part of these consolidated financial
statements.
  3
  GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME
    (LOSS)(UNAUDITED)(In
      thousands, except per share data)Three
      months ended September 30,
                                                                                                      
                                                                                                      
                                                                                                      Nine
      months ended September 30,2010
                                                                                                      
                                                                                                      
                                                                                                      2009
                                                                                                      
                                                                                                      
                                                                                                      2010
                                                                                                      
                                                                                                      
                                                                                                      2009REVENUES
                                                                                                      
                                                                                                      $
                                                                                                      340,703
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      361,652
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      1,041,504
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      875,374REVENUES
      - RELATED PARTIES
                                                                                                      
                                                                                                      
                                                                                                      119,574
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      123,100
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      373,475
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      341,119TOTAL
      REVENUES
                                                                                                      
                                                                                                      
                                                                                                      460,277
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      484,752
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,414,979
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,216,493COST
      OF REVENUES
                                                                                                      
                                                                                                      
                                                                                                      338,931
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      340,483
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,025,944
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      822,392COST
      OF REVENUES - RELATED PARTIES
                                                                                                      
                                                                                                      
                                                                                                      105,754
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      104,534
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      360,350
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      318,946TOTAL
      COST OF REVENUES
                                                                                                      
                                                                                                      
                                                                                                      444,685
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      445,017
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,386,294
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,141,338GROSS
      PROFIT
                                                                                                      
                                                                                                      
                                                                                                      15,592
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      39,735
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      28,685
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      75,155SELLING,
      GENERAL AND  ADMINISTRATIVE EXPENSES
                                                                                                      
                                                                                                      
                                                                                                      9,562
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      10,487
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      35,380
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      29,219INCOME
      (LOSS) FROM OPERATIONS
                                                                                                      
                                                                                                      
                                                                                                      6,030
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      29,248
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (6,695
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      45,936OTHER
      INCOME (EXPENSE)Interest
      income
                                                                                                      
                                                                                                      
                                                                                                      1,739
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      826
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,476
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,468Finance/interest
      expense
                                                                                                      
                                                                                                      
                                                                                                      (10,190
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (4,174
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (37,617
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (18,422
                                                                                                      )Change
      in fair value of derivative liabilities
                                                                                                      
                                                                                                      
                                                                                                      (1,089
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (616
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      13,579
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (23,228
                                                                                                      )Gain
      from debt extinguishment
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      2,932Government
      grant
                                                                                                      
                                                                                                      
                                                                                                      1,381
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,381
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,433Income
      from equity investments
                                                                                                      
                                                                                                      
                                                                                                      839
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      963
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      5,595
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,661Other
      non-operating income, net
                                                                                                      
                                                                                                      
                                                                                                      (350
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (2,985
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      217
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (2,332
                                                                                                      )Total
      other expense, net
                                                                                                      
                                                                                                      
                                                                                                      (7,670
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (5,986
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (13,369
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (31,488
                                                                                                      )(LOSS)
      INCOME BEFORE PROVISION FOR INCOME TAXESAND
      NONCONTROLLING INTEREST
                                                                                                      
                                                                                                      
                                                                                                      (1,640
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      23,262
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (20,064
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      14,448PROVISION
      FOR INCOME TAXESCurrent
                                                                                                      
                                                                                                      
                                                                                                      5,332
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      6,717
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      860
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      12,451Deferred
                                                                                                      
                                                                                                      
                                                                                                      (5,224
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (2,925
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (5,559
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (5,265
                                                                                                      )Total
      provision (benefit) for income taxes
                                                                                                      
                                                                                                      
                                                                                                      108
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      3,792
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (4,699
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      7,186NET
      (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
                                                                                                      
                                                                                                      
                                                                                                      (1,748
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      19,470
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (15,365
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      7,262Less:
      Net income (Loss) attributable to noncontrolling interest
                                                                                                      
                                                                                                      
                                                                                                      513
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      9,088
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (5,469
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      21,421NET
      (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                                                                                                      
                                                                                                      
                                                                                                      (2,261
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      10,382
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (9,896
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      (14,159
                                                                                                      )OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation adjustments
                                                                                                      
                                                                                                      
                                                                                                      2,462
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (246
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      2,524
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (174
                                                                                                      )Comprehensive
      income attributable to noncontrolling interest
                                                                                                      
                                                                                                      
                                                                                                      1,075
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,440
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      1,239
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      334COMPREHENSIVE
      INCOME (LOSS)
                                                                                                      
                                                                                                      $
                                                                                                      1,276
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      11,576
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (6,133
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (13,999
                                                                                                      )WEIGHTED
      AVERAGE NUMBER OF SHARESBasic
                                                                                                      
                                                                                                      
                                                                                                      53,941,191
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      44,973,882
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      52,576,928
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      40,295,924Diluted
                                                                                                      
                                                                                                      
                                                                                                      53,941,191
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      45,750,152
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      52,576,928
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      40,295,924(LOSS)
      EARNINGS PER SHAREBasic
                                                                                                      
                                                                                                      $
                                                                                                      (0.04
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      0.23
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (0.19
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (0.35
                                                                                                      )Diluted
                                                                                                      
                                                                                                      $
                                                                                                      (0.04
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      0.22
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (0.19
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (0.35
                                                                                                      )
  The
accompanying notes are an integral part of these consolidated financial
statements.
  4
  GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CHANGES IN EQUITY(In
      thousands, except per share data)Preferred
      stock
                                    
                                    
                                    Common
      stock
                                    
                                    
                                    
                                    
                                    
                                    Retained
      earnings / Accumulated deficits
                                    
                                    
                                    
                                    
                                    
                                    Accumulated
      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
                                    
                                    
                                    $
                                    37,128
                                    
                                    
                                    $
                                    4,902
                                    
                                    
                                    $
                                    10,093
                                    
                                    
                                    $
                                    (960
                                    )
                                    
                                    $
                                    8,705
                                    
                                    
                                    $
                                    54,330
                                    
                                    
                                    $
                                    114,237Net
      loss attributable to controlling interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (14,159
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (14,159
                                    )Net
      income attributable to noncontrolling interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    21,421
                                    
                                    
                                    
                                    21,421Disposal
      of subsidiaries
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (293
                                    )
                                    
                                    
                                    (293
                                    )Distribution
      of dividend to noncontrolling shareholders
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (3,305
                                    )
                                    
                                    
                                    (3,305
                                    )Adjustment
      to statutory reserve
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,925
                                    
                                    
                                    
                                    (1,925
                                    )Common
      stock issued for compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    323,050
                                    
                                    
                                    
                                    0.32
                                    
                                    
                                    
                                    885
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    885Common
      stock issued for interest payments
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    196,306
                                    
                                    
                                    
                                    0.20
                                    
                                    
                                    
                                    745
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    745Common
      stock issued for repayment of debt
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    300,000
                                    
                                    
                                    
                                    0.30
                                    
                                    
                                    
                                    1,800
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,800Notes
      converted to common stock
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    7,045,274
                                    
                                    
                                    
                                    7.05
                                    
                                    
                                    
                                    32,073
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    32,080Make
      whole shares issued on notes conversion
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,795,976
                                    
                                    
                                    
                                    1.80
                                    
                                    
                                    
                                    7,085
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    7,087Common
      stock transferred by CEO for compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    207
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    207Reduction
      of registered capital
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    960
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    960Foreign
      currency translation adjustments
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (174
                                    )
                                    
                                    
                                    334
                                    
                                    
                                    
                                    160BALANCE,
      September 30, 2009, unaudited
                                    
                                    
                                    3,092,899
                                    
                                    
                                    $
                                    3
                                    
                                    
                                    
                                    45,789,439
                                    
                                    
                                    $
                                    46
                                    
                                    
                                    $
                                    79,923
                                    
                                    
                                    $
                                    6,827
                                    
                                    
                                    $
                                    (5,991
                                    )
                                    
                                    $
                                    
                                    
                                    
                                    $
                                    8,531
                                    
                                    
                                    $
                                    72,487
                                    
                                    
                                    $
                                    161,826Net
      loss attributable to controlling interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (11,085
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (11,085
                                    )Net
      income attributable to noncontrolling interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    142
                                    
                                    
                                    
                                    142Adjustment
      to statutory reserve
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (665
                                    )
                                    
                                    
                                    665Common
      stock issued for compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    273,600
                                    
                                    
                                    
                                    0.45
                                    
                                    
                                    
                                    990
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    990Common
      stock transferred by CEO for compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    69
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    69Common
      stock issued for private placement
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    5,555,556
                                    
                                    
                                    
                                    5.56
                                    
                                    
                                    
                                    14,606
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    14,612Foreign
      currency translation adjustments
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (195
                                    )
                                    
                                    
                                    (31
                                    )
                                    
                                    
                                    (226
                                    )BALANCE,
      December 31, 2009
                                    
                                    
                                    3,092,899
                                    
                                    
                                    $
                                    3
                                    
                                    
                                    
                                    51,618,595
                                    
                                    
                                    $
                                    52
                                    
                                    
                                    $
                                    95,588
                                    
                                    
                                    $
                                    6,162
                                    
                                    
                                    $
                                    (16,411
                                    )
                                    
                                    $
                                    
                                    
                                    
                                    $
                                    8,336
                                    
                                    
                                    $
                                    72,598
                                    
                                    
                                    $
                                    166,328Net
      loss attributable to controlling interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (9,896
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (9,896
                                    )Net
      loss attributable to noncontrolling interest
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (5,469
                                    )
                                    
                                    
                                    (5,469
                                    )Distribution
      of dividend to noncontrolling shareholders
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (3,934
                                    )
                                    
                                    
                                    (3,934
                                    )Noncontrolling
      interest acquired
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (1,270
                                    )
                                    
                                    
                                    (1,270
                                    )Registered
      capital received from noncontrolling shareholders
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,182
                                    
                                    
                                    
                                    1,182Adjustment
      to special reserve
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    179
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    111
                                    
                                    
                                    
                                    290Common
      stock issued for compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    571,650
                                    
                                    
                                    
                                    0.57
                                    
                                    
                                    
                                    1,810
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,811Common
      stock issued for repayment of debt
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    928,163
                                    
                                    
                                    
                                    0.93
                                    
                                    
                                    
                                    2,403
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    2,404Common
      stock transferred by CEO for compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    207
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    207Notes
      converted to common stock
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,208,791
                                    
                                    
                                    
                                    1.21
                                    
                                    
                                    
                                    3,544
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    3,545Make
      whole shares issued on notes conversion
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    271,507
                                    
                                    
                                    
                                    0.27
                                    
                                    
                                    
                                    741
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    741Common
      stock issued for interest payments
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    79,377
                                    
                                    
                                    
                                    0.08
                                    
                                    
                                    
                                    217
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    217Foreign
      currency translation adjustments
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    2,524
                                    
                                    
                                    
                                    1,239
                                    
                                    
                                    
                                    3,763BALANCE,
      September 30, 2010, unaudited
                                    
                                    
                                    3,092,899
                                    
                                    
                                    $
                                    3
                                    
                                    
                                    
                                    54,678,083
                                    
                                    
                                    $
                                    55
                                    
                                    
                                    $
                                    104,510
                                    
                                    
                                    $
                                    6,341
                                    
                                    
                                    $
                                    (26,307
                                    )
                                    
                                    $
                                    
                                    
                                    
                                    $
                                    10,860
                                    
                                    
                                    $
                                    64,457
                                    
                                    
                                    $
                                    159,919
 The
accompanying notes are an integral part of these consolidated financial
statements.
 5
  GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE NINE MONTHS ENDED SEPTEMBER 30,(UNAUDITED)(In
      thousands, except per share data)Nine
      months ended September 30,2,010
                                                                              
                                                                              
                                                                              2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss attributable to controlling interest
                                                                              
                                                                              $
                                                                              (9,896
                                                                              )
                                                                              
                                                                              $
                                                                              (14,159
                                                                              )Net
      (loss) income attributable to noncontrolling interest
                                                                              
                                                                              
                                                                              (5,469
                                                                              )
                                                                              
                                                                              
                                                                              21,421Consolidated
      net (loss) income
                                                                              
                                                                              
                                                                              (15,365
                                                                              )
                                                                              
                                                                              
                                                                              7,262Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
                                                                              
                                                                              
                                                                              31,175
                                                                              
                                                                              
                                                                              
                                                                              23,474Debt
      extinguishment
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (2,932
                                                                              )Impairment
      of long-lived assets
                                                                              
                                                                              
                                                                              1,737
                                                                              
                                                                              
                                                                              
                                                                              -Loss
      (gain) on disposal of equipment
                                                                              
                                                                              
                                                                              1,459
                                                                              
                                                                              
                                                                              
                                                                              (3,312
                                                                              )Stock
      issued for services and compensation
                                                                              
                                                                              
                                                                              2,018
                                                                              
                                                                              
                                                                              
                                                                              1,092Make
      whole shares interest expense on notes conversion
                                                                              
                                                                              
                                                                              1,130
                                                                              
                                                                              
                                                                              
                                                                              2,754Amortization
      of deferred note issuance cost and discount on convertible
      notes
                                                                              
                                                                              
                                                                              17
                                                                              
                                                                              
                                                                              
                                                                              56Change
      in fair value of derivative instrument
                                                                              
                                                                              
                                                                              (13,579
                                                                              )
                                                                              
                                                                              
                                                                              23,228Income
      from investment
                                                                              
                                                                              
                                                                              (5,510
                                                                              )
                                                                              
                                                                              
                                                                              (3,661
                                                                              )Deferred
      tax assets
                                                                              
                                                                              
                                                                              (5,499
                                                                              )
                                                                              
                                                                              
                                                                              5,265Changes
      in operating assets and liabilitiesNotes
      receivable
                                                                              
                                                                              
                                                                              (36,702
                                                                              )
                                                                              
                                                                              
                                                                              10,826Accounts
      receivable
                                                                              
                                                                              
                                                                              (12,190
                                                                              )
                                                                              
                                                                              
                                                                              (3,938
                                                                              )Accounts
      receivable - related parties
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (2,709
                                                                              )Other
      receivables
                                                                              
                                                                              
                                                                              1,323
                                                                              
                                                                              
                                                                              
                                                                              78Other
      receivables - related parties
                                                                              
                                                                              
                                                                              (25,061
                                                                              )
                                                                              
                                                                              
                                                                              15,766Inventories
                                                                              
                                                                              
                                                                              (44,861
                                                                              )
                                                                              
                                                                              
                                                                              (161,833
                                                                              )Advances
      on inventory purchases
                                                                              
                                                                              
                                                                              (12,921
                                                                              )
                                                                              
                                                                              
                                                                              7,918Advances
      on inventory purchases - related parties
                                                                              
                                                                              
                                                                              (52,665
                                                                              )
                                                                              
                                                                              
                                                                              (15,199
                                                                              )Accounts
      payable
                                                                              
                                                                              
                                                                              12,513
                                                                              
                                                                              
                                                                              
                                                                              26,053Accounts
      payable - related parties
                                                                              
                                                                              
                                                                              30,294
                                                                              
                                                                              
                                                                              
                                                                              8,772Other
      payables and accrued liabilities
                                                                              
                                                                              
                                                                              (3,542
                                                                              )
                                                                              
                                                                              
                                                                              10,565Other
      payables - related parties
                                                                              
                                                                              
                                                                              18,510
                                                                              
                                                                              
                                                                              
                                                                              (2,594
                                                                              )Customer
      deposits
                                                                              
                                                                              
                                                                              (19,283
                                                                              )
                                                                              
                                                                              
                                                                              12,995Customer
      deposits - related parties
                                                                              
                                                                              
                                                                              43,045
                                                                              
                                                                              
                                                                              
                                                                              38,245Taxes
      payable
                                                                              
                                                                              
                                                                              811
                                                                              
                                                                              
                                                                              
