UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington, D.C. 20549












FORM 10-K/A





(Amendment No. 1)



(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the Fiscal Year
Ended December 31, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



Commission file number: 001-33717



General
Steel Holdings, Inc.

(Exact Name of Registrant as Specified
in its Charter)



|Nevada                   | 41-2079252            
|------------------------ | ----------------------
|(State of Incorporation) | (I.R.S. Employer      
|                         | Identification Number)



Level 21, Tower B, Jiaming Center

No. 27 Dong San Huan North Road

Chaoyang District,

Beijing, China, 100020

(Address of Principal Executive Offices,
Including Zip Code)



Registrant’s telephone number:
+86 (10) 5775 7691



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



|Common Stock, $0.001 par value per share | New York Stock Exchange                    
|---------------------------------------- | -------------------------------------------
|(Title of each class)                    | (Name of each exchange on which registered)



Securities registered pursuant to Section
12(g) of the Act: None



Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈
No x



Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ̈
No x



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



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



Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. x



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



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



*Please note that while
the registrant qualified as an accelerated filer at the time of filing its Annual Report on Form 10-K as filed with the Securities
and Exchange Commission on March 16, 2011, as of the date of filing this Amendment No. 1 to Annual Report on Form 10-K, the registrant
has exited the accelerated filer status at the end of the fiscal year ended December 31, 2011 and now holds the status as a smaller
reporting company.



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



The aggregate market
value of the voting common equity held by non-affiliates as of June 30, 2010, the last business day of the registrant’s most
recently completed second fiscal quarter, was approximately $73.5 million. The registrant has no non-voting common equity.



The number of shares
outstanding of capital stock as of August 28, 2012 was 56,932,788.



Documents Incorporated by Reference:

Certain information
required by Part III is incorporated by reference to the Definitive Proxy Statement in conjunction with the 2011 Annual Meeting
of Stockholders of the registrant, which was filed with the Securities and Exchange Commission on May 2, 2011.











EXPLANATORY NOTE



This Annual Report
on Form 10-K/A is being filed as Amendment No. 1 to our Annual Report on Form 10-K (“Amendment No.1”), which
amends and restates our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “Original 10-K”), originally filed on March
16, 2011 with the Securities and Exchange Commission (the “SEC”). This Amendment No. 1 restates the following
items:



- Part I; Item I – Business;

- Part I; Item IA – Risk Factors;

- Part II; Item 6- Selected Financial
Data;

- Part II, Item 7- Management’s
Discussion and Analysis of Financial Condition and Results of Operations;

- Part II, Item 8 - Financial
Statements and Supplementary Data;

- Part II, Item 9A- Controls and
Procedures; and

- Part IV, Item 15- Exhibit, Financial
Statement Schedules.



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



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



•
Our consolidated balance sheets as of December 31, 2010 and 2009 by recording the deferred lease income on the land use right amounted
to $57.6 million and $16.5 million, respectively.



•
Our consolidated statements of operation and other comprehensive income (loss) for the years ended December 31, 2010, and 2009.
As a result, our consolidated net loss attributable to controlling interest for the years ended December 31, 2010, and 2009 increased
by $22.3 million and by $5.4 million respectively; and



•
Our consolidated statements of changes in equity for the years ended December 31, 2010, and 2009. As a result, our consolidated
total shareholder’s equity decreased by $29.4 million and $5.6 million for the years ended December 31, 2010 and 2009, respectively.



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



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











A summary of the effects
of this restatement to our financial statements included within this Amendment No. 1 is presented under Item 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA at Note 2, “Restatement”.



This Amendment No.
1 includes a re-issued dual dated audit report of Frazer Frost, LLP, and new officer certifications are being filed as exhibits
to this Amendment No. 1.











TABLE OF CONTENTS

|PART I      |                                                                                                               |   
|----------- | ------------------------------------------------------------------------------------------------------------- | --
|            |                                                                                                               |   
|ITEM 1.     | BUSINESS.                                                                                                     | 1 
|ITEM 1A.    | RISK FACTORS.                                                                                                 | 9 
|ITEM 1B.    | UNRESOLVED STAFF COMMENTS.                                                                                    | 25
|ITEM 2.     | PROPERTIES.                                                                                                   | 25
|ITEM 3.     | LEGAL PROCEEDINGS.                                                                                            | 27
|ITEM 4.     | (REMOVED AND RESERVED).                                                                                       | 27
|            |                                                                                                               |   
|PART II     |                                                                                                               |   
|            |                                                                                                               |   
|ITEM 5.     | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. | 27
|ITEM 6.     | SELECTED FINANCIAL DATA.                                                                                      | 29
|ITEM 7.     | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.                        | 30
|ITEM 7A.    | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                                                   | 53
|ITEM 8.     | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                                                  | 55
|ITEM 9.     | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.                         | 87
|ITEM 9A.    | CONTROLS AND PROCEDURES.                                                                                      | 87
|ITEM 9B.    | OTHER INFORMATION.                                                                                            | 90
|            |                                                                                                               |   
|PART III    |                                                                                                               |   
|            |                                                                                                               |   
|ITEM 10.    | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.                                                       | 90
|ITEM 11.    | EXECUTIVE COMPENSATION.                                                                                       | 90
|ITEM 12.    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.               | 90
|ITEM 13.    | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.                                    | 91
|ITEM 14.    | PRINCIPAL ACCOUNTING FEES AND SERVICES.                                                                       | 91
|            |                                                                                                               |   
|PART IV     |                                                                                                               |   
|            |                                                                                                               |   
|ITEM 15.    | EXHIBITS, FINANCIAL STATEMENT SCHEDULES.                                                                      | 91
|            |                                                                                                              
|SIGNATURES. | 94                                                                                                           











PART I



ITEM 1. BUSINESS.