                                                                              (930
                                                                              )Distribution
      payable to former shareholders
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              (4,398
                                                                              )Net
      cash used in operating activities
                                                                              
                                                                              
                                                                              (103,146
                                                                              )
                                                                              
                                                                              
                                                                              (7,157
                                                                              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquired
      long term investment
                                                                              
                                                                              
                                                                              (1,277
                                                                              )
                                                                              
                                                                              
                                                                              (6,593
                                                                              )Proceeds
      from disposal of long-term investment
                                                                              
                                                                              
                                                                              3,678
                                                                              
                                                                              
                                                                              
                                                                              -Capital
      contributed by noncontrolling interest
                                                                              
                                                                              
                                                                              1,177
                                                                              
                                                                              
                                                                              
                                                                              -Payments
      made to dividend distribution
                                                                              
                                                                              
                                                                              (3,835
                                                                              )
                                                                              
                                                                              
                                                                              -Dividend
      receivable
                                                                              
                                                                              
                                                                              938
                                                                              
                                                                              
                                                                              
                                                                              1,775Deposits
      due to sales representatives
                                                                              
                                                                              
                                                                              (4,028
                                                                              )
                                                                              
                                                                              
                                                                              31,113Cash
      proceeds from sales of equipment
                                                                              
                                                                              
                                                                              306
                                                                              
                                                                              
                                                                              
                                                                              6,253Advance
      on equipment purchases
                                                                              
                                                                              
                                                                              (12,698
                                                                              )
                                                                              
                                                                              
                                                                              1,895Equipments
      purchase and intangible assets
                                                                              
                                                                              
                                                                              (56,906
                                                                              )
                                                                              
                                                                              
                                                                              (103,572
                                                                              )Net
      cash used in investing activities
                                                                              
                                                                              
                                                                              (72,645
                                                                              )
                                                                              
                                                                              
                                                                              (69,129
                                                                              )CASH
      FLOWS FINANCING ACTIVITIES:Restricted
      cash
                                                                              
                                                                              
                                                                              9,281
                                                                              
                                                                              
                                                                              
                                                                              (66,830
                                                                              )Notes
      receivable - restricted
                                                                              
                                                                              
                                                                              (12,530
                                                                              )
                                                                              
                                                                              
                                                                              -Borrowings
      on short term loans - bank
                                                                              
                                                                              
                                                                              224,425
                                                                              
                                                                              
                                                                              
                                                                              161,806Payments
      on short term loans - bank
                                                                              
                                                                              
                                                                              (198,770
                                                                              )
                                                                              
                                                                              
                                                                              (77,074
                                                                              )Borrowings
      on short term loan - others
                                                                              
                                                                              
                                                                              128,115
                                                                              
                                                                              
                                                                              
                                                                              104,495Payments
      on short term loans - others
                                                                              
                                                                              
                                                                              (137,413
                                                                              )
                                                                              
                                                                              
                                                                              (83,759
                                                                              )Borrowings
      on short term loan - related parties
                                                                              
                                                                              
                                                                              91,202
                                                                              
                                                                              
                                                                              
                                                                              2,932Payments
      on short term loans - related parties
                                                                              
                                                                              
                                                                              (11,783
                                                                              )
                                                                              
                                                                              
                                                                              -Borrowings
      on short term notes payable
                                                                              
                                                                              
                                                                              573,413
                                                                              
                                                                              
                                                                              
                                                                              545,164Payments
      on short term notes payable
                                                                              
                                                                              
                                                                              (531,850
                                                                              )
                                                                              
                                                                              
                                                                              (471,126
                                                                              )Net
      cash provided by financing activities
                                                                              
                                                                              
                                                                              134,090
                                                                              
                                                                              
                                                                              
                                                                              115,608EFFECTS
      OF EXCHANGE RATE CHANGE IN CASH
                                                                              
                                                                              
                                                                              1,361
                                                                              
                                                                              
                                                                              
                                                                              72(DECREASE)
      INCREASE IN CASH
                                                                              
                                                                              
                                                                              (40,340
                                                                              )
                                                                              
                                                                              
                                                                              39,394CASH,
      beginning of period
                                                                              
                                                                              
                                                                              82,118
                                                                              
                                                                              
                                                                              
                                                                              14,895CASH,
      end of period
                                                                              
                                                                              $
                                                                              41,778
                                                                              
                                                                              
                                                                              $
                                                                              54,289Non-cash
      transactions of investing and financing activities:Share
      issuance for debt settlement
                                                                              
                                                                              $
                                                                              2,404
                                                                              
                                                                              
                                                                              $
                                                                              -
  The
accompanying notes are an integral part of these consolidated financial
statements.
  6
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 
 Note
1 – Background
 
 General
Steel Holdings, Inc. (the “Company”) was incorporated on August 5, 2002 in the
state of Nevada. The Company through its 100% owned subsidiary, General Steel
Investment, operates a portfolio of steel companies serving various industries
in the People’s Republic of China (“PRC”). The Company’s main operation is
manufacturing and sales of steel products such as steel rebar, hot-rolled carbon
and silicon sheets and spiral-weld pipes.
 
 Recent
developments
 
 The
Company has formed a new joint venture, Tianwu General Steel Material Trading
Co., Ltd. (“Tianwu JV”) with Tianjin Materials and Equipment Group Corporation.
The contributed capital of Tianwu JV is approximately $2.9 million (or RMB20
million), of which General Steel holds a 60% controlling interest.
 
 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:
  Subsidiary
                  
                  Percentageof
      OwnershipGeneral
      Steel Investment Co., Ltd.
                  
                  British
      Virgin Islands
                  
                  100.0
                  %General
      Steel (China) Co., Ltd. (“GS (China)”)
                  
                  PRC
                  
                  100.0
                  %Baotou
      Steel – General Steel Special Steel Pipe Joint Venture Co.,
      Ltd.
                  
                  PRC
                  
                  80.0
                  %Yangpu
      Shengtong Investment Co., Ltd.
                  
                  PRC
                  
                  99.1
                  %Qiu
      Steel Investment Co., Ltd. (“Qiu Steel”)
                  
                  PRC
                  
                  98.7
                  %Shaanxi
      Longmen Iron and Steel Co. Ltd. (“Longmen Joint Venture”)
                  
                  PRC
                  
                  60.0
                  %Maoming
      Hengda Steel Company, Ltd. (“Maoming Hengda”)
                  
                  PRC
                  
                  99.0
                  %Tianwu
      General Steel Material Trading Co., Ltd
                  
                  PRC
                  
                  60.0
                  %
 
 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.
  7
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 
 Use of
estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Significant accounting estimates reflected in the Company’s
financial statements include the fair value of financial instruments, the useful
lives of and impairment for property, plant and equipment, and potential losses
on uncollectible receivables. Actual results could differ from these
estimates.
 
 Concentration of
risks
 
 The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC’s economy. The Company’s operations in the PRC are subject to
specific considerations and significant risks not typically associated with
companies in North America and Western Europe. The Company’s results may be
adversely affected by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.
 
 Cash
includes demand deposits in accounts maintained with banks within PRC, Hong Kong
and the United States. Total cash (including restricted cash balances) in these
banks on September 30, 2010 and December 31, 2009 amounted to $228.3million and
$274.2 million, respectively. As of September 30, 2010, $0.6 million cash in the
bank was covered by insurance. The Company has not experienced any losses in
such accounts and believes it is not exposed to any risks on its cash in bank
accounts.
 
 The
Company’s five major customers are all distributors and collectively represented
approximately 29.2% and 28.5% of the Company’s total sales for the three months
and nine months ended September 30, 2010, respectively. The Company had five
major customers, which represented approximately 27% and 20% of the Company’s
total sales for the three months and nine months ended September 30, 2009,
respectively. None of these five customers accounts for more than 10% of total
sales for the three months and nine months ended September 30, 2010 and 2009.
Five customers accounted for 0% and 20% of total accounts receivable as of
September 30, 2010 and 2009, respectively.
 
 For the
three months and nine months ended September 30, 2010, the Company purchased
approximately 40.2% and 45.6% of its raw materials from five major suppliers,
respectively, of which two of the five vendors account individually more than
10% of the total purchase. The purchase from the five major suppliers represents
approximately 29% and 48% of Company’s total purchase for the three months and
nine months ended September 30, 2009, respectively. The top five vendors
accounted for 16.8% and 20% of total accounts payable as of September 30, 2010
and 2009, respectively.
 Revenue
recognition
 
 The
Company follows the accounting principles generally accepted 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, we have no other significant
obligations and collectability is reasonably assured. Payments received before
all of the relevant criteria for revenue recognition are recorded as customer
deposits. Sales 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 13% to 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.
  8
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 
 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.
 
 Translation
adjustments included in Accumulated other comprehensive income amounted to $10.9
million and $8.3 million as of September 30, 2010 and December 31, 2009,
respectively. The balance sheet amounts, with the exception of equity at
September 30, 2010 and December 31, 2009, were translated at 6.68 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
nine months ended September 30, 2010 and 2009 were 6.80 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.
  9
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 ·
                  Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value.
 
 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.
  (in
      thousands)
                  
                  Carrying
      Value as of September 30, 2010
                  
                  Fair
      Value Measurements at September 30, 2010 Using Fair Value
      Hierarchy(Unaudited)
                  
                  Level
      1
                  
                  Level
      2
                  
                  Level
      3Derivative
      liabilities
                  
                  $
                  7,049
                  
                  
                  
                  $
                  7,049
 
 Except
for the derivative liabilities, the Company did not identify any other assets or
liabilities that are required to be presented on the balance sheet at fair value
in accordance with the accounting standard.
 
 Level 3
Valuation Reconciliation:
  Convertible
      Notes(in
      thousands)Balance,
      December 31, 2009
                  
                  $
                  1,050Current
      period effective interest charges on notes
                  
                  
                  389Current
      period payments made for principal and stated interest
                  
                  
                  (217
                  )Current
      period note converted carrying value
                  
                  
                  (1,222
                  )Balance,
      September 30, 2010 (Unaudited)
                  
                  $
                  -
 
 Cash
 
 Cash
includes cash on hand and demand deposits in banks with original maturities of
less than three months.
 
 Restricted
cash
 
 The
Company has notes payable outstanding with various banks and is required to keep
certain amounts on deposit that are subject to withdrawal restrictions. The
notes payable are generally short term in nature due to its short maturity
period of six to nine months, thus restricted cash is classified as a current
asset.
  Accounts receivable and
allowance for doubtful accounts
 
 Accounts
receivable include trade accounts due from customers and other receivables from
cash advances to employees, related parties or third parties. An allowance for
doubtful accounts is established and recorded based on managements’ assessment
of potential losses based on the credit history and relationships with the
customers. Management reviews its receivable on a regular basis to determine if
the bad debt allowance is adequate, and adjusts the allowance when necessary.
Delinquent account balances are written-off against allowance for doubtful
accounts after management has determined that the likelihood of collection is
not probable.
  10
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 
 Notes
receivable
 
 Notes
receivable represents trade accounts receivable due from various customers where
the customers’ banks have guaranteed the payment of the receivables. The notes
are non-interest bearing and normally paid within three to six months. The
Company has the ability to submit request for payment to the customer’s bank
earlier than the scheduled payment date, but will incur an interest charge and a
processing fee. The Company had $67.1 million and $29.2 million outstanding as
of September 30, 2010 and December 31, 2009, respectively.
 
 Restricted
notes receivable represents notes receivable pledged as collateral for
short-term loans from banks. As of September 30, 2010 and December 31, 2009,
restricted notes receivable amounted to $12.8 million and $0,
respectively.
 
 Inventories
 
 Inventories
are stated at the lower of cost or market using the weighted average cost
method. Management reviews inventories for obsolescence and cost in excess of
net realizable value at least annually and records a reserve against the
inventory and additional cost of goods sold when the carrying value exceeds net
realizable value.
 
 Shipping and
handling
 
 Shipping
and handling for raw materials purchased are included in cost of goods sold.
Shipping and handling cost incurred to ship finished products to customers are
included in selling expenses. Shipping and handling expenses for finished goods
amounted to $0.9 million and $2.3 million for the three months ended September
30, 2010 and 2009, respectively. Shipping and handling for the nine months ended
September 30, 2010 and 2009 amounted to $5.9 million and $4.2 million,
respectively.
 
 Intangible
assets
 
 All land
in the People’s Republic of China is owned by the government. However, the
government grants “land use rights”.  GS (China) acquired land use
rights in 2001 for a total of $3.5 million. These land use rights are for 50
years and expire in 2050 and 2053. Management elected to amortize the land use
rights over the ten-year business term because its initial business license had
a ten-year term. Although GS (China) became a Sino-Foreign Joint Venture in
2004, and obtained a new business license for twenty years, the Company decided
to continue amortizing the land use rights over the original ten-year business
term.
 
 Longmen
Group contributed land use rights for a total amount of $21.8 million to the
Longmen Joint Venture. The contributed land use rights are for 50 years and
expire in 2048 to 2052.
 
 Maoming
Hengda has land use rights amounting to $2.2 million for 50 years that expire in
2054.
 
 Entity
                  
                  Original
      Cost
                  
                  Expires
      on(in
      thousands)GS
      (China)
                  
                  $
                  3,481
                  
                  2050
      & 2053Longmen
      Joint Venture
                  
                  $
                  21,803
                  
                  2048
      & 2052Maoming
      Hengda
                  
                  $
                  2,235
                  
                  2054
  11
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 Intangible
assets of the Company are reviewed at least annually, more often when
circumstances require, determining whether their carrying value has become
impaired. The Company considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations. The Company
also re-evaluates the periods of amortization to determine whether subsequent
events and circumstances warrant revised estimates of useful
lives.  As of September 30, 2010, the Company expects these assets to
be fully recoverable.
 
 Plant and equipment,
net
 
 Plant and
equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets with a 3%-5% residual value.
 
 The
estimated useful lives are as follows:
  Buildings and
      Improvements
                  
                  10-40
      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 and changes in circumstances indicate that its
carrying amount may not be recoverable, to determine whether their carrying
value has become impaired. The Company considers assets to be impaired if the
carrying value exceeds the future projected cash flows from related operations.
The Company also re-evaluates the periods of depreciation and amortization to
determine whether subsequent events and circumstances warrant revised estimates
of useful lives. For the three and nine months ended September 30, 2010, the
Company impaired long lived assets in the amount of $0 million and $1.7
million.
 
 Investments in
unconsolidated subsidiaries
 
 Subsidiaries
in which the Company has the ability to exercise significant influence, but does
not have a controlling interest, are accounted for using the equity method.
Significant influence is generally considered to exist when the Company has an
ownership interest in the voting stock between 20% and 50%, and other factors,
such as representation on the Board of Directors, voting rights and the impact
of commercial arrangements, are considered in determining whether the equity
method of accounting is appropriate. The Company accounts for investments with
ownership less than 20% using the cost method.
 12
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 Longmen
Joint Venture and its subsidiary - Hancheng Tongxing Metallurgy Co., Ltd.
(“Tongxing Metallurgy”) invested in several companies from 2004 to
2009.
 
 Unconsolidated
      subsidiary
                  
                  Year
      acquired
                  
                  
                  Amount
      invested
                    (In
      thousands)
                  
                  
                  %
      ownedShaanxi
      Daxigou Mining Co., Ltd
                  
                  2004
                  
                  
                  $
                  3,856
                  
                  
                  
                  22.0Shaanxi
      Xinglong Thermoelectric Co., Ltd
                  
                  2004
      - 2007
                  
                  
                  
                  6,930
                  
                  
                  
                  20.7Shaanxi
      Longgang Group Xian Steel Co., Ltd
                  
                  2005
                  
                  
                  
                  110
                  
                  
                  
                  10.0Huashan
      Metallurgical Equipment Co.,  Ltd.
                  
                  2003
                  
                  
                  
                  1,828
                  
                  
                  
                  25.0Xian
      Delong Powder Engineering Materials Co., Ltd.
                  
                  2006
                  
                  
                  
                  988
                  
                  
                  
                  27.0Total
      (Unaudited)
                  
                  
                  
                  
                  $
                  13,712
 
 Total
investment income in unconsolidated subsidiaries amounted to $0.7 million and
$1.0 million for the three months ended September 30, 2010 and 2009,
respectively. Total investment income in unconsolidated subsidiaries amounted to
$4.0 million and $3.6 million for the nine months ended September 30, 2010 and
2009, respectively.
 
 On May
2010, Tongxing Metallurgy disposed its long-term investment in Shaanxi Longmen
Coal Chemical Industry Co., Ltd to an unrelated party for consideration of $8.1
million (RMB 55 million). Tongxing Metallurgy realized a $1.5 million gain on
disposal for the nine months ended September 30, 2010.
 
 Short-term notes
payable
 
 Short-term
notes payable are lines of credit extended by banks. The banks in-turn issue the
Company a bankers acceptance note, which can be endorsed and assigned to vendors
as payments for purchases. The notes payable are generally payable at a
determinable period, generally three to six months. This short-term note payable
bears no interest and is guaranteed by the bank for its complete face value and
usually matures within three to six-month period. The banks usually require the
Company to deposit a certain amount of cash at the bank as a guarantee deposit,
which is classified on the balance sheet as restricted cash.
 
 Earnings per
share
 
 The
Company has adopted the accounting principles generally accepted in the United
States regarding earnings per share (“EPS”), which requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share.
 
 Basic
earnings per share are computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised and converted into common stock.
 
 Income
taxes
 
 The
Company accounts for income taxes in accordance with the accounting principles
generally accepted 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 accounting principles generally
accepted 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.
  13
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 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.
 
 Noncontrolling
interests
 
 Effective
January 1, 2009, the Company adopted accounting principles generally accepted 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.
  14
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 Further,
as a result of adopting this accounting standard, net income attributable to
noncontrolling interests is now excluded from the determination of consolidated
net income. In addition, the foreign currency translation adjustment is
allocated between controlling and noncontrolling interests.
 
 Recently issued accounting
pronouncements
 
 In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and
2. A reporting entity should disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers.  2)  Activity in Level 3 fair
value measurements.  In the reconciliation for fair value measurements
using significant unobservable inputs (Level 3), a reporting entity should
present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number). This
update provides amendments to Subtopic 820-10 that clarify existing disclosures
as follows: 1) Level of disaggregation. A reporting entity should provide
fair value measurement disclosures for each class of assets and liabilities. A
class is often a subset of assets or liabilities within a line item in the
statement of financial position. A reporting entity needs to use judgment in
determining the appropriate classes of assets and liabilities.
2) Disclosures about inputs and valuation techniques. A reporting entity
should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements.
Those disclosures are required for fair value measurements that fall in either
Level 2 or Level 3. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The
Company is currently evaluating the impact of this ASU. However, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.
 
 In
February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement
that, for listed companies, financial statements clearly disclose the date
through which subsequent events have been evaluated. Subsequent events must
still be evaluated through the date of financial statement issuance; however,
the disclosure requirement has been removed to avoid conflicts with other SEC
guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted
in February 2010.
 
 In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The
Company does not expect the adoption of ASU 2010-17 to have a significant impact
on its consolidated financial statements.
 
 In April
2010, the FASB issued Accounting Standard Update 2010-17, “Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition” orASU 2010-17.This Update provides
guidance on the recognition of revenue under the milestone method, which allows
a vendor to adopt an accounting policy to recognize all of the arrangement
consideration that is contingent on the achievement of a substantive milestone
(milestone consideration) in the period the milestone is achieved. The
pronouncement is effective on a prospective basis for milestones achieved in
fiscal years and interim periods within those years, beginning on or after
June 15, 2010. The adoption of ASU 2010-17 does not have a significant
impact on the Company’s consolidated financial statements.
  15
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 In July
2010, the FASB issued Accounting Standards Update 2010-20 which amend
“Receivables” (Topic 310). ASU 2010-20 is intended to provide additional
information to assist financial statement users in assessing an entity’s risk
exposures and evaluating the adequacy of its allowance for credit losses. The
disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period are effective for interim
and annual reporting periods beginning on or after December 15, 2010. The
amendments in ASU 2010-20 encourage, but do not require, comparative disclosures
for earlier reporting periods that ended before initial adoption. However, an
entity should provide comparative disclosures for those reporting periods ending
after initial adoption. The Company does not expect the adoption of ASU 2010-20
to have a significant impact on its consolidated financial
statements.
 
 Reclassifications
 
 Certain
prior period amounts have been reclassified to conform to the current period
presentation. These classifications have no effect on net income.
 
 Note
3 – Accounts receivable, net
 
 Accounts
receivable, including related party receivables, net of allowance for doubtful
accounts consists of the following:
  September
      30,
                    2010
                  
                  
                  December
      31,
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)Accounts
      receivable
                  
                  $
                  21,605
                  
                  
                  $
                  9,015Less:
      allowance for doubtful accounts
                  
                  
                  (390
                  )
                  
                  
                  (490
                  )Net
      accounts receivable
                  
                  $
                  21,215
                  
                  
                  $
                  8,525
  Movement
of allowance for doubtful accounts is as follows:
 
 September
      30,
                    2010
                  
                  
                  December
      31,
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)Beginning
      balance
                  
                  $
                  490
                  
                  
                  $
                  401Charge
      to expense
                  
                  
                  -
                  
                  
                  
                  246Less
      Write-off
                  
                  
                  (109
                  )
                  
                  
                  (157
                  )Exchange
      rate effect
                  
                  
                  9
                  
                  
                  
                  -Ending
      balance
                  
                  $
                  390
                  
                  
                  $
                  490
  16
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 Note
4 – Inventories
 
 Inventories
consist of the following:
  September
      30,
                    2010
                  
                  
                  December
      31,
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)Supplies
                  
                  $
                  13,888
                  
                  
                  $
                  12,235Raw
      materials
                  
                  
                  168,769
                  
                  
                  
                  134,874Finished
      goods
                  
                  
                  68,101
                  
                  
                  
                  60,978Total
      inventories
                  
                  $
                  250,758
                  
                  
                  $
                  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. For the three and nine months
ended September 30, 2010, no inventory has been written off and included in cost
of goods sold.
 
 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 $90.1 million and $31.4 million as of
September 30, 2010 and December 31, 2009, respectively.
 
 Note 6 – Plant and equipment,
net
 
 Plant and
equipment consist of the following:
  September
      30
                    2010
                  
                  
                  December
      31
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)Buildings
      and improvements
                  
                  $
                  122,420
                  
                  
                  $
                  117,625Machinery
                  
                  
                  494,652
                  
                  
                  
                  467,595Transportation
      and other equipment
                  
                  
                  11,729
                  
                  
                  
                  12,824Construction
      in progress
                  
                  
                  54,046
                  
                  
                  
                  31,715Subtotal
                  
                  
                  682,846
                  
                  
                  
                  629,759Less
      accumulated depreciation
                  
                  
                  (97,899
                  )
                  
                  
                  (74,648
                  )Total
                  
                  $
                  584,948
                  
                  
                  $
                  555,111
 
 17
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 
 Construction
in progress consisted of the following as of September 30, 2010:
 
 Construction
      in progress
                  
                  Value
                  
                  Estimated
      completion
                  
                  Estimated
                    additional
      costdescription
                  
                  In
      thousands
                  
                  date
                  
                  In
      thousands(Unaudited)
                  
                  
                  
                  (Unaudited)Employees
      cafeteria
                  
                  $
                  1,806
                  
                  December,
      2010
                  
                  3,1343#
      lime stone grinding machine
                  
                  
                  2,312
                  
                  November,
      2010
                  
                  45Rebar
      production line
                  
                  
                  36,253
                  
                  November,
      2010
                  
                  45,510Steel
      scrap cross
                  
                  
                  1,825
                  
                  November,
      2010
                  
                  -Small
      Rebar production line
                  
                  
                  8,122
                  
                  December,
      2010
                  
                  1,140Others
                  
                  
                  3,728
                  
                  By
      the end of 2011
                  
                  2,140Total
                  
                  
                  54,046
                  
                  
                  
                  51,969
 
 Long
lived assets, including construction in progress are reviewed if events and
changes in circumstances indicate that its carrying amount may not be
recoverable, to determine whether their carrying value has become impaired. The
Company determined that the construction in progress in Maoming Hengda was
impaired as of June 30, 2010. For the three and nine months ended September 30,
2010, $0 million and $1.7 million construction-in-progress has been written off
and included in operating expense.
 
 Depreciation,
including amounts in cost of sales, for the three months ended September 30,
2010 and 2009 amounted to $11.6 million and $10.9 million, respectively, and for
the nine months ended September 30, 2010 and 2009, amount to $30.4 million and
$22.8 million, respectively.
 
 The
Company has fixed assets to be disposed amounting to $2.4 million and $3.0
million as of September 30, 2010 and December 31, 2009,
respectively.
 
 Note 7 – Intangible assets,
net
 
 Intangible
assets consist of the following:
  September
      30,
                    2010
                  
                  
                  December
      31,
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)Land
      use rights
                  
                  $
                  28,136
                  
                  
                  $
                  27,519Software
                  
                  
                  527
                  
                  
                  
                  424Subtotal
                  
                  
                  28,663
                  
                  
                  
                  27,943Accumulated
      amortization – land use right
                  
                  
                  (4,958
                  )
                  
                  
                  (4,143
                  )Accumulated
      amortization – software
                  
                  
                  (137
                  )
                  
                  
                  (67
                  )Subtotal
                  
                  
                  (5,095
                  )
                  
                  
                  (4,210
                  )Intangible
      assets, net
                  
                  $
                  23,568
                  
                  
                  $
                  23,733
 
 18
 
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 The gross
amount of the intangible assets amounted to $28.7 million and $27.9 million as
of September 30, 2010 and December 31, 2009, respectively. The remaining
weighted average amortization period is 32.2 years.
 Total
amortization expense for the three months ended September 30, 2010 and 2009
amounted to $0.3 million and $0.3 million, respectively, and for the nine months
ended September 30, 2010 and 2009, amounted to $0.8 million and $0.7 million,
respectively.
 
 The
estimated aggregate amortization expense for each of the five succeeding years
is as follows:
  Years
      ended
                  
                  Estimated
      Amortization Expense
                  
                  Gross
      carrying Amount(in
      thousands)
                  
                  (in
      thousands)September
      30, 2011
                  
                  $
                  1,048
                  
                  $
                  22,520September
      30, 2012
                  
                  
                  1,048
                  
                  
                  21,472September
      30, 2013
                  
                  
                  730
                  
                  
                  20,742September
      30, 2014
                  
                  
                  721
                  
                  
                  20,021September
      30, 2015
                  
                  
                  721
                  
                  
                  19,300Thereafter
                  
                  
                  19,300
                  
                  
                  -Total
                  
                  $
                  23,568
 
 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 $182.4 million and $192.0 million as of September 30, 2010
and December 31, 2009, respectively.
 
 The
Company had the following short-term notes payable:
 
 September
      30,
                    2010
                  
                  
                  December
      31,
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)GS
      (China): Notes payable from banks in China, due various dates from October
      2010 to January 2011. Restricted cash required of $8.7 million and $4.0
      million as of September 30, 2010 and December 31, 2009, respectively;
      guaranteed by third parties.
                  
                  $
                  11,695
                  
                  
                  $
                  7,628Longmen
      Joint Venture: Notes payable from banks in China, due various dates from
      October 2010 to February 2011. Restricted cash of $173.7 million and
      $162.3 million as of September 30, 2010 and December 31, 2009,
      respectively; some notes are guaranteed by third parties while others are
      secured by equipments and land use rights.
                  
                  
                  290,418
                  
                  
                  
                  216,173Bao
      Tou: Notes payable from banks in China, restricted cash of $0 million and
      $5.1 million as of September 30, 2010 and December 31, 2009, respectively;
      pledged by buildings.
                  
                  
                  
                  
                  
                  
                  10,269Maoming
      Hengda: Notes payable from banks in China, Restricted cash of $0 and $20.6
      million as of September 30, 2010 and December 31, 2009,
      respectively.
                  
                  
                  -
                  
                  
                  
                  20,538Total
      short-term notes payable
                  
                  $
                  302,113
                  
                  
                  $
                  254,608
  19
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 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:
 
 September
      30,
                          2010
                        
                        
                        December
      31,
                          2009(Unaudited)(in
      thousands)
                        
                        
                        (in
      thousands)GS
      (China): Loan from banks in China, due various dates from October 2010 to
      September 2011. Weighted average interest rate 5.7% per annum; some are
      guaranteed by third parties while others are secured by equipment /
      inventory.
                        
                        $
                        23,901
                        
                        
                        $
                        25,476Longmen
      Joint Venture: Loan from banks in China, due various dates from February
      2011 to September 2011. Weighted average interest rate 5.5% per annum;
      some are guaranteed by third parties or notes receivables while others are
      secured by equipment / buildings / land use right /
    inventory.
                        
                        
                        154,221
                        
                        
                        
                        123,492Total
      short-term loans - bank
                        
                        $
                        178,122
                        
                        
                        $
                        148,968
  September
      30,
                    2010
                  
                  
                  December
      31,
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)Longmen
      Joint Venture: Loans from various unrelated companies and individuals, due
      various dates from November 2010 to February 2011, and weighted average
      interest rates 6.2% per annum.
                  
                  $
                  86,512
                  
                  
                  $
                  91,106Maoming
      Hengda: Loans from one unrelated parties and one related party, due on
      demand, none interest bearing.
                  
                  
                  14,195
                  
                  
                  
                  19,252Total
      short-term loans - others
                  
                  $
                  100,707
                  
                  
                  $
                  110,358
  September
      30,
                    2010
                  
                  
                  December
      31,
                    2009(Unaudited)(in
      thousands)
                  
                  
                  (in
      thousands)Longmen
      Joint Venture: Loans from Shangang Company, due on July 2011, and interest
      rates 5.3% per annum.
                  
                  $
                  74,850
                  
                  
                  $
                  -Longmen
      Joint Venture: Loans from LG Group and its subsidiary, due on July 2011,
      and interest rates 5.8% per annum.
                  
                  
                  17,964
                  
                  
                  
                  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
      short-term loans - related parties
                  
                  $
                  92,814
                  
                  
                  $
                  11,751
  The
Company had various loans from unrelated companies. The balances amounted to
$100.7 million and $110.4 million as of September 30, 2010 and December 31,
2009, respectively. Of the $100.7 million, $14.2 million loans carry no interest
and the remaining $86.5 million are subject to interest rates ranging from 3.6%
to 8.4%. All short term loans from unrelated companies are due on demand and
unsecured.
  20
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 
 Total
interest expenses, excluding capitalized interest, amounted to $3.1 million and
$8.3 million for the three months ended September 30, 2010, and 2009,
respectively, and interest expenses amounted to $12.8 million and $16.1 million
for the nine months ended September 30, 2010 and 2009,
respectively.
 
 Capitalized
interest amounted to $0.5 million and $6.7 million for the three months ended
September 30, 2010 and 2009, respectively, and $1.6 million and $12.8 million
for the nine months ended September 30, 2010 and 2009,
respectively.
 
 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 September 30, 2010 and December 31, 2009, customer
deposits amounted to $238.5 million and $212.6 million, including deposits paid
to related parties amounted to $47.8 million 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 $45.8 million and
$49.5 million in deposits due to sales representatives as of September 30, 2010
and December 31, 2009, respectively.
 