Overview



Our Company was incorporated
on August 5, 2002, in the State of Nevada. We are headquartered in Beijing, China and operate a diverse portfolio of Chinese steel
companies. Our Company serves various industries and produces a variety of steel products including: reinforced bars (“rebar”),
hot-rolled carbon and silicon sheets, spiral-weld pipes and high-speed wire. Our aggregate annual production capacity of steel
products is 7 million crude steel metric tons, of which the majority is rebar. Individual industry segments have unique demand
drivers, such as agriculture equipments, infrastructure construction and energy consumption. Domestic economic conditions are also
an overall driver for all 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 grow
our business organically and through the acquisition of Chinese steel companies to increase their profitability and efficiencies
utilizing western management practices and advanced production technologies, and the infusion of capital resources.



Our two-pronged strategy
includes organic growth and mergers and acquisitions (“M&A”). On the organic growth side, we aim to grow through
operation optimization, capacity expansion and margin expansion by improved operational efficiency and cost structure. On the M&A
side, we aim to expand through aggressive mergers, joint ventures and acquisitions targeting state-owned enterprise steel companies
and selected entities with outstanding potential. We have executed this strategy in acquiring controlling interest positions in
three joint ventures. Our business currently operates through five steel-related subsidiaries and we are actively attempting to
acquire additional assets.



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



Steel Related Subsidiaries and Raw Material
Trading Company



We presently have controlling
interests in four steel-related subsidiaries and one raw material trading subsidiary:



| | · | General Steel (China) Co., Ltd. (“General Steel (China)”)
| | - | ---------------------------------------------------------

| | · | Baotou Steel - General Steel Special Steel Pipe Joint Venture Company Limited;
| | - | ------------------------------------------------------------------------------

| | · | Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”);
| | - | -------------------------------------------------------------------

| | · | Maoming Hengda Steel Co., Ltd.; and
| | - | -----------------------------------

| | · | Tianwu General Steel Material Trading 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 is manufacturing high quality hot-rolled carbon and silicon steel sheets mainly used in the production of small agricultural
vehicles and other specialty markets.



1







General Steel (China)
has ten steel sheet production lines capable of processing approximately 400,000 metric tons of 0.75mm to 2.0mm hot-rolled steel
sheets per year. Products are sold through a nation-wide network of 35 distributors and three regional sales offices.



General Steel (China)
uses a traditional rolling mill production sequence, including heating, rolling, cutting, annealing, and flattening to process
and cut coil segments into steel sheets which have a length of approximately 2,000mm, a width of approximately 1,000mm, and a thickness
ranging from 0.75mm to 2.0mm. Limited size adjustments can be made to meet order requirements. Products sell under the registered
“Qiu Steel” brand name.



On May 14, 2009, General
Steel (China) changed its official name from “Tianjin Daqiuzhuang Metal Sheet Co., Ltd.” to better reflect its role
as a merger and acquisition platform for steel company investments in China. In some instances, we retain the use of the name Daqiuzhuang
Metal for brand recognition purposes within the industry.



On March 31, 2010, General
Steel (China) entered into a lease agreement whereby General Steel (China) leased its facility 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.



• Baotou Steel - General Steel
Special Steel Pipe Joint Venture Company Limited.



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 Company Limited, a Chinese limited liability company (“Baotou Steel Pipe Joint Venture”). Baotou Steel
Pipe Joint Venture obtained its business license from government authorities in China on May 25, 2007, and started its 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 primarily used in the energy sector to transport oil 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 Longmen Joint Venture. Through our
two subsidiaries, we invested approximately $39 million cash and collectively hold approximately 60% of Longmen Joint Venture.



2







Long Steel Group, located
in Hancheng city, Shaanxi province, in China’s central region, was founded in 1958 and incorporated in 2002. Long Steel 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 7,984 full-time workers. 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.



Longmen Joint Venture does not own iron
pelletizing facilities.



Longmen Joint Venture’s
products are categorized within the steel industry as “longs” (referencing their shape). Rebar is generally considered
a regional product because its weight and dimension make it ill-suited for cost-effective long-haul ground transportation. By our
estimates, the provincial market demand for rebar is six to eight million metric tons per year. Slightly more than half of this
demand comes from Xi’an, the capital of Shaanxi province, located 180km from Longmen Joint Venture’s main steel production
site. Currently, we estimate that we have an approximate 72% share of the Xi’an market for rebar.



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



In September 24, 2007,
Longmen Joint Venture acquired a 74.92% ownership interest of Longmen Iron and Steel Group Co., Ltd. Environmental Protection Industry
Development Co., Ltd. (“Longmen EPID”). At the same time, Longmen Joint Venture also entered into a equity transfer
agreement with Longmen Steel Group to acquire its 36% ownership interest in its subsidiary, Longmen Iron and Steel Group Co., Ltd.
Hualong Fire Retardant Materials Co., Ltd. (“Hualong”). Longmen Joint Venture paid $430,000 (RMB3.3 million) in exchange
for the ownership interest and is the largest shareholder in Hualong. The facility produces fire-retardant materials used in various
steel making processes.



In January 2010, Longmen
Joint Venture completed its acquisition of a controlling interest in Longmen EPID. Longmen Joint Venture entered into an equity
transfer agreement with Shaanxi Fangxin Industrial Co., Ltd. (“Shaanxi Fangxin”). Longmen Joint Venture paid RMB8,678,383
to Shaanxi Fangxin to acquire its 25.08% ownership interest in Longmen EPID. Longmen EPID became a branch of Longmen Joint Venture.



On January 11, 2008,
Longmen Joint Venture completed its acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”).
Longmen Joint Venture contributed its land use right of 21.45 hectares (approximately 53 acres) with an appraised value of approximately
$4.1 million (RMB30 million). Pursuant to the agreement, the land was exchanged for shares of Tongxing valued at approximately
$3.1 million (RMB22.7 million), giving Longmen Joint Venture a 22.76% ownership stake in Tongxing and making it Tongxing’s
largest shareholder. Tongxing has a rebar processing facility with an annualized rolling capacity of 300,000 metric tons.



3







In November 2010, we
brought online the 800,000 metric ton capacity rebar production line relocated from the Maoming Hengda facility.



From 2009 to 2010, we
worked with Shaanxi Steel who built new and state-of-the-art equipment, including two 1,280 cubic meter blast furnaces, two 120
metric ton converters and one 400 square meter sintering machine. During the period of construction, we provided assistance such
as labor and technology while we dismantled the operations of certain small furnaces to accommodate the new production systems.
After negotiating with Shaanxi Steel, our subsidiary, Longmen Joint Venture and Shaanxi Steel have entered into an agreement on
April 29, 2011 to operate the aforementioned equipment. We paid certain costs on behalf of Shaanxi Steel and economic losses during
the construction. On December 22, 2010 we were reimbursed by Shaanxi Steel in the amount of approximately $25.0 million (RMB169.0
million) for the cost that we paid, on behalf of Shaanxi Steel, and compensated by Shaanxi Steel in the amount of approximately
$27.1 million (RMB183.1 million) for the economic losses incurred through September 30, 2010.



• Maoming Hengda Steel Co.,
Ltd.



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



Maoming Hengda’s
core business is the production of high-speed wire and rebar products used in the construction industry. Located on 140 hectares
(approximately 346 acres) in Maoming city, Guangdong province, the Maoming Hengda facility previously had 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 were sold through nine distributors targeting customers in Guangxi province and the western region of Guangdong province.



In December 2010, we
brought online a new 400,000 ton capacity production line. The new production line is the result of a strategic alliance agreement
between Maoming and Zhuhai Yueyufeng Iron and Steel Co., Ltd. (“Yueyufeng”) on February 3, 2010. According to the agreement,
Yueyufeng paid the processing fee in advance in three installments to support the construction of the rebar production line at
the Maoming facility. In exchange, Maoming facility will process at least 25,000 metric tons of rebar for Yueyufeng on a monthly
basis for two years.



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 Maoming Hengda’s facility to Longmen Joint Venture.



In December 2010, we
relocated the 1,000,000 metric ton capacity high-speed wire production line from Maoming Hengda’s facility to Longmen Joint
Venture to meet the increasing demand in Shaanxi province.



•Tianwu General Steel Material
Trading Co., Ltd.



We formed Tianwu General
Steel Material Trading Co., Ltd (“Tianwu JV”) with Tianjin Material and Equipment Group Corporation (“TME Group”).
The contributed capital of Tianwu JV is approximately $2.9 million (or RMB20 million), of which we hold a 60% controlling interest.
TME Group is one of the largest and most diversified commodity trading groups in China.



4







Tianwu JV will source
raw materials, mainly overseas iron ore, and is expected to supply approximately 20% to 50% of our iron-ore needs, amounting to
approximately two to three million metric tons on an annual basis.



On September 13, 2010,
Tianwu JV entered into an iron ore Sales and Purchase Contract with Minera Santa Fe, a Chilean iron ore supplier. Pursuant to the
contract, Tianwu JV received favorable pricing on the purchase of 138,000 tons of iron ore in 2010



Operating Information Summary by Subsidiaries



|                                         |  | General Steel  (China)      |  | Baotou Steel Pipe Joint Venture |  | Longmen Joint Venture                   |  | Maoming Hengda                  | 
|---------------------------------------- |  | --------------------------- |  | ------------------------------- |  | --------------------------------------- |  | ------------------------------- | 
|Annual Production Capacity (metric tons) |  |                             |  |                                 |  |                                         |  |                                 | 
|Crude Steel                              |  | -                           |  | -                               |  | 7 million                               |  | -                               | 
|Processing                               |  | 400,000                     |  | 100,000                         |  | 2.1 million                             |  | 400,000                         | 
|                                         |  |                             |  |                                 |  |                                         |  |                                 | 
|Main Products                            |  | Hot-rolled sheet            |  | Spiral-weld pipe                |  | Rebar/High-speed
        wire           |  | Rebar                           | 
|                                         |  |                             |  |                                 |  |                                         |  |                                 | 
|Main Application                         |  | Light agricultural
vehicles |  | Energy
transport                |  | Infrastructure and
        construction |  | Infrastructure and
construction | 



Marketing and Customers



We sell our products
primarily to distributors, typically collecting payment from these distributors in advance. Our marketing efforts are mainly directed
toward those customers who have exacting requirements for on-time delivery, customer support and product quality and 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 nation. Shaanxi province, where Longmen Joint Venture is located, has been designated as a
focal point for development into the western region, and Xi’an, the provincial capital, has been designated as a focal point
for this development. Our Longmen Joint Venture is 180 km from Xi’an and does not have a major competitor within a 250 km
radius.



5







According to Shaanxi
provincial government, the total fixed asset investment for Shaanxi province was approximately RMB850 billion (approximately $129
billion) for the year ended December 31, 2010, an increase of 30% over the same period last year.



In January 2011, Shaanxi
provincial government announced that it will invest RMB80billion (approximately $12.2 billion) in the construction of hydroprojects,
which is triple the amount invested during 11th Five Year National Economic and Social Development Plan. In addition to hydro projects,
according to the central government, 5,000 miles of high-speed railway will be built in 2011, with 16,000 miles to be built by
2020. In January 2011, the central government announced its low-income housing policy. Under this policy, 10 million low-income
houses will be built in 2011, with 36 million low-income houses to be built over a five-year period.



We anticipate strong
demand for our products driven by these and many other construction and infrastructure projects. We believe there will be sustained
regional demand for several years as the government continues to drive western region development efforts.