 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.
  21
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 The fair
value of conversion option and the warrants were initially calculated using the
Cox Rubenstein Binomial model based on the following variables:
 
 ·
                  Expected
      volatility adjusted to 125%
 ·
                  Expected
      dividend yield of 0%
 ·
                  Risk-free
      interest rate of 1.27%
 ·
                  Expected
      lives of five years
 ·
                  Market
      price at issuance date of $10.43
 ·
                  Strike
      price of $12.47 and $13.51, for the conversion option and the warrants,
      respectively
 
 Pursuant
to accounting principles generally accepted in 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 recorded at fair value in 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
 
 On August
5, 2010, the $3.3 million Notes were converted to 1,208,791 shares of common
stocks. Pursuant to accounting principles generally accepted in the United
States, the Company valued the conversion option on the note conversion date. A
total of $3.5 million of the carrying value and derivative liability had been
reclassified into equity. In connection with such conversion, the Company
incurred the make whole interest expense of $0.7 million and accrued interest of
$0.2 million for the period ended September 30, 2010. All accrued interest and
make-whole interest were settled with 350,885 shares of common
stocks.
 
 $30.0
million of the Notes was converted to 7,045,274 shares of common stock at a
conversion price of $4.2511 in 2009. 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 $0 million and $1.1 million as of September 30,
2010 and December 31, 2009, respectively. The effective interest charges on the
Notes totaled $0.1 million and $0.3 million for the three months ended September
30, 2010 and 2009, respectively, and $0.4 million and $2.1 million for the nine
months ended September 30, 2010 and 2009, respectively.
  22
  GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
  Note
issuance cost was amortized to interest expense for the three months ended
September 30, 2010 and 2009 amounted to $0.003 million and $0.012 million,
respectively. Note issuance cost was amortized to interest expense for the nine
months ended September 30, 2010 and 2009 amounted to $0.016 million and $0.056
million, respectively. A total of $0.4 million Deferred fees remaining
unamortized at the date of conversion are transferred (charged) to equity
(debited to additional paid-in capital).
 
 Reset of warrants exercise
price
 
 On
December 24, 2009, the holders of the existing warrants to purchase 1,154,958
shares of our common stock (See Note 11) entered into warrant reset agreements
whereby the exercise price was reset from $13.51 to $5.00 per share and the
number of shares of common stock issuable upon exercise of warrants was
increased by 2.3775 times from 1,154,958 to 3,900,871. The Company booked $10.1
million derivative loss in 2009 for this reset accordingly.
 
 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 September 30
2010, the balance of derivative liabilities was $7.0 million.
 
 Note
12 – Supplemental disclosure of cash flow information
 
 Interest
paid amounted to $4.5 million and $4.7 million for the three months ended
September 30, 2010 and 2009, respectively, and for the nine months ended
September 30, 2010 and 2009, amounted to $13.2 million and $9.3 million,
respectively.
 
 Income
tax payments amounted to $0.3 million and $0.6 million for the
three months ended September 30, 2010 and 2009, respectively, and for the nine
months ended September 30, 2010 and 2009, amounted to $1.6 million and $2.4
million, respectively.
 
 Effective
Interest charge on the Notes of $1.1 million was capitalized into construction
in progress for the nine months ended September 30, 2010.
 
 Note
13 - Gain from debt extinguishment and Government grant
 
 Debt
extinguishment
 
 For the
nine months ended September 30, 2009, the Company recorded gain from debt
extinguishment totaling $2.9 million. In 2009, Maoming Hengda, a subsidiary,
entered into a Debt Waiver Agreement with Guangzhou Hengda, pursuant to which
Guangzhou Hengda agreed to waive $2.9 million (RMB 20.0 million) of debt that
Maoming Hengda owes to Guangzhou Hengda. The Company determined that the
subsequent debt settlement does not constitute a contingency at the date of
purchase as defined in the accounting standard - business Combinations and thus
should not result in a reallocation of the purchase price. The waiver is
irrevocable.
 
 Government
grant
 
 Due to
increasing emphasis on energy savings and pollution emission controls, Shaanxi
Province Development and Reform Commission provided incentives for local
companies for energy-saving and/or eliminate of outdated iron and steel
production machineries and equipment. Longmen Joint Venture received $1.4
million (RMB 9.4 million) in government grants for technology transformation for
energy saving for the nine months ended September 30, 2010.
  23
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 Longmen
Joint Venture received $4.3 million (RMB 29.2 million) in government grants for
compliance in dismantling two blast furnaces for the nine months ended September
30, 2009. The Company wrote off the residual book value of the furnaces
dismantled totaling $0.7 million (RMB 5.0 million), and recorded other income of
$3.4 million for the nine months ended September 30, 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 and nine months ended
September 30, 2010 and 2009 are as follows:
  Three
      months ended
                      
                      
                      Nine
      months ended(In
      thousands)
                      
                      September
      30,
                        2010
                      
                      
                      September
      30,
                        2009
                      
                      
                      September
      30,
                        2010
                      
                      
                      September
      30,
                        2009(Unaudited)
                      
                      
                      (Unaudited)
                      
                      
                      (Unaudited)
                      
                      
                      (Unaudited)Current
                      
                      $
                      5,332
                      
                      
                      $
                      6,717
                      
                      
                      $
                      860
                      
                      
                      $
                      12,451Deferred
                      
                      
                      (5,224
                      )
                      
                      
                      (2,925
                      )
                      
                      
                      (5,559
                      )
                      
                      
                      (5,265
                      )Total
      provision (benefit) for income taxes
                      
                      $
                      108
                      
                      
                      $
                      3,792
                      
                      
                      $
                      (4,699
                      )
                      
                      $
                      7,186
  Significant
components of the provision for income taxes on earnings and deferred taxes on
net operating losses from operation for the nine months ended September 30, 2010
and 2009 are as follows:
 
 According
to Chinese tax regulations, the net operating loss can be carried forward to
offset with operating income for the next five years. Management believes the
deferred tax asset is fully realizable.
 
 The
principal component of the deferred income tax assets is as
follows:
 
 September
      30,
                      2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)Beginning
      balance
                    
                    $
                    3,341
                    
                    
                    $
                    7,487Net
      operating loss carry forward (tax assets realized) for
      subsidiaries
                    
                    
                    6,183
                    
                    
                    
                    (864
                    )Effective
      tax rate
                    
                    
                    25
                    %
                    
                    
                    25
                    %Deferred
      tax asset
                    
                    $
                    1,546
                    
                    
                    $
                    (216
                    )Long
      Gang Headquarter, net operating loss carry-forward (tax asset
      realized)
                    
                    
                    26,301
                    
                    
                    
                    (26,193
                    )Effective
      tax rate
                    
                    
                    15
                    %
                    
                    
                    15
                    %Deferred
      tax asset
                    
                    $
                    3,945
                    
                    
                    $
                    (3,929
                    )Exchange
      difference
                    
                    
                    68
                    
                    
                    
                    (1
                    )Totals
                    
                    $
                    8,900
                    
                    
                    $
                    3,341
  24
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
  Under the
Income Tax Laws of the PRC, the Company’s subsidiary, GS (China), is generally
subject to an income tax at an effective rate of 25% on income reported in the
statutory financial statements after appropriate tax adjustments, unless the
enterprise is located in a specially designated region where it allows foreign
enterprises a two-year income tax exemption and a 50% income tax reduction for
the following three years. GS (China) became a Chinese Sino-foreign joint
venture at the time of the merger on October 14, 2004 and it became eligible for
the tax benefit. GS (China) is located in Tianjin Costal Economic Development
Zone and under the Income Tax Laws of Tianjin City of the PRC; it is eligible
for an income tax rate of 25% and 12% for the periods ended September 30, 2010
and December 31, 2009, respectively.
  The
Company’s subsidiary, Longmen Joint Venture, is located in the mid-west region
of China. It qualifies for the “Go-West” tax rebate of 15% tax rate promulgated
by the government; therefore, income tax is at 15% deducted rate till December
31, 2010.
 
 Baotou
Steel Pipe Joint Venture is located in Inner Mongolia and is subject to an
income tax at an effective rate of 25%.
 
 Maoming
Hengda is located in Guangdong province and is subject to an income tax at an
effective rate of 25%.
 
 The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the nine months ended September 30, 2010 and 2009 are as
follows:
  September
      30,
                      2010
                    
                    
                    September
      30,
                      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
                    %
                    
                    
                    25.0
                    %Tax
      effect of income not taxable for tax purposes (1)
                    
                    
                    0.7
                    %
                    
                    
                    (1.5
                    )%Effect
      of different tax rate of subsidiaries operating in other
      jurisdictions
                    
                    
                    (2.3
                    )%
                    
                    
                    (4.0
                    )%Total
      provision for income taxes
                    
                    
                    23.4
                    %
                    
                    
                    19.5
                    %
  
 (1)
                    This
      represents derivative expenses (income) and stock compensation expenses
      incurred by the Company that are not deductible/taxable in the PRC for the
      nine months ended September 30, 2010 and
2009.
  25
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 The
Company has cumulative undistributed earnings of foreign subsidiaries of
approximately $4.8 million as of September 30, 2010, and is included in
consolidated retained earnings and will continue to be indefinitely reinvested
in international operations. Accordingly, no provision has been made for U.S.
deferred taxes related to future repatriation of these earnings, nor is it
practicable to estimate the amount of income taxes that would have to be
provided if we concluded that such earnings will be remitted in the
future.
 
 General
Steel Holdings, Inc. was incorporated in the United States and has incurred net
operating losses for income tax purposes for the nine months ended September 30,
2010 and for the year ended December 31, 2009. The net operating loss carry
forwards for United States income taxes amounted to $1.7 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
September 30, 2010 was $0.6 million. The net change in the valuation allowance
for the nine months ended September 30, 2010 was $0.1 million. Management will
review this valuation allowance periodically and make adjustments as
warranted.
  Value added
tax
 
 Enterprises
or individuals who sell commodities, engage in repair and maintenance or import
and export goods in the PRC are subject to a value added tax in accordance with
PRC laws. The value added tax standard rates are 13% to 17% of the gross sales
price. A credit is available whereby VAT paid on the purchases of semi-finished
products or raw materials used in the production of the Company’s finished
products can be used to offset the VAT due on sales of the finished
product.
 
 VAT on
sales and VAT on purchases amounted to $128.1 million and $131.4 million,
respectively, for the three months ended September 30, 2010, $123.1 million and
$106.6 million, respectively, for the three months ended September 30, 2009.
Sales and purchases are recorded net of VAT collected and paid as the Company
acts as an agent for the government. VAT taxes are not impacted by the income
tax holiday.
 
 VAT on
sales and VAT on purchases amounted to $386.7 million and $357.8 million,
respectively, for the nine months ended September 30, 2010 and $302.3 million
and $272.5 million, respectively, for the nine months ended September 30, 2009.
Sales and purchases are recorded net of VAT collected and paid as the Company
acts as an agent for the government. VAT taxes are not impacted by the income
tax holiday.
 
 Taxes
payable consisted of the following:
  September
      30,
                      2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)VAT
      taxes payable
                    
                    $
                    1,382
                    
                    
                    $
                    3,861Income
      taxes payable
                    
                    
                    567
                    
                    
                    
                    1,633Misc
      taxes
                    
                    
                    246
                    
                    
                    
                    1,427Totals
                    
                    $
                    2,195
                    
                    
                    $
                    6,921
  26
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
  Note
15 – Earnings per share
 
 The
calculation of earnings per share is as follows:
 
 Three
      months ended September 30,
                    
                    
                    Nine
      months ended September 30,(in
      thousands except per share data)
                    
                    2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)(Loss)
      income attributable to holders of common shares
                    
                    $
                    (2,261
                    )
                    
                    $
                    10,382
                    
                    
                    $
                    (9,896
                    )
                    
                    $
                    (14,159
                    )Add:
      Derivative expense
                    
                    
                    -
                    
                    
                    
                    812
                    
                    
                    
                    -
                    
                    
                    
                    -Subtract:
      Unamortized note issuance cost
                    
                    
                    -
                    
                    
                    
                    (963
                    )
                    
                    
                    -
                    
                    
                    
                    -Subtract:
      Make whole interest
                    
                    
                    -
                    
                    
                    
                    (330
                    )
                    
                    
                    -
                    
                    
                    
                    -(Loss)
      income used in diluted computation
                    
                    $
                    (2,261
                    )
                    
                    $
                    9,901
                    
                    
                    $
                    (9,896
                    )
                    
                    $
                    (14,159
                    )Basic
      weighted average number of common shares outstanding
                    
                    
                    53,941,191
                    
                    
                    
                    44,973,882
                    
                    
                    
                    52,576,928
                    
                    
                    
                    40,295,924Diluted
      weighted average number of common shares outstanding
                    
                    
                    53,941,191
                    
                    
                    
                    45,750,152
                    
                    
                    
                    52,576,928
                    
                    
                    
                    40,295,924(Loss)
      earnings per shareBasic
                    
                    $
                    (0.04
                    )
                    
                    $
                    0.23
                    
                    
                    $
                    (0.19
                    )
                    
                    $
                    (0.35
                    )Diluted
                    
                    $
                    (0.04
                    )
                    
                    $
                    0.22
                    
                    
                    $
                    (0.19
                    )
                    
                    $
                    (0.35
                    )
  There is
no dilutive effect for its earnings per share as the Company incurred net loss
for the three and nine months ended September 30, 2010.
 
 For the
three months ended September 30, 2009, 1,154,958 warrant with exercise price of
$13.51 is excluded from EPS as they are anti-dilutive. The $3.3 million
convertible notes with conversion price of $4.2511 were included in the diluted
earnings per share. For the nine months ended September 30, 2009, the
Company incurred net loss; therefore, there is no dilutive effect for its
earnings per share.
 
 Note
16 – Related party transactions and balances
 
 Related party
transactions
 
 On March
31, 2010, GS (China), a subsidiary in which the Company holds a controlling
interest, entered into a lease agreement with Tianjin Daqiuzhuang Steel Plates
Co., Ltd. (the “Lessee”), whereby GS (China) will lease its facility located at
No. 1, Tonga Street, Daqizhuang Town, Junghai County, Tianjin City to the Lessee
(the “Lease Agreement”). The Lease Agreement provides approximately 776,078
square feet of workshops, lands, equipments and other facilities to the Lessee
and allows the Company to reduce overhead costs while providing a recurring
monthly revenue stream resulting from payments due thereunder. The term of the
Lease Agreement is from January 1, 2010 to December 31, 2011 and the monthly
base rental rate due to GS (China) is approximately $0.2 million (RMB1.68
million). The lessee partially owned by a related party Beijing Wendlar Co.,
Ltd, and is managed by the former general manager of GS (China). For the three
and nine months ended September 30, 2010, GS (China) realized rental income in
the amount of $0.7 million and $2.2 million from the Lessee.
  27
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 The
future rental payments to be received associated with the Lease Agreement are as
follow:
 
 Year
      ended September 30,
                    
                    Amount(in
      thousands)2011
                    
                    $
                    3,0182012
                    
                    
                    754Thereafter
                    
                    
                    -Total
                    
                    $
                    3,772
  The
following chart summarized sales to the related party transactions for the nine
months ended September 30, 2010 and 2009.
 
 Name
      of related parties
                      
                      Relationship
                      
                      September
      30,
                        2010
                      
                      
                      September
      30
                        2009(Unaudited)
                      
                      
                      (Unaudited)(in
      thousands)
                      
                      
                      (in
      thousands)Shaanxi
      Longmen (Group) Co, Ltd and its subsidiaries (“LG Group”)
                      
                      Noncontrolling
      shareholder of Longmen Joint Venture
                      
                      $
                      262,912
                      
                      
                      $
                      258,819Tianjin
      Hengying Trading Co., Ltd
                      
                      Common
      control under CEO
                      
                      
                      33,304
                      
                      
                      
                      24,060Tianjin
      Dazhan Industry Co, Ltd
                      
                      Common
      control under CEO
                      
                      
                      29,284
                      
                      
                      
                      15,821Hancheng
      Haiyan Coking
                      
                      Investee
      of LG Group
                      
                      
                      29,133
                      
                      
                      
                      37,255Shaanxi
      Steel & Iron Company
                      
                      Majority
      shareholder of Longmen Group
                      
                      
                      1,968
                      
                      
                      
                      -Beijing
      Daishang Trade Co., Ltd.
                      