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



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



Supply of raw materials



The primary raw materials
we use for steel production are iron ore, coke, hot-rolled steel coil 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 Hengda 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
has 7 million tons of crude steel capacity. At Longmen Joint Venture, approximately 80% 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 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 Long Steel Group, our partner in Longmen Joint Venture), and surrounding local mines and from abroad.
According to the terms of our Longmen Joint Venture Agreement with the Long Steel 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.



6







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 a dependable supply and minimum transportation costs.



The sources and/or 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 GSI
|----------------------------------------------------------- |  | ---------------------- |  | --------------------------------- | ---- | - | ---------------------
|Long Steel Group                                            |  | Iron Ore               |  |                                   | 23.8 | % |                      
|Shaanxi Haiyan Coal Chemical Industry Co., Ltd.             |  | Coke                   |  |                                   | 13.3 | % |                      
|Shaanxi Huanghe Material Co., Ltd.                          |  | Coke                   |  |                                   | 7.0  | % |                      
|Shaanxi Yingde gas Co., Ltd.                                |  | Gas                    |  |                                   | 3.2  | % |                      
|Shaanxi Longmen Iron & Steel Group Fuping Rolling Co., Ltd. |  | Iron Ore               |  |                                   | 2.9  | % |                      
|                                                            |  | Total                  |  |                                   | 50.2 | % |                      



Baotou Steel Pipe Joint Venture



|Name of the Major Supplier                 |  | Raw Material Purchased |  | % of Total Raw Material Purchased |      |   | Relationship with GSI
|------------------------------------------ |  | ---------------------- |  | --------------------------------- | ---- | - | ---------------------
|Inner Mongolia Chenggang Material Co., Ltd |  | Steel coil             |  |                                   | 25.3 | % |                      
|Tianjin Baolai Industry Co., Ltd.          |  | Steel coil             |  |                                   | 11.2 | % |                      
|Baotou Shunye Material Co., Ltd            |  | Steel coil             |  |                                   | 8.5  | % |                      
|Tianjin Dazhan Industry Co., Ltd           |  | Steel coil             |  |                                   | 7.2  | % |                      
|Baotou Jiaxiang Material Trading Co., Ltd  |  | Steel coil             |  |                                   | 6.8  | % |                      
|                                           |  | Total                  |  |                                   | 59.0 | % |                      



Maoming Hengda



|Name of the Major Supplier             |  | Raw Material Purchased |  | % of Total Raw Material Purchased |      |   | Relationship with GSI
|-------------------------------------- |  | ---------------------- |  | --------------------------------- | ---- | - | ---------------------
|Maoming Dazhongmao Petrochem Co., Ltd. |  | Billet                 |  |                                   | 38.4 | % |                      
|Maoming Zhengmao Develop Co., Ltd.     |  | Heavy oil              |  |                                   | 32.4 | % |                      
|                                       |  | Total                  |  |                                   | 70.8 | % |                      



7







Industry consolidation



The central government
has had 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.



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



Intellectual Property Rights



“Qiu Steel”
is the registered trademark under which we sell hot-rolled carbon and silicon steel sheets products produced at General Steel (China).
The “Qiu Steel” logo has been registered with the China National Trademark Bureau under No. 586433. “Qiu Steel”
is registered under the GB 912-89 national quality standard, and certified under the National Quality Assurance program.



“Baogang Tongyong”
is the trademark under which we sell spiral-weld steel pipes products produced at Baotou Steel Pipe Joint Venture. This trademark
is currently being registered with China National Trademark Bureau.



“Yu Long”
is the registered trademark under which we sell rebar and high-speed wire products produced in Longmen Joint Venture. The trademark
is registered under the ISO9001:2000 international quality standard.



“Heng Da”
is the registered trademark under which we sell high-speed wire and rebar products produced at our Maoming facility. The trademark
is registered under the ISO9001:2000 international quality standard.



Employees



As of December 31, 2010,
we had approximately 8,407 full-time employees.



Executive Officers of the Registrant



The following sets forth certain information
as of March 16, 2011 concerning our executive officers.



|Name        |  | Age |  | Title                               
|----------- |  | --- |  | ------------------------------------
|Zuosheng Yu |  | 46  |  | Chairman and Chief Executive Officer
|John Chen   |  | 39  |  | Chief Financial Officer             



8







Mr. Zuosheng Yu,
age 46, Chairman of the Board of Directors. Mr. Yu joined us in October 2004 and became Chairman of the Board at that time.
He also serves as our Chief Executive Officer. Since February 2001, he has been President and Chairman of the Board of Directors
of Beijing Wendlar Investment Management Group, Beijing, China. Since March 2001, he has been President and Chairman of the Board
of Directors of Baotou Sheng Da Steel Pipe Limited, Inner Mongolia, China and Chairman of the Board of Directors of Sheng Da Steel
and Iron Mill, Hebei province, China. Since April 2001, he has been President and Chairman of Sheng Da Industrial Park Real Estate
Development Limited. Since December 2001, Mr. Yu has been President and Chairman of Beijing Shou Lun Real Estate Development Company,
Beijing, China. Mr. Yu graduated in 1985 from Sciences and Engineering Institute, Tianjin, China. In July 1994, he received a Bachelor’s
degree from Institute of Business Management for Officers. Mr. Yu received the title of “Senior Economist” from the
Committee of Science and Technology of Tianjin City in 1994. In July 1997, he received an MBA degree from the Graduate School of
Tianjin Party University. Since April 2003, Mr. Yu has held a position as a member of China’s APEC (Asia Pacific Economic
Co-operation) Development Council.



Mr. John Chen,
age 39, Director. Mr. Chen joined us in May 2004 and was elected as a director in March 2005. He also serves as our Chief Financial
Officer. Mr. Chen graduated from Norman Bethune University of Medical Science, Changchun city, Jilin province, China in September
1992. He received a B.S. degree in accounting from California State Polytechnic University, Pomona, California, U.S. in July 1997.
He currently also serves on the board of directors of China Carbon Graphite Group, Inc. (OTCBB: CHGI).



ITEM 1A. RISK FACTORS.



Our business, financial
condition and results of operations are subject to various risks, including those discussed below, which may affect the value of
our securities. The risks discussed below are those that we believe are currently the most significant, although additional risks
not presently known to us or that we currently deem less significant may also impact our business, financial condition and results
of operations, perhaps materially.



Risks Related to Our Business



We face substantial competition which,
among other things, may lead to price pressure and adversely affect our sales.



We compete with other
market players on the basis of product quality, responsiveness to customer needs and price. There are two types of steel and iron
companies in China: state-owned enterprises (“SOEs”) and privately owned companies.



Criteria important to
our customers when selecting a steel supplier include:



| | • | Quality;
| | - | --------

| | • | Price/cost competitiveness;
| | - | ---------------------------

| | • | System and product performance;
| | - | -------------------------------

| | • | Reliability and timeliness of delivery;
| | - | ---------------------------------------

| | • | New product and technology development capability;
| | - | --------------------------------------------------

| | • | Excellence and flexibility in operations;
| | - | -----------------------------------------

| | • | Degree of global and local presence;
| | - | ------------------------------------

| | • | Effectiveness of customer service; and
| | - | --------------------------------------

| | • | Overall management capability.
| | - | ------------------------------



9







We compete with both
SOEs and privately owned steel manufacturers. While we believe that our price and quality are superior to other manufacturers,
many of our competitors are better capitalized, more experienced, and have deeper ties in the Chinese marketplace. We consider
there to be the following ten major competitors of similar size, production capability and product line in the marketplace competing
against our four operating subsidiaries as indicated:



• Competitors
of General Steel (China) include: Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan Fengrun Metal
Sheet Plant;

• Competitors
of Longmen Joint Venture include: Shanxi Haixin Iron and Steel Co., Ltd. and Gansu Jiuquan Iron and Steel Co., Ltd.;

• Competitors
of Baotou Steel Pipe Joint Venture include: Tianjin Bo Ai Steel Pipe Co., Hebei Cangzhou Zhong Yuan Steel Pipe Co., and Shanxi
Taiyuan Guo Lian Steel Pipe Co.; and

• Competitors
of Maoming Hengda include: Guangdong Shao Guan Iron and Steel Group and Zhuhai Yue Yu Feng Iron and Steel Co., Ltd.



In addition, with China’s
entry into the World Trade Organization and China’s agreements to lift many of the barriers to foreign competition, we believe
that competition will increase as a whole with the entry of foreign companies into this market. This may limit our opportunities
for growth, lead to price pressure and reduce our profitability. We may not be able to compete favorably and this increased competition
may harm our business, our business prospects and results of operations.



Our limited operating history may
not serve as an adequate basis to judge our future prospects and results of operations.



Our limited operating
history may not provide a meaningful basis on which to evaluate our business. Although our revenues have grown rapidly since inception,
we might not be able to maintain our profitability or we may incur net losses in the future. We expect that our operating expenses
will increase as we expand. Any significant failure to realize anticipated revenue growth could result in significant operating
losses. We will continue to encounter risks and difficulties frequently experienced by companies at a similar stage of development,
including our potential failure to:



• Implement our
business model and strategy and adapt and modify them as needed;

• Increase awareness
of our brands, protect our reputation and develop customer loyalty;

• Manage our expanding
operations and service offerings, including the integration of any future acquisitions;

• Maintain adequate
control of our expenses;

• Anticipate and
adapt to changing conditions in the markets in which we operate as well as the impact of any changes in government regulation;
and

• Anticipate mergers
and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.



Our inability to fund our capital
expenditure requirements may adversely affect our growth and profitability.



Our continued growth
is dependent upon our ability to raise additional capital from outside sources. Our strategy is to grow through aggressive mergers,
joint ventures and acquisitions targeting SOE steel companies and selected entities with outstanding potential. Our growth strategy
will require us to obtain additional financing through capital markets. In the future, we may be unable to obtain the necessary
financing on a timely basis and on favorable terms, and our failure to do so may weaken our financial position, reduce our competitiveness,
limit our growth and reduce our profitability. Our ability to obtain acceptable financing at any given time may depend on a number
of factors, including:



10







• Our financial
condition and results of operations;

• The condition
of the PRC economy and the industry sectors in which we operate; and

• Conditions in
relevant financial markets in the United States, the PRC and elsewhere in the world.



Disruptions in world financial markets
and the resulting governmental action of the United States and other countries could have a material adverse impact on our ability
to obtain financing, our results of operations, financial condition and cash flow and could cause the market price of our common
shares to decline.

The current deep and
potentially prolonged global recession that began in the United States in December 2007 has, since the beginning of the third quarter
of 2008, had a material adverse effect on demand for our products and consequently the results of our operations, financial condition
and cash flows. In mid-February 2009, the Federal Reserve warned that the United States economy faces an “unusually gradual
and prolonged” period of recovery from this deep, recessionary period.



The credit markets worldwide
and in the United States have experienced significant contraction, de-leveraging and reduced liquidity, and the United States government
and foreign governments have either implemented or are considering a broad variety of governmental action and/or new regulation
of the financial markets. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations
and other requirements.



The uncertainty surrounding
the future of the global credit markets has resulted in reduced access to credit worldwide. Major market disruptions, the current
adverse changes in global market conditions, and the regulatory climate in the United States and worldwide may adversely affect
our business or impair our ability to borrow funds as needed. The current market conditions may last longer than we anticipate.
These recent and developing economic and governmental factors may have a material adverse effect on our results of operations,
financial condition or cash flows and could cause the price of our common stock to decline significantly.



We have made and may continue to
make acquisitions which could divert management's attention, cause ownership dilution to our stockholders, or be difficult to integrate,
which may adversely affect our financial results.