                      Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                      
                      
                      5,471
                      
                      
                      
                      3,588Tianjin
      Daqiuzhuang Steel Plates Co., Ltd.
                      
                      Common
      control under CEO
                      
                      
                      8,337
                      
                      
                      
                      -Others
                      
                      
                      
                      
                      3,066
                      
                      
                      
                      1,576Total
                      
                      
                      
                      $
                      373,475
                      
                      
                      $
                      341,119
  28
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 The
following charts summarize purchases from the related party transactions for the
nine months ended September 30, 2010 and 2009.
 
 Name
      of related parties
                      
                      Relationship
                      
                      September
      30,
                        2010
                      
                      
                      September
      30,
                        2009(Unaudited)
                      
                      
                      (Unaudited)(in
      thousands)
                      
                      
                      (in
      thousands)LG
      Group
                      
                      Noncontrolling
      shareholder of Longmen Joint Venture
                      
                      
                      350,593
                      
                      
                      
                      216,386Hengying
      and Dazhan
                      
                      Common
      control under CEO
                      
                      
                      -
                      
                      
                      
                      27,615Jingma
      Jiaohua
                      
                      Investee
      of Longmen Joint Venture’s subsidiary (unconsolidated)
                      
                      
                      8,441
                      
                      
                      
                      17,097Hancheng
      Haiyan Coking
                      
                      Investee
      of LG Group
                      
                      
                      166,895
                      
                      
                      
                      102,567Beijing
      Daishang Trade Co., Ltd.
                      
                      Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                      
                      
                      1,119
                      
                      
                      
                      29,920Others
                      
                      
                      
                      
                      664
                      
                      
                      
                      755Total
                      
                      
                      
                      $
                      527,712
                      
                      
                      $
                      394,340
 
 Related party
balances
 
 a.
                    Other
      receivables - related parties:
 
 Name
      of related parties
                    
                    Relationship
                    
                    September
      30,
                      2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)LG
      Group
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture
                    
                    $
                    -
                    
                    
                    $
                    19,226Shaanxi
      Steel & Iron Company
                    
                    Majority
      shareholder of Longmen Group
                    
                    
                    23,000
                    
                    
                    
                    -Mao
      Ming Sheng Zhe
                    
                    Common
      control under CEO
                    
                    
                    16,231
                    
                    
                    
                    3,021Tianjin
      Dazhan Industry Co, Ltd
                    
                    Common
      control under CEO
                    
                    
                    15,419
                    
                    
                    
                    10,268Others
                    
                    
                    
                    
                    333
                    
                    
                    
                    155Total
                    
                    
                    
                    $
                    54,983
                    
                    
                    $
                    32,670
 
 b.
                    Advances
      on inventory purchases – related
parties:
  Name
      of related parties
                    
                    Relationship
                    
                    September
      30, 2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)LG
      Group
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture
                    
                    $
                    48,007
                    
                    
                    $
                    -Others
                    
                    
                    
                    
                    -
                    
                    
                    
                    2,995Total
                    
                    
                    
                    $
                    48,007
                    
                    
                    $
                    2,995
  29
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 c.
                    Accounts
      payable - related parties:
 
 Name
      of related parties
                    
                    Relationship
                    
                    September
      30,
                      2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)Tianjin
      Hengying Trading Co., Ltd
                    
                    Common
      control under CEO
                    
                    $
                    15,868
                    
                    
                    $
                    17,256Tianjin
      Dazhan Industry Co., Ltd
                    
                    Common
      control under CEO
                    
                    
                    10,596
                    
                    
                    
                    6,047Tianjin
      General Qiugang Pipe
                    
                    Common
      control under CEO
                    
                    
                    10,155
                    
                    
                    
                    4,800Hancheng
      Haiyan Coking
                    
                    Investee
      of LG Group
                    
                    
                    25,482
                    
                    
                    
                    -Henan
      Xinmi Kanghua
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                    
                    
                    756
                    
                    
                    
                    960Jingma
      Jiaohua
                    
                    Investee
      of Longmen Joint Venture’s subsidiary (unconsolidated)
                    
                    
                    1,858
                    
                    
                    
                    1,360LG
      Group
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture
                    
                    
                    -
                    
                    
                    
                    15,310Beijing
      Daishang Trading Co., Ltd
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                    
                    
                    721
                    
                    
                    
                    1,315Others
                    
                    
                    
                    
                    320
                    
                    
                    
                    1,103Total
                    
                    
                    
                    $
                    65,756
                    
                    
                    $
                    48,151
  d.
                    Short-term
      loans - related parties:
 
 Name
      of related parties
                    
                    Relationship
                    
                    September
      30,
                      2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)LG
      Group
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture
                    
                    $
                    17,964
                    
                    
                    $
                    -Shaanxi
      Steel & Iron Company
                    
                    Majority
      shareholder of Longmen Group
                    
                    
                    74,850Tianjin
      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
                    
                    
                    
                    $
                    92,814
                    
                    
                    $
                    11,751
  30
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 e.
                    Other
      payables - related parties:
 
 Name
      of related parties
                    
                    Relationship
                    
                    September
      30,
                      2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)Tianjin
      Hengying Trading Co, Ltd
                    
                    Common
      control under CEO
                    
                    $
                    12,280
                    
                    
                    $
                    2,415Beijing
      Wendlar Co., Ltd
                    
                    Common
      control under CEO
                    
                    
                    -
                    
                    
                    
                    704Yangpu
      Capital Automobile
                    
                    Common
      control under CEO
                    
                    
                    1,332
                    
                    
                    
                    587Tianjin
      General Qiugang Pipe
                    
                    Common
      control under CEO
                    
                    
                    4,491
                    
                    
                    
                    -LG
      Group
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture
                    
                    
                    3,127
                    
                    
                    
                    -Tianjin
      Jin Qiu Steel Market
                    
                    Common
      control under CEO
                    
                    
                    1,362
                    
                    
                    
                    -Others
                    
                    
                    
                    
                    23
                    
                    
                    
                    -Total
                    
                    
                    
                    $
                    22,615
                    
                    
                    $
                    3,706
  f.
                    Customer
      deposit – related parties:
 
 Name
      of related parties
                    
                    Relationship
                    
                    September
      30,
                      2010
                    
                    
                    December
      31,
                      2009(Unaudited)(in
      thousands)
                    
                    
                    (in
      thousands)Tianjin
      Dazhan Industry Co., Ltd
                    
                    Common
      control under CEO
                    
                    $
                    2,587
                    
                    
                    $
                    1,544Hancheng
      Haiyan Coking
                    
                    Investee
      of LG Group
                    
                    
                    2,754
                    
                    
                    
                    1,316LG
      Group
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture
                    
                    
                    41,140
                    
                    
                    
                    -Beijing
      Shenhua Xinyuan
                    
                    Common
      control under CEO
                    
                    
                    1,282
                    
                    
                    
                    -Beijing
      Daishang Trading Co., Ltd
                    
                    Noncontrolling
      shareholder of Longmen Joint Venture’s subsidiary
                    
                    
                    -
                    
                    
                    
                    728Others
                    
                    
                    
                    
                    46
                    
                    
                    
                    203Total
                    
                    
                    
                    $
                    47,809
                    
                    
                    $
                    3,791
  31
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 The
Company also guaranteed bank loans of related parties amounting to $40.6 million
and $93.6 million as of September 30, 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 a consulting firm as compensation. The shares were valued at the
quoted market price on the date granted. The Company recorded compensation
expense of $1.6 million.
 
 On July
15, 2009 and August 21, 2009 the Company granted convertible notes holders
44,065 shares of common stock at price of $4.2511 as cash payments made for
interest.
 
 On May 8,
2009, the Company issued 300,000 shares of common stock to Maoming Hengda’s
debtor, Guangzhou Hengda at $6.00 per share, as cash payments made for settling
other short term loan.
 
 From May
7 to December 31, 2009, $30.0 million of notes was converted to 7,045,274 shares
of common stock at a conversion price of $4.2511. According to the convertible
note agreement, the Company incurred the make whole interest expense of $8.8
million and 1,795,977 shares of common stock were issued. See Note 11 for
details.
 
 On
December 24, 2009, the Company entered into a Securities Purchase Agreement with
certain institutional investors issuing 5,555,556 shares and 2,777,778 warrants
(the “2009 Warrants”). The 2009 Warrants can be converted to common stock from
June 24, 2010 to June 23, 2013 at $5.00 per share. The 2009 Warrants have a
strike price equal to $5.00 and a term of two and a half years. Because the 2009
Warrants are denominated in U.S. dollars and the Company’s functional currency
is the Renminbi, and the 2009 Warrants permit the holder to request cash
buy-back in the event of a Fundamental Transaction, this results in a
significant change in the Company structure and/or equity. The 2009 Warrants do
not meet the requirements of the accounting standards to be indexed only to the
Company’s stock.  Accordingly, they are accounted for at fair value as
derivative liabilities 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
  32
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 The 2009
Warrants were valued at $8.5 million when they were issued on December 24, 2009.
At September 30, 2010 and December 31, 2009, the estimated fair value of the
warrants was $2.0 million and $8.1 million, resulting in a gain of $6.1 million
and $0.4 million, respectively. The gain was recorded in the Company’s
consolidated statement of operations and other comprehensive income
(loss).
 
 The
volatility of the Company’s common stock was based on the Company’s historical
stock prices, the risk free interest rate was based on Treasury Constant
Maturity Rates published by the U.S. Federal Reserve for periods applicable to
the life of the warrants, the dividend yield was based on the Company’s current
and expected dividend policy and the expected term is equal to the contractual
life of the warrants.  The value of the warrants was based on the
Company’s common stock price on the date the warrants were issued.
  2010
Equity Transactions
 
 On March
19, 2010, the Company granted senior management and directors
237,100 shares of common stock at $3.91 per share as compensation. The
shares were valued at the quoted market price on the date granted. The Company
recorded compensation expense of $0.9 million.
 
 On June
7, 2010, the Company issued 928,163 shares of common stock to one of Maoming
Hengda’s creditor to settle the other short-term loans.
 
 On June
25, 2010, the Company granted senior management and directors 168,650 shares of
common stock at $2.62 per share as compensation. The shares were valued at the
quoted market price on the date granted. The Company recorded compensation
expense of $0.4 million.
 
 On August
4, 2010, $3.3 million of the Notes was converted to 1,208,791 shares of
common stock. According to the Notes agreement, the Company incurred the make
whole interest expense of $0.7 million and accrued interest expense of $0.2
million , 350,885 shares of common stock were issued. See Note 11 for
details.
 
 On
September 28, 2010, the Company granted senior management and directors 165,900
shares of common stock at $2.66 per share as compensation. The shares were
valued at the quoted market price on the date granted. The Company recorded
compensation expense of $0.4 million.
  The
Company has the following warrants outstanding:
  Outstanding
      as of January 1, 2009
                    
                    
                    1,154,958Granted
                    
                    
                    5,523,691Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      As of December 31, 2009
                    
                    
                    6,678,649Granted
                    
                    
                    -Forfeited
                    
                    
                    -Exercised
                    
                    
                    -Outstanding
      As of September 30, 2010 (Unaudited)
                    
                    
                    6,678,649
  33
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 Outstanding
      Warrants
                    
                    
                    Exercisable
      WarrantsExercise
      Price
                    
                    
                    Number
                    
                    
                    Average
      Remaining Contractual Life
                    
                    
                    Average
      Exercise Price
                    
                    
                    Number
                    
                    
                    Average
      Remaining Contractual Life$
                    5
                    
                    
                    
                    6,678,649
                    
                    
                    
                    2.25
                    
                    
                    $
                    5
                    
                    
                    
                    6,678,649
                    
                    
                    
                    2.25
 
 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
$1.2 million and $0.6 million for the three months ended September 30, 2010 and
2009, respectively, $3.4 million and $2.2 million for the nine months ended
September 30, 2010 and 2009, respectively.
  Note 19–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.
 
 Note
20 – Commitment and contingencies
 
 Commitments
 
 Baotou
Steel Pipe Joint Venture has a 5 years rental agreement with Bao Gang Jianan for
buildings. The agreement began on June 2007 for $0.3 million (or RMB1.8 million)
per year.
  34
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 As of
September 30, 2010, total future minimum lease payments for the unpaid portion
under an operating lease were as follows:
 
 Year
      ended September 30,
                    
                    Amount(in
      thousands)2011
                    
                    $
                    2642012
                    
                    
                    1982013
                    
                    
                    -2014
                    
                    
                    -2015
                    
                    
                    -Thereafter
                    
                    
                    663Total
                    
                    $
                    1,125
 
 Total
rental expense amounted to $0.07 and $0.1 million for the three months ended
September 30, 2010 and 2009, respectively and total rental expense for the nine
months ended September 30, 2010 and 2009, amounted to $0.2 million and $0.3
million, respectively.
 
 Longmen
Joint Venture and Maoming Hengda  have $14.9 million contractual
obligations in its construction project as of September 30 2010.
 
 The
Company entered an agreement to build a TRT Electricity Generator (“TRT”) inside
Longmen Joint Venture’s production plant. The Company makes payments for the
cost via scheduled payments after the TRT was put into use in April 2009. The
future payment schedule associated with the arrangement is as
follow:
 
 Year
      ended September 30,
                    
                    Amount(in
      thousands)2011
                    
                    $
                    2,255Thereafter
                    
                    
                    -Total
                    
                    $
                    2,255
  Contingencies
 
 As of
September 30, 2010, the Company guaranteed bank loans for related parties and
third parties bank loans, including line of credit, amounting to $68.7
million.
 
 Longmen
Joint Venture had $62.7 million guarantees as of September 30,
2010.
  Nature
      of
                    
                    Guaranteeguarantee
                    
                    amount
                    
                    Guaranty
      period(In
      thousands)Line
      of credit
                    
                    
                    10,462
                    
                    Various
      from March 2010 to April 2011Bank
      loans
                    
                    
                    41,971
                    
                    Various
      from April 2010 to July 2011Notes
      payable
                    
                    
                    10,259
                    
                    Various
      from February 2010 to December 2010Others
                    
                    
                    40
                    
                    December
      2009 to December 2010Total
                    
                    $
                    62,732
  35
 GENERAL
STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 September
30, 2010
 (Unaudited)
 Maoming
Hengda had $6.0 million in guarantees as of September 30, 2010.
 
 Nature
      of
                    
                    Guaranteeguarantee
                    
                    amount
                    
                    Guaranty
      period(In
      thousands)Bank
      loan
                    
                    $
                    5,988
                    
                    Various
      from June 2009 to October 2010
 
 The
Company has evaluated the debt guarantees and concluded that the likelihood of
having to make payments under the guarantees is remote.
 