We have made a number
of acquisitions, and it is our current plan to continue to acquire companies and technologies that we believe are strategic to
our future business. Integrating newly acquired businesses or technologies could put a strain on our resources, could be costly
and time consuming, and might not be successful. Such acquisitions could divert our management's attention from other business
concerns. In addition, we might lose key employees while integrating new organizations. Acquisitions could also result in customer
dissatisfaction, performance problems with an acquired company or technology, potentially dilutive issuances of equity securities
or the incurrence of debt, assumption or incurrence of contingent liabilities, possible impairment charges related to goodwill
or other intangible assets or other unanticipated events or circumstances, any of which could harm our business. We might not be
successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated revenues and cost
benefits.



11







We may not be able to effectively control
and manage our growth.



If our business and
markets grow and develop, it will be necessary for us to finance and manage such an expansion in an orderly fashion. This growth
will lead to an increase in the responsibilities of existing personnel, the hiring of additional personnel and expansion of our
scope of operations. It is possible that we may not be able to obtain the required financing under terms that are acceptable to
us or hire additional personnel to meet the needs of our expansion.



Our business, revenues and profitability
are dependent on a limited number of large customers.



Our revenue is dependent,
in large part, on significant contracts with a limited number of large customers. For the year ended December 31, 2010, approximately
28% of our sales were to five customers. We believe that revenue derived from our current and future large customers will continue
to represent a significant portion of our total revenue. Our inability to continue to secure and maintain a sufficient number of
large contracts or the loss of, or significant reduction in purchases by, one or more of our major customers would have the effect
of reducing our revenues and profitability.



Moreover, our success
will depend in part upon our ability to obtain orders from new customers, as well as the financial condition and success of our
customers and general economic conditions in China.



Steel consumption is cyclical and
worldwide overcapacity in the steel industry and the availability of alternative products have resulted in intense competition,
which may have an adverse effect on profitability and cash flow.



Steel consumption is
highly cyclical and follows general economic and industrial conditions both worldwide and in regional markets. The steel industry
has historically been characterized by an excess in the world supply, which has led to substantial price decreases during periods
of economic weakness. We currently have an annual steel production capacity of 7 million metric tons of crude steel and if the
market for steel cannot support such production levels, the price for our products may go down. In addition, future economic downturns
could decrease the demand for our products. Substitute materials are increasingly available for many steel products, which further
reduces demand for steel.



We may not be able to pass on to
customers the increases in the costs of our raw materials, particularly iron-ore, coke, steel billets and steel coil.



The major raw materials
that we purchase for production are iron-ore, coke, steel billets and steel coil. The price and availability of these raw materials
are subject to market conditions affecting supply and demand. Our financial condition or results of operations may be impaired
by further increases in raw material costs to the extent we are unable to pass those increases to our customers. In addition, if
these materials are not available on a timely basis or at all, we may not be able to produce our products and our sales may decline.



The price of steel may decline due
to an overproduction by the Chinese steel companies.



According to the China
Iron and Steel Association, there are approximately 800 to 1,000 steel companies in China. Each steel company has its own production
plan. The Chinese government released new guidance on the steel industry to encourage consolidation within the fragmented steel
sector to mitigate problems of low-end repetitive production and inefficient use of resources. The current overproduction may not
be solved by these measures enacted by the Chinese government. If the current overproduction continues, our product shipments could
decline, our inventory could build up and eventually we may be required to decrease our sales price, which may decrease our profitability.



12







Disruptions to our manufacturing
processes could adversely affect our operations, customer service and financial results.



Steel manufacturing
processes are dependent on critical steel-making equipment, such as furnaces, continuous casters, rolling mills and electrical
equipment (such as transformers), and such equipment may become temporarily inoperable as a result of unanticipated malfunctions
or other events, such as fires or furnace breakdowns. Although our manufacturing plants have not experienced plant shutdowns or
periods of reduced production as a result of such equipment failures or other events, we may experience such problems in the future.
To the extent that lost production as a result of such a disruption could not be recovered by unaffected facilities, such disruptions
could have an adverse effect on our operations, customer service and financial results.



Because we are a holding company
with substantially all of our operations conducted through our subsidiaries, our performance will be affected by the performance
of such subsidiaries.



We have no operations
other than General Steel (China), Baotou Steel Pipe Joint Venture, Longmen Joint Venture, Maoming Hengda, and Tianwu JV, and our
principal assets are our investments in these subsidiaries. As a result, we are dependent upon the performance of our subsidiaries
and we will be subject to the financial, business and other factors affecting them as well as general economic and financial conditions.
As substantially all of our operations are and will be conducted through our subsidiaries, we will be dependent on the cash flow
of our subsidiaries to meet our obligations.



Because virtually all
of our assets are and will be held by operating subsidiaries, the claims of our stockholders will be structurally subordinate to
all existing and future liabilities and obligations, and trade payables of such subsidiaries. In the event of our bankruptcy, liquidation
or reorganization, our assets and those of our subsidiaries will be available to satisfy the claims of our stockholders only after
all of our subsidiaries’ liabilities and obligations have been paid in full.



We depend on acquiring companies
to fulfill our growth plan.



An important element
of our planned growth strategy is the pursuit and acquisitions of other businesses that increase our existing production capacity.
However, integrating businesses involves a number of special risks, including the possibility that management may be distracted
from regular business concerns by the need to integrate operations, unforeseen difficulties in integrating operations and systems,
problems relating to assimilating and retaining employees of the acquisition, challenges in retaining customers, and potential
adverse short-term effects on operation results. If we are unable to successfully complete and integrate strategic acquisitions
in a timely manner, our growth strategy may be adversely impacted.



We depend on bank financing for our
working capital needs.



We have various financing
facilities which are due on demand or within one year.So far, we have not experienced any difficulties in repaying such
financing facilities. However, we may in the future encounter difficulties in repaying or refinancing such loans on time and may
face severe difficulties in our operations and financial position.



13







We rely on Mr. Zuosheng Yu for important
business leadership.



We depend, to a large
extent, on the abilities and operations of our current management team. However, we have a particular reliance upon Mr. Zuosheng
Yu, our Chairman, Chief Executive Officer and significant shareholder, for the direction of our business and leadership in our
growth effort. The loss of the services of Mr. Yu, for any reason, may have a material adverse effect on our business and prospects.
We cannot guarantee that Mr. Yu will continue to be available to us, or that we will be able to find a suitable replacement for
Mr. Yu on a timely basis.



There have been historical deficiencies
with our internal controls which require further improvements, and we are exposed to potential risks from regulations requiring
companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002.



We
are exposed to potential risks from regulations requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley
Act of 2002.Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce
accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently.
Failure on our part to have effective internal financial and accounting controls, including the material weakness described below,
has and could in the future cause our financial reporting to be unreliable, has and could in the future have a material adverse
effect on our business, operating results, and financial condition, and has and could in the future cause the trading price of
our common stock to fall dramatically.



We and our independent
registered public accounting firm have identified a material weakness in our internal control over financial reporting that is
described in greater detail in “Item 9A—Controls and Procedures.” Remedying this material weakness and maintaining
proper and effective internal controls has and will require substantial management time and attention and has resulted in our incurring
substantial incremental expenses. Our outside consultants are assisting us with designing and implementing an adequate risk assessment
process to identify complex transactions requiring specialized knowledge to ensure the appropriate accounting for and disclosure
of such transactions. We cannot be certain that further remedies including accounting restatements will not occur in the future.
Such remedies, including accounting restatements could create a significant strain on our internal resources and cause delays in
our release of quarterly or annual financial results and the filing of related reports, increase our costs and cause management
distraction.



Under the
supervision and with the participation of our management, we have and will continue to evaluate our internal controls systems
in order to allow management to report on, and our registered independent public accounting firm to attest to, our internal
controls, as required by Section 404 of the Sarbanes-Oxley Act. We have performed and will continue to perform the system and
process evaluation and testing required in an effort to comply with the management certification and auditor attestation
requirements of Section 404. As a result, we have incurred and will continue to incur additional expenses and a diversion of
management’s time. If we are not able to meet the requirements of Section 404 in a timely manner or with adequate
compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the New York
Stock Exchange. Any such action could adversely affect our financial results and the market price of our stock.



14







We do not presently maintain product
liability insurance in China, and our property and equipment insurance does not cover the full value of our property and equipment,
which leaves us with exposure in the event of loss or damage to our properties or claims filed against us.



We currently do not
carry any product liability or other similar insurance in China. We cannot assure you that we would not face liability in the event
of the failure of any of our products.



We have purchased automobile
insurance with third party liability coverage for our vehicles. In addition, we have purchased property insurance to cover production
equipment. Except for property and automobile insurance, we do not have other insurance such as business liability or disruption
insurance coverage for our operations in China. In the event of a significant product liability claim or other uninsured event,
our financial results and the price of our common stock may be adversely affected.



Risks Related to Operating Our Business
in China



We face the risk that changes in
the policies of the Chinese government could have significant impact upon the business we may be able to conduct in China and the
profitability of such business.



The economy of China
is transitioning from a planned economy to a market oriented economy, subject to five-year and annual plans adopted by the government
that set down national economic development goals. Policies of the Chinese government can have significant effects on the economic
conditions of China. The Chinese government has confirmed that economic development will follow a model of a market economy under
socialism. Under this direction, we believe that China will continue to strengthen its economic and trading relationships with
foreign countries and business development in China will follow market forces. While we believe that this trend will continue,
there can be no assurance that such will be the case. A change in policies by the Chinese government could adversely affect our
interests through, among other factors: changes in laws; regulations or the interpretation thereof; confiscatory taxation; restrictions
on currency conversion; imports or sources of supplies; or the expropriation or nationalization of private enterprises. Although
the Chinese government has been pursuing economic reform policies for approximately two decades, the Chinese government may significantly
alter such policies, especially in the event of a change in leadership, social or political disruption, or other circumstances
affecting China’s political, economic and social climate.



The Chinese laws and regulations
governing our current business operations and contractual arrangements are uncertain, and if we are found to be in violation, we
could be subject to sanctions. In addition, any changes in such Chinese laws and regulations may have a material and adverse effect
on our business.



There are substantial
uncertainties regarding the interpretation and application of Chinese laws and regulations, including but not limited to the laws
and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the
imposition of statutory liens, death, bankruptcy and criminal proceedings. Along with our subsidiaries, we are considered foreign
persons or foreign funded enterprises under Chinese laws, and as a result, we are required to comply with certain Chinese laws
and regulations. These laws and regulations are relatively new and may be subject to future changes, and their official interpretation
and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be
delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future
businesses may also be applied retroactively. In addition, the Chinese authorities retain broad discretion in dealing with violations
of laws and regulations, including levying fines, revoking business licenses and requiring actions necessary for compliance. In
particular, licenses, permits and beneficial treatment issued or granted to us by relevant governmental bodies may be revoked at
a later time under contrary findings of higher regulatory bodies. We cannot predict what effect the interpretation of existing
or new Chinese laws or regulations may have on our businesses. We may be subject to sanctions, including fines, and could be required
to restructure our operations. Such restructuring may not be deemed effective or may encounter similar or other difficulties. As
a result of these substantial uncertainties, there is a risk that we may be found in violation of current or future Chinese laws
or regulations.



15







A slowdown or other adverse developments
in the Chinese economy may materially and adversely affect our customers, demand for our services and our business.