 Note
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:
  For
      the three months ended
                    
                    
                    For
      the nine months ended(in
      thousands)
                    
                    2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)ProductsRe-bar
                    
                    $
                    455,051
                    
                    
                    $
                    455,054
                    
                    
                    $
                    1,389,239
                    
                    
                    $
                    1,112,536Hot-Rolled
      Sheets
                    
                    
                    -
                    
                    
                    
                    14,982
                    
                    
                    
                    8,314
                    
                    
                    
                    41,559High
      Speed Wire
                    
                    
                    1,959
                    
                    
                    
                    10,272
                    
                    
                    
                    7,839
                    
                    
                    
                    54,008Spiral-Welded
      Steel Pipe
                    
                    
                    3,267
                    
                    
                    
                    4,444
                    
                    
                    
                    9,587
                    
                    
                    
                    8,390Total
      sales revenue
                    
                    $
                    460,277
                    
                    
                    $
                    484,752
                    
                    
                    $
                    1,414,979
                    
                    
                    $
                    1,216,493
  36
 ITEM
2. MANAGEMENT’S 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 Third Quarter Highlights
  l
              Gross
      margin improved to 3.4% in the third quarter of 2010 from 1.5% in the
      second quarter and 1.3% in the first quarter of
  2010.
 
 l
                On
      July 12, 2010, we formed a new joint venture, Tianwu General Steel
      Material Trading Co., Ltd. (“Tianwu GS”) with Tianjin Materials and
      Equipment Group Corporation (“TME Group”). The contributed capital of
      Tianwu GS is approximately $2.9 million (or RMB20 million), of which
      General Steel will hold a 60% controlling interest.Tianwu
      GS will source raw materials, including domestic and overseas iron ore,
      and is expected to supply approximately 30% to 50% of our iron-ore needs,
      amounting to approximately 2 to 3 million metric tons on an annual
      basis.l
                On
      September 13, 2010, Tianwu GS entered into an iron ore Sales and Purchase
      Contract with Minera Santa Fe, a Chilean iron ore supplier. Pursuant to
      the contract, Tianwu GS will receive favorable pricing on the purchase of
      138,000 tons of iron ore for the remainder of
  2010.
 
 l
              In
      November 2010, our Maoming facility plans to bring online a new 400,000
      metric ton capacity rebar production line. According to the strategic
      alliance agreement Maoming entered with Zhuhai Yueyufeng Iron and Steel
      Co., Ltd. (“Yueyufeng”), Maoming will process at least 25,000 metric tons
      of rebar for Yueyufeng on a monthly basis for two years.
  37
  Our
continuing growth demonstrates the following strengths:
 
 ·
                our two-pronged growth strategy
      of upgrading our existing operations and growing through merger and
      acquisition activities has proven successful;
  and
 ·
                we are a direct beneficiary of
      the China economic stimulus infrastructure spending
      program.
 
 Overview
  We were
incorporated on August 5, 2002 in the State of Nevada.  We are
headquartered in Beijing, China and operate a diverse portfolio of Chinese
steel companies that serve several industries and produce a variety of steel
products including reinforced bars (“rebar”), spiral-weld pipes and high-speed
wire.  Our aggregate annual production capacity of steel products is
6.3 million metric tons, the majority of which 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 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 Company, 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) leased its facility located at No. 1, Tongda Street,
Daqiuzhuang town, Jinghai County, Tianjin municipality, to Tianjin Daqiuzhuang
Steel Plates Co., Ltd. (“Lessee”).  The lease provides approximately
776,078 square feet of workshops, land, equipment and other facilities to the
Lessee and reduces overhead costs while providing a recurring monthly revenue
stream resulting from payments due thereunder.  The term of the lease
is from January 1, 2010 to December 31, 2011 and the monthly base rental rate
due to 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.
 
 38
 
 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. (“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 a total 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, Longmen Joint Venture has
five branch offices, five subsidiaries under direct control and six entities in
which it has a non-controlling interest.  It employs approximately
6,300 full-time employees.  In addition to steel
production,  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 Longmen Joint Venture.
 
 Coke Operation: Longmen Joint Venture
owns 22.76% of Hancheng Tongxing Metallurgy Co., Ltd.
(“Tongxing”).  Located in Hancheng city, Shaanxi province, Tongxing
produces second grade coke used as part of the fuel for our blast
furnaces.  Its annualized coke production capacity is 200,000 metric
tons.  Tongxing sells all of its output to Longmen Joint
Venture.
  Longmen Joint Venture does not own iron
pelletizing facilities.
 
 Longmen Joint Venture’s products are
categorized within the steel industry as “longs” (referencing their shape) and
are generally considered a regional product because their weight and dimensions
make the products ill-suited for cost-effective long-haul ground
transportation.  By our estimates, the provincial market demand for
rebar is six to eight million metric tons per year.  Slightly more
than half of this demand comes from Xi’an, the capital of Shaanxi province,
located 200km from Longmen Joint Venture’s main steel production site. We
estimate that we currently provide to 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 Longmen Joint
Venture’s products.  All Longmen Joint Venture products are sold under
the registered brand name of “Yulong,” which has strong regional recognition and
brand awareness.  Rebar and billet products carry ISO 9001 and 9002
certification and many other products have won national quality
awards.  Products manufactured at the facility have been used in the
construction of the Yangtze River Three Gorges Dam, Xi’an International Airport,
the Xi’an city subway system and the Xi Luo Du and the Xiang Jia Ba hydropower
projects.
 
 39
  Maoming
Hengda Steel Company 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 Company, 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 wires and rebar products used in the construction
industry.  The Maoming facility is 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 Guangdong province and the eastern region of Guangxi
province.
  To take advantage of stronger market
demand in Shaanxi, in the second quarter of 2009, we relocated the 800,000
metric ton capacity rebar production line from the Maoming facility to Longmen
Joint Venture.  In the fourth quarter of 2010, we intend to
relocate the 1,000,000 metric ton capacity high-speed wire production line from
the Maoming facility to 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 ton capacity rebar production line to operate at the Maoming facility
which we intend to bring online in November 2010. In exchange for the funding,
Maoming will process at least 25,000 metric tons of rebar for Yueyufeng on a
monthly basis for two years.
 
 Production
Capacity Information Summary by Subsidiaries
 
 General Steel (China)
              
              Baotou Steel Pipe
      Joint Venture
              
              Longmen Joint Venture
              
              MaomingAnnual
      Production Capacity (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.  We believe that these requirements as well as
product planning are critical factors in our ability to serve this segment of
the market.
 
 Demand
for our Products
 
 Overall, domestic economic growth is an
important demand driver of our products, especially construction and
infrastructure projects, rural income growth and energy demand.
 
 At Longmen Joint Venture, growth in
regional construction and infrastructure projects drives demand for our
products.  According to the 12th Five
Year National Economic and Social Development Plan (“NESDP”) (2011-2015),
development of China’s western region is one of the top-five economic priorities
of the PRC.  Shaanxi province, where Longmen Joint Venture is located,
has been designated as a focal point for development into the western
region.  Our Longmen Joint Venture is 220 km from Xi’an and does not
have a major competitor within a 250 km radius.  According to the
information released by the Shaanxi Provincial Development and Reform
Commission, the total fixed assets investment for Shaanxi province was
approximately $21.3 billion (RMB 144.9 billion) for the year ended December
31, 2009, a 73.7% increase over the same period in 2008. There are 235
construction and infrastructure projects under construction in 2010, and among
these 235 projects, 50 of them are scheduled to begin this year. Some of the
major projects include: nine new railways, one new airport, an 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.
  40
  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
eastern region of Guangxi province, drive demand for our construction steel
products.  As a second tier city, the industrialization and
urbanization of Maoming is one of the focal points of economic development in
west Guangdong province.
 
 Supply
of Raw Materials
 
 The
primary raw materials we use for steel production are iron ore, coke and steel
billets.  Baotou Steel Pipe Joint Venture uses hot-rolled steel coil as
their main raw material.  Longmen Joint Venture uses iron ore and coke
as its main raw materials.  Maoming uses steel billets as its main raw
material. Iron ore is the main raw material used to produce hot-rolled steel
coil and steel billets.  As a result, the prices of iron ore and coke
are the primary raw material cost drivers for our products.
 
 Longmen
Joint Venture accounts for 4.8 million metric tons of our aggregate 6.3
million metric tons annual production capacity.  At Longmen Joint
Venture, approximately 95% of production costs are associated with raw
materials, with iron ore being the largest component.
 
 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 Longmen Joint Venture), the
Daxigou mine (owned by Longmen Group, our partner in 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.
 
 We
formed Tianwu GS with TME Group to source raw materials, including domestic and
overseas iron ore. TME Group is one of the largest and most diversified
commodity trading groups in China. The new joint venture is expected to supply
approximately 30% to 50% of General Steel’s iron-ore needs, amounting to
approximately 2 to 3 million metric tons on an annual basis and it will afford
both flexibility and quality in our iron ore supply for steel
production.
 
 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.
  41
 
 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
              
              
              20.5
              %
              Related
      partyShaanxi
      Haiyan Coal Chemical Industry Co., Ltd.
              
              Coke
              
              
              12.5
              %
              Related
      partyShaanxi
      Huanghe Material Co., Ltd.
              
              Coke
              
              
              6.8
              %
              NoneBaotou
      Gengyi  Commercial Trade Co., Ltd.
              
              Iron
      Ore
              
              
              3.0
              %
              NoneBaotou
      Bangli Industry Co., Ltd.
              
              Iron
      Ore
              
              
              2.9
              %
              NoneTotal
              
              
              45.7
              %
 
 
 Baotou Steel Pipe Joint
Venture
 
 Name of the Major Supplier
              
              Raw Material
                Purchased
              
              % of Total Raw
                Material
                Purchased
              
              Relationship with
                General SteelInner
      Mongolia Chenggang Material Co., Ltd.
              
              Steel
      Coil
              
              
              22.2
              %
              NoneBaotou
      Shunye Material Co., Ltd.
              
              Steel
      Coil
              
              
              10.4
              %
              NoneTianjin
      Dazhan Industry Co., Ltd.
              
              Steel
      Coil
              
              
              8.8
              %
              Related
      partyTianjin
      Shengze Industry & Trade Co., Ltd.
              
              Steel
      Coil
              
              
              8.0
              %
              NoneBaotou
      Yanjia  Industry Co., Ltd.
              
              Steel
      Coil
              
              
              8.0
              %
              NoneTotal
              
              
              57.4
              %
  Maoming
 
 Name of the Major Supplier
              
              Raw Material
                Purchased
              
              % of Total Raw
                Material
                Purchased
              
              Relationship with
                General SteelMaoming
      Dazhongmao Petrochem Co., Ltd.
              
              Heavy
      Oil
              
              
              55.2
              %
              NoneMaoming
      Zhenmao Development Co., Ltd.
              
              Heavy
      Oil
              
              
              33.0
              
              NoneTotal
              
              
              88.2
              %
  (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.
 
 On July
12, 2010, the Ministry of Industry & Information Technology Commission
issued the Steel Industry Admittance and Operation Qualifications. The new
standard specified requirement of all aspects which include: size of blast
furnace, size of converters, emission of waster water, dust per ton of steel
producing, quantity of coal used for each process of steel making and output
capacity of year 2009.  The new policy once again confirmsthe central government’s
resolution to push forward the consolidation of this fragmented industry of more
than 800 players.  While the operational conditions become tougher and
tougher, more small and medium size players will aggressively look for valued
partners which will raise the opportunities of high quality acquisitions for our
company.  We believe the directives indirectly strengthen our position
as an industry consolidator by creating quantitative measures we can use to
better qualify potential acquisition targets.
  42
 
 Results
of Operations for the Three Months and  Nine Months Ended September
30, 2010
  Sales
Revenues
 
 Three
months ended September 30, 2010 compared with three months ended September 30,
2009
 
 
 SALES
      REVENUE
              
              Three
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
              
              Change(in
      thousands, except metric tons)
              
              Volume
              
              
              Revenue
              
              %
              
              
              Volume
              
              
              Revenue
              
              
              %
              
              
              Volume
      %
              
              Revenue
      %(Unaudited)
              
              
              
              
              (Unaudited)Longmen
      Joint Venture
              
              867,854
              
              
              $
              455,050
              
              
              98.9
              .%
              
              
              958,401
              
              
              $
              455,054
              
              
              
              93.9
              %
              
              
              (9.4)
              %
              0
              %Other
              
              72,707
              
              
              $
              5,227
              
              
              1.1
              %
              
              
              77,675
              
              
              $
              29,698
              
              
              
              6.1
              %
              
              
              (6.4
              )
      %
              (82.5)
              %Total
      Revenue of General Steel
              
              940,561
              
              
              
              460,277
              
              
              100.0
              %
              
              
              1,036,076
              
              
              
              484,752
              
              
              
              100.0
              %
              
              
              (9.2)
              %
              (5.0)
              %
 
 Total Sales Revenue for the three
months ended September 30, 2010 decreased 5.0% to $460.3 million from $484.8
million for the same period last year.
 
 The
decrease in sales revenue compared to the same period last year is predominantly
due to changes in the operating model at General Steel (China). Additionally, we
only executed processing contracts at Maoming which generated less sale
revenue.
 
 Longmen
Joint Venture comprised 98.9% of total sales for the third quarter of 2010. We
operated at about 88% of our total capacity in the third quarter of 2010 which
resulted from stable demand for our construction steel products.
 
 Maoming comprised $2
million, or less than 1% of total sales, for the third 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 versus production
contracts.  In the third quarter of 2010, Maoming only completed
processing contracts, which generate less sales revenue, whereas in the third
quarter of 2009, it completed both processing and production
contracts.
 
 Baotou
Steel Pipe Joint Venture comprised $3.2 million, or less than 1% of total sales,
for the third quarter of 2010.  Sales from Baotou Steel Pipe Joint
Venture decreased in the third quarter of 2010 compared to the same period last
year due to lower shipment volume.
 
 Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
 
 SALES
      REVENUE
              
              Nine
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
              
              
              Change(in
      thousands, except metric tons)
              
              Volume
              
              
              Revenue
              
              
              %
              
              
              Volume
              
              
              Revenue
              
              
              %
              
              
              Volume
      %
              
              
              Revenue
      %(Unaudited)
              
              
              
              
              
              (Unaudited)Longmen
      Joint Venture
              
              
              2,705,964
              
              
              $
              1,389,
      238
              
              
              
              98.2
              %
              
              
              2,451,019
              
              
              $
              1,112,536
              
              
              
              91.5
              %
              
              
              10.4
              %
              
              
              24.9
              %Other
              
              
              280,722
              
              
              $
              25,741
              
              
              
              1.8
              %
              
              
              258,697
              
              
              
              103,957
              
              
              
              8.5
              %
              
              
              8.5
              %
              
              
              (75.2)
              %Total
      Revenue of General Steel
              
              
              2,986,686
              
              
              
              1,414,979
              
              
              
              100.0
              %
              
              
              2,709,716
              
              
              
              1,216,493
              
              
              
              100.0
              %
              
              
              10.2
              %
              
              
              16.3
              %
  Total Sales Revenue for the nine months
ended September 30, 2010 increased 16.3% to $1.41 billion from $1.22 billion for
the same period last year.
  43
 
 The
increase in sales revenue compared to the same period last year is predominantly
due to the sales volume increase of 10.2% and a 13.0% increase in the average
selling price of rebar over the total shipment volume at Longmen Joint Venture
from RMB3,096 (approximately US $454) in the first nine months of 2009 to
RMB3,491 (approximately US $513.4) in the first nine months of
2010.
 
 Longmen
Joint Venture comprised 98.2% of total sales for first nine months of 2010. We
operated at about 91% of our total capacity in the first nine months of 2010 as
a result of stable demand for our construction steel products.
 
 Maoming comprised
$7.8 million, or less than 1% of our total sales, for the first nine months of
2010.  The decrease in sales revenue compared to the same period last
year is a result of Maoming only completing processing contracts in this period
which generated less sales revenue than production contracts;
however,  in the first nine months of 2009, Maoming completed both
processing and production contracts which resulted in higher overall sales
revenue.
 
 Baotou
Steel Pipe Joint Venture comprised $9.6 million, or less than 1% of our total
sales, for the first nine months of 2010. The $1.2 million or 14.3% sales amount
increase is due to higher average selling prices of spiral-weld
pipes.
 
 Gross
Profit
 
 Three
months ended September 30, 2010 compared with three months ended September 30,
2009
  GROSS
      PROFIT
              
              Three
      months ended(in
      thousands, except metric tons)
              
              September
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
      %Volume
              
              
              Gross
      Profit
              
              
              Margin
      %
              
              
              Volume
              
              
              Gross
      Profit
              
              
              Margin
      %
              
              
              Gross
      Profit(Unaudited)
              
              
              
              
              
              
              
              
              
              
              (Unaudited)Longmen
      Joint Venture
              
              
              867,854
              
              
              $
              16,353
              
              
              
              3.6
              %
              
              
              958,401
              
              
              $
              40,864
              
              
              
              9.0
              %
              
              
              (62.2)
              %Other
              
              
              72,707
              
              
              
              (761)
              
              
              
              (14.6)
              %
              
              
              77,675
              
              
              
              (1,129)
              
              
              
              (3.8)
              %
              
              
              (32.6)
              %Total
      Gross Profit of General Steel
              
              
              940,561
              
              
              
              15,592
              
              
              
              3.4
              %
              
              
              1,036,076
              
              
              
              39,735
              
              
              
              8.2
              %
              
              
              (60.8)
              %
  1)
              Total
      revenue decreased $24.5 million from $484.8 million in the third quarter
      of 2009 to $460.3 million in the third quarter of 2010 due to the change
      in our operating model at General Steel (China). Additionally, we only
      executed processing contracts at Maoming which generated less sales
      revenue.
 
 2)
              The
      price of our primary raw materials including iron ore and coke was higher
      in the third quarter of 2010 compared to the same period last year which
      negatively affected the gross profit
margin.
 
 However,
our gross margin improved in the third quarter 2010 to 3.4% compared to 1.5% in
the second quarter and 1.3% in the first quarter of 2010 as the average selling
price of rebar increased in both August and September. Meanwhile, our Longmen
Joint Venture cut production on the less efficient blast furnaces in the third
quarter of 2010, which helped to save production cost and expand gross profit
margin.
 
 Maoming
 
 We have
not realized a gross profit at Maoming due to the relatively low utilization
rate of the products from that facility. In 2010, Maoming only performed
processing contracts, which generated less sales revenue than production
contracts.  By comparison, in the third quarter of 2009, Maoming
completed both processing and production contracts.
  44
  Baotou
Steel
 
 At our
Baotou Steel Pipe Joint Venture, gross margin increased to 2.1% in the third
quarter of 2010 from gross loss of 5.9% in the same period last
year.  The increase was due to the higher average selling price of
spiral-weld pipes in the third quarter of 2010 compared to the same period last
year.
  Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
  GROSS
      PROFIT
              
              Nine
      months ended(in
      thousands, except metric tons)
              
              September
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
      %(Unaudited)
              
              
              (Unaudited)Volume
              
              
              Gross
      Profit
              
              
              Margin
      %
              
              
              Volume
              
              
              Gross
      Profit
              
              
              Margin
      %
              
              
              Gross
      ProfitLongmen
      Joint Venture
              
              
              2,705,964
              
              
              $
              30,481
              
              
              
              2.2
              %
              
              
              2,451,019
              
              
              $
              80,259
              
              
              
              7.2
              %
              
              
              (62.0)
              %Other
              
              
              280,722
              
              
              
              (1,796)
              
              
              
              (7.0)
              %
              
              
              258,697
              
              
              
              (5,104)
              
              
              
              (4.9)
              %
              
              
              (64.8)
              %Total
      Gross Profit of General Steel
              
              
              2,986,686
              
              
              
              28,685
              
              
              
              2.0
              %
              
              
              2,709,716
              
              
              
              75,155
              
              
              
              6.2
              %
              
              
              (61.8)
              %
 
 Gross
profit for the nine months ended September 30, 2010 decreased 61.8% to $28.7
million from $75.2 million for the same period last year.  The
decrease is primarily attributable to a drop in gross profit at our Longmen
Joint Venture. The price of our primary raw materials including iron ore and
coke was higher in the first three quarters of 2010 compared to the same period
last year which negatively affected the gross profit margin.
  Selling,
General and Administrative Expenses
 
 Three
months ended September 30, 2010 compared with three months ended September 30,
2009
 
 (in
      thousands)
              
              Three
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
      %(Unaudited)
              
              
              (Unaudited)SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
              
              $
              9,562
              
              
              $
              10,487
              
              
              
              (8
              .8)%SG&A
      EXPENSES AS A PERCENTAGE OF TOTAL REVENUE
              
              
              2.1%
              
              
              
              2.2%
 
 Selling,
general and administrative expenses, such as executive compensation, office
expenses, legal and accounting charges, travel charges, equipment maintenance
and various taxes decreased 8.8% to $9.6 million for the three months ended
September 30, 2010, compared to $10.5 million for the same period of
2009.
 
 Selling,
general and administrative expenses as a percentage of revenue decreased
slightly to 2.1% for the third quarter of 2010 from 2.2% for the same period in
2009.
 
 Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
  (in
      thousands)
              
              Nine
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
      %(Unaudited)
              
              
              (Unaudited)SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
              
              $
              35,380
              
              
              $
              29,219
              
              
              
              21.1
              %SG&A
      EXPENSES AS A PERCENTAGE OF TOTAL REVENUE
              
              
              2.5%
              
              
              
              2.4%
 
 Selling,
general and administrative expenses, such as executive compensation, office
expenses, legal and accounting charges, travel charges, equipment maintenance
and various taxes increased 21.1% to $35.4 million for the nine months ended
September 30, 2010, compared to $29.2 million for the same period in 2009. The
increase is mainly due to increased transportation and agent charges at Longmen
Joint Venture following shipping volume increases and increased sales deliveries
made to markets in Henan, Hubei and Chongqingfor the nine months ended
September 30, 2010.
  45
 
 Selling,
general and administrative expenses as a percentage of revenue increased
slightly to 2.5% for the first nine months of 2010 from 2.4% in the same period
in 2009.
 
 Income
from Operations
 
 Three
months ended September 30, 2010 compared with three months ended September 30,
2009
  (in
      thousands)
              
              Three
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
      %(Unaudited)
              
              
              (Unaudited)INCOME
      FROM OPERATIONS
              
              $
              6,030
              
              
              $
              29,248
              
              
              
              (79.4)
              %
 
 Income
from operations for the three months ended September 30, 2010 decreased to $6.0
million from $29.2 million income for the same period last year.
 
 Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
 
 (in
      thousands)
              
              Nine
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              Change
      %(Unaudited)
              
              
              (Unaudited)(LOSS)
      INCOME FROM OPERATIONS
              
              $
              (6,695)
              
              
              $
              45,936
              
              (114.6)
              %
 
 Income from operations for the nine
months ended September 30, 2010 decreased to a loss of $6.7 million from an
income of $45.9 million for the same period last year.
 
 The
decrease in income from operations for the three months and nine months ended
September 30, 2010 was due to a decrease in gross profit margin caused by higher
purchase price of iron ore and coke for the first three quarters of 2010 which
adversely affected our gross margin.
 
 Other
Income (Expense)
 
 Three
months ended September 30, 2010 compared with three months ended September 30,
2009
 
 (in
      thousands)
              
              Three
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              Change
      %(Unaudited)
              
              
              (Unaudited)OTHER
      INCOME (EXPENSES)Interest
      income
              
              $
              1,739
              
              
              $
              826
              
              
              110.5
              %Finance/Interest
      expense
              
              
              (10,190
              )
              
              
              (4,174
              )
              
              144.1
              %Change
      in fair value of derivative liabilities
              
              
              (1,089)
              
              
              
              (616)
              
              
              76.8
              %Government
      grant
              
              
              1,381
              
              
              
              -
              
              
              100.0
              %Income
      from equity investment
              
              
              839
              
              
              
              963
              
              
              (12.9)
              %Other
      non-operating income, net
              
              
              (350)
              
              
              
              (2,985)
              
              
              (88.3)
              %Total
      other expenses, net
              
              $
              (7,670)
              
              
              $
              (5,986)
              
              
              28.1
              %
 
 Total
other expenses for the three months ended September 30, 2010 were $7.7 million
compared to $6.0 million for the same period last year.
  46
 
 The
difference between the $7.7 million in expenses recorded for the three months
ended September 30, 2010 and the $6 million in expenses recorded for the three
months ended September 30, 2009 was caused by the net effect of a $6 million
increase in finance and interest expenses, the decrease in other non-operating
income and the change in fair value of derivative liabilities.
 
 Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
 
 (in
      thousands)
              
              Nine
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
      %(Unaudited)
              
              
              (Unaudited)OTHER
      INCOME (EXPENSES)Interest
      income
              
              $
              3,476
              
              
              $
              2,468
              
              
              
              40.8
              %Finance/Interest
      expense
              
              
              (37,617)
              
              
              
              (18,422)
              
              
              
              104.2
              %Change
      in fair value of derivative liabilities
              
              
              13,579
              
              
              
              (23,228)
              
              
              
              (158.5)
              %Gain
      from debt extinguishment
              
              
              -
              
              
              
              2,932
              
              
              
              (100.0)
              %Government
      grant
              
              
              1,381
              
              
              
              3,433
              
              
              
              (59.8)
              %Income
      from equity investment
              
              
              5,595
              
              
              
              3,661
              
              
              
              52.8
              %Other
      non-operating income, net
              
              
              217
              
              
              
              (2,332)
              
              
              
              (109.3)
              %Total
      other expenses, net
              
              $
              (13,369)
              
              
              $
              (31,488)
              
              
              
              (57.5)
              %
 
 Total
other expenses for the nine months ended September 30, 2010 were $13.4 million
compared to $31.5 million for the same period last year.
 
 The
difference between the $13.4 million in expenses recorded for the nine months
ended September 30, 2010 and the $31.5 million in expenses recorded for the nine
months ended September 30, 2009 was caused by the net effect of a $19.2 million
increase in finance and interest expenses and a gain of $36.8 million in the
change in fair value of derivative liabilities.
 
 Change
in Fair Value of Derivative Liabilities
 
 According
to GAAP, our December 2007 Notes, December 2007 Warrants and the December 2009
Warrants (as defined below) are considered a derivative and therefore must be
“marked to market.”  One of the drivers used to calculate the value of
this derivative is stock price. Changes in our stock price cause gains or losses
to this income statement item.
 
 The
change in fair value of derivative liabilities for the three months ended
September 30, 2010 was a loss of $1.1 million compared to a loss of $0.6
million for the same period last year. The change in fair value of derivative
liabilities for the nine months ended September 30, 2010 was a gain of $13.6
million compared to a loss of $23.2 million for the same period last year.
This gain (loss) was due to a change of stock price of our common stock as of
September 30, 2010 compared to fiscal year-ended December 31, 2009. According to
accounting principles generally accepted in the United States regarding valuing
derivatives, the drop in our share price and the conversion of our convertible
notes resulted in a $1.1 million loss for the three months ended September 30,
2010 and a $13.6 million gain for the nine months ended September 30,
2010.
 
 As of
August 5, 2010, all of the convertible promissory notes issued in connection
with the private placement that closed on December 13, 2007 have now been
converted into common stock.
 
 Net
(Loss) Incomebefore Noncontrolling
Interest
  Three
months ended September 30, 2010 compared with three months ended September 30,
2009
 
 (in
      thousands)
              
              Three
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              Change
      %(Unaudited)
              
              
              (Unaudited)NET
      (LOSS) INCOME BEFORE NONCONTROLLING  INTEREST
              
              $
              (1,748)
              
              
              $
              19,470
              
              (109.0)%
  47
  Net loss
before noncontrolling interest for the three months ended September 30, 2010
decreased to $1.7 million compare to a net income before noncontrolling interest
of $19.5 million for the same period last year.
 
 Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
 
 (in
      thousands)
                  
                  Nine
      months endedSeptember
      30, 2010
                  
                  September
      30, 2009
                  
                  Change
      %(Unaudited)
                  
                  (Unaudited)NET
      (LOSS) INCOME BEFORE NONCONTROLLING  INTEREST
                  
                  $
                  (15,365)
                  
                  7,262
                  
                  (311.6
                  )%
 
 Net loss
before noncontrolling interest for the nine months ended September 30, 2010
decreased to $15.4 million from a net income before noncontrolling interest of
$7.3 million for the same period last year.
 
 Net
(Loss) Income attributable to General Steel Holdings, Inc.
 
 Three
months ended September 30, 2010 compared with three  months ended
September 30, 2009
 
 (in
      thousands)
                
                Three
      months endedSeptember
      30, 2010
                
                September
      30, 2009
                
                Change
      %(Unaudited)
                
                (Unaudited)NET
      (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
                
                $
                (1,748)
                
                $
                19,470
                
                (109.0
                )%LESS:
      Net Income attributable to the noncontrolling interest
                
                
                513
                
                
                9,088
                
                (94.3
                )%NET
      (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                
                $
                (2,261)
                
                $
                10,382
                
                (121.8
                )%
 
 Net loss attributable to General Steel
Holdings, Inc. for the three months ended September 30, 2010 decreased to $2.3
million compared to net income $10.4 million for the same period of
2009.
  Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
 
 (in
      thousands)
              
              Nine
      months endedSeptember
      30, 2010
              
              
              September
      30, 2009
              
              Change
      %(Unaudited)
              
              
              (Unaudited)NET
      (LOSS) INCOME BEFORE NONCONTROLLING INTEREST
              
              $
              (15,365)
              
              
              $
              7,262
              
              (311.6)
              %LESS:
      Net (loss) income attributable to the noncontrolling
    interest
              
              
              (5,469)
              
              
              $
              21,421
              
              (125.5)
              %NET
      LOSS ATTRIBUTABLE TO CONTROLLING INTEREST
              
              $
              (9,896)
              
              
              $
              (14,159)
              
              (30.1)
              %
 
 Net loss
attributable to General Steel Holdings, Inc. for the nine months ended September
30, 2010 decreased to $9.9 million compared to a net loss of $14.2 million for
the same period of 2009.
  Earnings
per Share
 
 Three
months ended September 30, 2010 compared with three months ended September 30,
2009
 
 (Loss)
      earnings per Share
                  
                  Three
      months ended(in
      thousands, except earnings per share)
                  
                  September
      30, 2010
                  
                  
                  September
      30, 2009
                  
                  
                  Change
      %(Unaudited)Unaudited
                  
                  
                  (Unaudited)NET
      (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
                  
                  $
                  (2,261)
                  
                  
                  $
                  10,382
                  
                  
                  (121.8)
                  %WEIGHTED
      AVERAGE NUMBER OF SHARESBasic
                  
                  
                  53,941
                  
                  
                  
                  44,974
                  
                  
                  
                  19.9
                  %Diluted
                  
                  
                  53,941
                  
                  
                  
                  45,750
                  
                  
                  
                  17.9
                  %(LOSS)
      INCOME PER SHAREBasic
                  
                  $
                  (0.04)
                  
                  
                  $
                  0.23
                  
                  
                  
                  (117.4)
                  %Diluted
                  
                  $
                  (0.04)
                  
                  
                  $
                  0.22
                  
                  
                  
                  (118.2)
                  %
  48
  Basic and diluted (loss) earnings
per share for the three months ended September 30, 2010 decreased to a loss
$0.04 compared to basic earnings per share of $ 0.23 and diluted earnings per
share of $0.22 for the same period of 2009.
  Nine
months ended September 30, 2010 compared with nine months ended September 30,
2009
 
 Earnings
      per Share
              
              Nine
      months ended(in
      thousands, except earnings per share)
              
              September
      30, 2010
              
              
              September
      30, 2009
              
              
              Change
      %(Unaudited)
              
              
              (Unaudited)NET
      LOSS ATTRIBUTABLE TO CONTROLLING INTEREST
              
              $
              (9,896)
              
              
              $
              (14,159)
              
              
              (30.1
              )%WEIGHTED
      AVERAGE NUMBER OF SHARESBasic
              
              
              52,577
              
              
              
              40,296
              
              
              
              30.5
              %Diluted
              
              
              52,577
              
              
              
              40,296
              
              
              
              30.5
              %LOSS
      PER SHAREBasic
              
              $
              (0.19)
              
              
              $
              (0.35)
              
              
              
              (45.7
              )%Diluted
              
              $
              (0.19)
              
              
              $
              (0.35)
              
              
              
              (45.7
              )%
 
 Basic and
diluted loss per share for the nine months ended September 30, 2010 decreased to
$0.19 from basic and diluted earnings per share of $0.35 for the same period of
2009.
 
 Income
Taxes
 
 We did not conduct any business and did
not maintain any branch office in the United States during the three months
ended September 30, 2010 and 2009. Therefore, no provision for withholding of
U.S. federal or state income taxes or tax benefits on the undistributed earnings
and/or losses of our company has been made.
 
 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 25%.
General Steel (China) was entitled to a 50% income tax reduction of the special
income tax rate of 25%, which is a rate of 12% for the years ended December 31,
2009 due to its foreign joint venture status. Beginning in 2010, the effective
income tax rate at General Steel (China) is 25%.
 
 Longmen Joint Venture is located in the
mid-west region of China. It qualifies for the “Go-West” tax rate of 15%
promulgated by the government.
  Baotou Steel Pipe Joint Venture is
located in Inner Mongolia Autonomous Region and is subject to an effective
income tax rate of 25%.
  Maoming is located in Guangdong
province and subject to an effective income tax rate of 25%.
  For the three months ended September 30,
2010, we had a total tax provision of $0.1 million. For the nine months ended
September 30, 2010, we had a total tax benefit of $4.7 million.
 
 We have cumulative undistributed
earnings of foreign subsidiaries of approximately $4.8 million as of September
30, 2010. Such earnings are included in consolidated retained earnings and will
continue to be indefinitely reinvested in internal
operations.  Accordingly, no provision has been made for U.S. deferred
taxes related to future repatriation of these earnings, nor is it practicable to
estimate the amount of income taxes that would have to be provided if we
concluded that such earnings will be remitted in the future.
  49
 
 We were
incorporated in the United States and have incurred net operating losses for
income tax purposes for the nine months ended September 30, 2010 and for the
year ended December 31, 2009. The net operating loss carry forwards for United
States income taxes amounted to $1.7 million which may be available to
reduce future years’ taxable income. These carry forwards will expire, if not
utilized at the end of 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
September 30, 2010 was $0.6 million. The net change in the valuation allowance
for the three months ended September 30, 2010 was $0.1 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, a 1% interest in Maoming by another entity and TME Group’s 40% interest
in Tianwu GS.
 
 Accounts
Receivable
 
 Accounts receivable and accounts
receivable-related party were $21.2 million as of September 30, 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 which we intend to
collect the payment 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 September 30, 2010, we reserved $0.4 million for bad debt
allowance based on our reasonable estimate.
 
 Inventories
 
 We had an inventory balance of $250.8
million as of September 30, 2010 compared to $208.1 million as of December 31,
2009.  Such balance is comprised of raw material and finished
products. We increased our stock of raw materials in the second quarter
believing that raw material prices will increase in the upcoming
months.
 
 Liquidity
and capital resources
 
 The steel
business is capital intensive and we utilize leverage greater than our industry
peers which enables us to generate revenue compared to our shareholder equity at
a rate higher than our industry peers. We utilize leverage in the form of credit
from banks, vendor financing, customer deposits and others. This blended form of
financing reduces our reliance on any single source.
 
 Short-term
Notes Payable
 
 As of September 30, 2010, we had $302.1
million in short-term notes payables liabilities, which are secured by
restricted cash of $182.4 million and the assets of the Company. These are lines
of credit extended by banks for a maximum of six months and used to finance
working capital. The short-term notes payables must be paid in full at maturity
and credit availability is continued upon payment at maturity. There are no
additional significant financial covenants.
 
 Short-term notes payable is one of the
lowest cost form of financing available in China. We pay zero interest on this
type of credit. This is a monetary tool used by China’s central bank to inject
liquidity into the Chinese monetary system.
 
 Short-term
Loans – Banks
 
 As of September 30, 2010, we had $178.1
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.
  50
 
 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.
 
 Cash-flow
 
 Operating
Activities
 
 Net cash used in operating activities
for the nine months ended September 30, 2010 was $103.1 million compared to $7.2
million in the same period of 2009. This change was mainly due to the
combination of the following factors:
 
 ·
              Some
      non-cash items including in net income such as depreciation and
      amortization, impairment of long-lived assets, loss (gain) on
      disposal of equipment, stock issued for service and compensation,
      amortization of deferred note issuance cost and discount on convertible
      notes, make whole shares interest expense on notes conversion, change in
      fair value of derivative instrument, income from investment and deferred
      tax assets, resulted in a cash inflow of $12.9 million.·
              Cash
      outflow resulting from the increase in accounts receivable, notes
      receivable, other receivables, inventories and advance on inventory
      purchase was $183.1 million, compared to an outflow of $153.5 million
      during the same period last year.·
              Cash
      inflow due to the increase in accounts payable, other payables, customer
      deposit and tax payable totaled of $82.3 million compared to an inflow of
      $93.1 million during the same period last
year.
  Overall,
the increase in cash used in operating activities is due to our efforts to
utilize capital resources to build up raw material inventories.
 
 Investing
Activities
 
 Net cash used in investing activities
was $72.6 million for the nine months ended September 30, 2010 compared to $69.1
million in the same period of 2009. This change in cash outflow is mainly due to
a reduction of equipment purchases.
 
 Financing
Activities
 
 Net cash provided by financing
activities was $134.1 million for the nine months ended September 30, 2010
compared to $115.6 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 for an aggregate offering amount of $60
million 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.  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.
  51
  Each time we offer securities under our
Form S-3 shelf registration statement, we will file a prospectus supplement with
the SEC containing more specific information about the particular offering. The
prospectus supplements may also add, update or change information contained in
this prospectus. The Form S-3 shelf registration statement may not be used
to offer or sell securities without a prospectus supplement which includes a
description of the method of sale and terms of the offering.
 
 Impact
of Inflation
  We are subject to commodity price risks
arising from price fluctuations in the market prices of the raw materials. We
have generally been able to pass on cost increases through price adjustments.
However, the ability to pass on these increases depends on market conditions
influenced by the overall economic conditions in China. We manage our price
risks through productivity improvements and cost-containment measures. We do not
believe that inflation risk is material to our business or our financial
position, results of operations or cash flows.
  Compliance
with Environmental Laws and Regulations
 
 Longmen
Joint Venture:
 
 Since 2002, our joint venture partner,
Long Steel Group, has invested $76 million (RMB580 million) in a series of
comprehensive projects to reduce its waste emissions of coal gas, water, and
solid waste.  In 2005, Long Steel Group received ISO 14001
certification for its overall environmental management system.  Long
Steel Group has received several awards from the Shaanxi provincial government
for its increasing effort in environmental protection.
 
 Long Steel Group has spent more than
$4.3 million (RMB33 million) on a comprehensive waste water recycling and water
treatment system. The 2,000 cubic meter/h treatment capacity system was
implemented at the end of 2005. In 2010, 1.1 metric tons of new water was
consumed per metric ton of steel produced.
 
 Long Steel Group has one 10,000 cubic
meter coke-oven gas tank and one 50,000 cubic meter blast furnace coal gas tank
to collect the residual coal gas produced from its own facility and that of
surrounding enterprises. Long Steel Group also has a thermal power plant with
two 25 Kilowatt dynamos that uses the residual coal gas from the blast furnaces
and converters as fuel to generate power.
 
 Long Steel Group also has several
plants to further process solid waste generated from the steel making process
into useful products such as construction materials, building blocks, porcelain
tiles, curb tops, ornamental tiles, etc. The plants are capable of processing
400,000 metric tons of solid waste and generate revenue of more than $7.3
million (RMB50 million) each year.
 
 Off-balance
Sheet Arrangements
  There was no off-balance sheet
arrangements in the fiscal quarter ended September 30, 2010.
 
 Critical Accounting
Policies
 
 Management’s discussion and analysis of
its financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. Our financial
statements reflect the selection and application of accounting policies which
require management to make significant estimates and judgments. See Note 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.
  52
 
 Revenue
Recognition
  We follow the accounting principles
generally accepted 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, we have no other significant obligations and collectability is
reasonably assured. Payments received before all of the relevant criteria for
revenue recognition are recorded as customer deposits. Sales 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 accounting principles generally accepted in 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 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.
 
 Financial
Instruments
 
 The accounting standard regarding
“Disclosures about fair value of financial instruments” defines financial
instruments and requires disclosure of the fair value of financial instruments
held by us. We consider the carrying amount of cash, accounts receivable, other
receivables, accounts payable and accrued liabilities, to approximate their fair
values because of the short period of time between the origination of such
instruments and their expected realization. For short term loans and notes
payable, we concluded the carrying values are a reasonable estimate of fair
value because of the short period of time between the origination and repayment
and their stated interest rate approximates current rates
available.
 
 We also analyze all financial
instruments with features of both liabilities and equity under the accounting
standard establishing, “accounting for certain financial instruments with
characteristics of both liabilities and equity,” the accounting standard
regarding “accounting for derivative instruments and hedging activities”
and “accounting for derivative financial instruments indexed to, and potentially
settled in, a company’s own stock.” Additionally, we analyze registration rights
agreements associated with any equity instruments issued to determine if
penalties triggered for late filing should be accrued under accounting
standard establishing “accounting for registration payment
arrangements.”
 
 Fair
Value Measurements
 
 The accounting standards regarding fair
value of financial instruments and related fair value measurement defines
fair value, establishes a three-level valuation hierarchy for disclosures of
fair value measurement and enhances disclosures requirements for fair value
measures. The three levels are defined as follow:
 
 Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities
in active markets.
 
 Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the assets or liability, either
directly or indirectly, for substantially the full term of the financial
instruments.
 
 Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value.
 
 In 2007, the conversion feature on the
December 2007 Notes, as well as the December 2007 Warrants and reset
warrants issued in December 2009 issued in conjunction with the
December 2007 Notes was 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.
  53
 
 On August 5, 2010, the
investors holding the remaining outstanding December 2007 Notes elected to
convert all the amounts due thereunder into our common stock. These were notes
outstanding from our December 13, 2007 private placement. The December 2007
Notes were converted on August 5, 2010 in accordance with their terms resulting
in the issuance of a total of 1,559,675 shares of common Stock in the aggregate
to the remaining investors. As a result of the conversion, we have no
outstanding balance on the December 2007 Notes.
 
 The
December 2007 Warrants, 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 $7.0 million due to the decrease in our
common stock price.
 
 Noncontrolling
Interest
 
 Effective January 1, 2009, we
adopted accounting principles generally accepted in the United States 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
$64.5 million and $72.6 million as of the September 30, 2010 and
December 31, 2009, respectively.
 
 New
Accounting Pronouncements
  In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and
2. A reporting entity should disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements and describe
the reasons for the transfers.  2)  Activity in Level 3 fair
value measurements.  In the reconciliation for fair value measurements
using significant unobservable inputs (Level 3), a reporting entity should
present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number).This
update provides amendments to Subtopic 820-10 that clarify existing disclosures
as follows: 1) Level of disaggregation. A reporting entity should provide
fair value measurement disclosures for each class of assets and liabilities. A
class is often a subset of assets or liabilities within a line item in the
statement of financial position. A reporting entity needs to use judgment in
determining the appropriate classes of assets and liabilities.
2) Disclosures about inputs and valuation techniques. A reporting entity
should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring fair value measurements.
Those disclosures are required for fair value measurements that fall in either
Level 2 or Level 3. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years.
We are currently evaluating the impact of this ASU. However, we do not
expect the adoption of this ASU to have a material impact on our
consolidated financial statements.
 
 In
February 2010, the FASB issued Accounting Standards Update 2010-09, “Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement
that, for listed companies, financial statements clearly disclose the date
through which subsequent events have been evaluated. Subsequent events must
still be evaluated through the date of financial statement issuance; however,
the disclosure requirement has been removed to avoid conflicts with other SEC
guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted
in February 2010.
 
 In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. We do not
expect the adoption of ASU 2010-17 to have a significant impact on our
consolidated financial statements.
  54
 
 In April
2010, the FASB issued Accounting Standard Update 2010-17, “Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition” orASU 2010-17.This Update provides
guidance on the recognition of revenue under the milestone method, which allows
a vendor to adopt an accounting policy to recognize all of the arrangement
consideration that is contingent on the achievement of a substantive milestone
(milestone consideration) in the period the milestone is achieved. The
pronouncement is effective on a prospective basis for milestones achieved in
fiscal years and interim periods within those years, beginning on or after
June 15, 2010.  The adoption of ASU 2010-17 does not have a
significant impact on our consolidated financial statements.
 
 In July
2010, the FASB issued Accounting Standards Update 2010-20 which amend
“Receivables” (Topic 310). ASU 2010-20 is intended to provide additional
information to assist financial statement users in assessing an entity’s risk
exposures and evaluating the adequacy of its allowance for credit losses. The
disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period are effective for interim
and annual reporting periods beginning on or after December 15, 2010. The
amendments in ASU 2010-20 encourage, but do not require, comparative disclosures
for earlier reporting periods that ended before initial adoption. However, an
entity should provide comparative disclosures for those reporting periods ending
after initial adoption. We do not expect the adoption of ASU 2010-20 to have a
significant impact on our consolidated financial statements.
 
 Contractual
Obligations and Commercial Commitments
  We have certain fixed contractual
obligations and commitments that include future estimated payments. Changes in
our business needs, cancellation provisions, changing interest rates, and other
factors may result in actual payments differing from the estimates. We cannot
provide certainty regarding the timing and amounts of payments. We have
presented below a summary of the most significant assumptions used in our
determination of amounts presented in the tables, in order to assist in the
review of this information within the context of our consolidated financial
position, results of operations, and cash flows.
 
 The following tables summarize our
contractual obligations as of September 30, 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
                        
                        $
                        178,122
                        
                        
                        $
                        178,122
                        
                        
                        $
                        -
                        
                        $
                        -Other
      loans
                        
                        
                        193,521
                        
                        
                        
                        193,521
                        
                        
                        
                        
                        
                        
                        -Notes
      payable
                        
                        
                        302,113
                        
                        
                        
                        302,113
                        
                        
                        
                        -
                        
                        
                        -Deposits
      due to sales representatives
                        
                        
                        45,845
                        
                        
                        
                        45,845
                        
                        
                        
                        
                        
                        
                        -Lease
      with Bao Gang Group
                        
                        
                        462
                        
                        
                        
                        264
                        
                        
                        
                        198
                        
                        
                        -Construction
      obligations - Longmen Joint Venture and Maoming Hengda
    Steel
                        
                        
                        12,507
                        
                        
                        
                        12,507
                        
                        
                        
                        
                        
                        
                        -Iron
      ore purchase contract by Tianwu
                        
                        
                        8,000
                        
                        
                        
                        8,000Total
                        
                        $
                        740,570
                        
                        
                        $
                        740,372
                        
                        
                        $
                        198
                        
                        $
                        -
  55
 
 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 $1.9
million decrease in net income.
 
 ITEM
4. CONTROLS AND PROCEDURES.
  We, 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 September 30, 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 September 30, 2010 in alerting
management on a timely basis to information required to be included in our
submissions and filings under the Exchange Act.
 
 There were no changes in our 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.
 
 56
 
 ITEM
6. EXHIBITS.
 
 (a)
              Exhibits
 
 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.
  57
 
 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:
      November 9, 2010
              By:
      /s/ Zuosheng YuZuosheng
      YuChief
      Executive Officer and ChairmanDate:
      November 9, 2010
              By:
      /s/ John ChenJohn
      ChenDirector
      and Chief Financial Officer
  58