Substantially all of
our assets, and the assets of our operating subsidiary, are located in China and our revenue is derived from our operations in
China. We anticipate that our revenues generated in China will continue to represent all of our revenues in the near future. Accordingly,
our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments
in China. Although the PRC economy has grown significantly in recent years, we cannot assure you that such growth will continue.
In addition, the Chinese government also exercises significant control over Chinese economic growth through the allocation of resources,
controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to
particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result
in reduced demand for our products. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic
developments in the PRC may materially reduce the demand for our products and materially and adversely affect our business.



The PRC government’s recent
measures to curb inflation rates could adversely affect future results of operations.



In recent years, the
Chinese economy has experienced periods of rapid expansion and high rates of inflation. Rapid economic growth can lead to growth
in the money supply and rising inflation. China’s Consumer Price Index increased by 3.3% for full year of 2010 according
to the National Bureau of Statistics of China, or the NBS.If prices for our products rise at a rate that is insufficient
to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability. These factors have led to
the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability
of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls
on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for
our products.

In recent years, the
government of China has undertaken various measures to alleviate the effects of inflation, especially with respect to key commodities.
From time to time, the PRC National Development and Reform Commission announced national price controls on various products. The
government of China has also encouraged local governments to institute price controls products. Such price controls could adversely
affect our future results of operations and, accordingly, the price of our Common Stock.



If relations between the United States
and China deteriorate, our stock price may decrease and we may experience difficulties accessing the United States capital markets.



At various times during
recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in
the future between these two countries. Any political or trade controversies between the United States and China could impact the
market price of our common stock and our ability to access United States capital markets.



16







The Chinese Government could change
its policies toward private enterprises, which could result in the total loss of our investments in China.



Our business is subject
to political and economic uncertainties in China and may be adversely affected by its political, economic and social developments.
Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private
economic activity and greater economic decentralization. The Chinese government may not continue to pursue these policies or may
alter them to our detriment. Conducting our business might become more difficult or costly due to changes in policies, laws and
regulations, or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions
or prohibitions on dividend payments to stockholders, devaluations of currency or the nationalization or other expropriation of
private enterprises. In addition, nationalization or expropriation could result in the total loss of our investments in China.



The Chinese State Administration
of Foreign Exchange, or SAFE, requires Chinese residents to register with, or obtain approval from SAFE regarding their direct
or indirect offshore investment activities.



China’s State
Administration of Foreign Exchange Regulations regarding offshore financing activities by Chinese residents has undertaken continuous
changes which may increase the administrative burden we face and create regulatory uncertainties that could adversely affect the
implementation of our acquisition strategy. A failure by our shareholders who are Chinese residents to make any required applications
and filings pursuant to such regulations may prevent us from being able to distribute profits and could expose us and our Chinese
resident shareholders to liability under Chinese law.



Our business, results of operations
and overall profitability are linked to the economic, political and social conditions in China.



All of our business,
assets and operations are located in China. The economy of China differs from the economies of most developed countries in many
respects, including government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources.
The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although the Chinese government
has recently implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership
of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive
assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role
in regulating industry by imposing industrial policies. It also exercises significant control over China’s economic growth
through the allocation of resources, controlling payment of foreign currency denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. Therefore, the Chinese government’s involvement in
the economy may negatively affect our business operations, results of operations and our financial condition.



Governmental control of currency
conversion may cause the value of your investment in our common stock to decrease.



The Chinese government
imposes controls on the conversion of Renminbi or RMB into foreign currencies and, in certain cases, the remittance of currency
out of China. We receive substantially all of our revenues in Renminbi, which is currently not a freely convertible currency. Shortages
in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise
satisfy foreign currency denominated obligations. Under existing Chinese foreign exchange regulations, payments of current account
items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies
without prior approval from China’s State Administration of Foreign Exchange by complying with certain procedural requirements.
However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency
and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.



17







The Chinese government
may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign
exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able
to pay certain of our expenses as they come due.



Currency fluctuations and restrictions
on currency exchanges may adversely affect our business, including limiting our ability to convert RMB into foreign currencies
and, if RMB were to decline in value, reducing our revenue in U.S. dollar terms.



Our reporting currency
is the U.S. dollar and our operations in China use their local currency as their functional currencies. Substantially all of our
revenue and expenses are in Renminbi, or RMB. We are subject to the effects of exchange rate fluctuations with respect to local
currencies. For example, the value of the RMB depends to a large extent on Chinese government policies and China’s domestic
and international economic and political developments, as well as supply and demand in the local market. Since 1994, the official
exchange rate for the conversion of RMB to the U.S. dollar had generally been stable and the RMB had appreciated slightly against
the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of RMB to the U.S. dollar.
Under the new policy, RMB may fluctuate within a narrow and managed band against a basket of certain foreign currencies. The four
main currencies in the basket are the U.S. dollar, the Euro, the Japanese yen and the Korean won. In the three years that followed,
a slight appreciation against the U.S. currency occurred and by the end of October 2008, the RMB exchange rate with the U.S. dollar
had risen to nearly 6.8 to the U.S. dollar. Since mid-2008, the RMB has been held stable as the Chinese government considers how
best to respond to the global economic crisis. In June 2010, the temporary dollar peg was again abandoned, after the Chinese RMB
rose approximately 16% against the Euro as a result of the Greek fiscal crisis. However, the Chinese government has signaled that
going forward its currency will only be allowed to appreciate gradually against the dollar. It is possible that the Chinese government
could adopt a more flexible currency policy, which could result in more significant fluctuation of RMB against the U.S. dollar.
We can offer no assurance that RMB will be stable against the U.S. dollar or any other foreign currency.



Our financial statements
are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens
against foreign currencies, the translation of these foreign currency-denominated transactions results in reduced revenue, operating
expenses and net income for our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies,
the translation of these foreign currency-denominated transactions results in increased revenue, operating expenses and net income
for our international operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements
of our foreign consolidated subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange
rates, the conversion of the foreign consolidated subsidiaries’ financial statements into U.S. dollars will lead to a translation
gain or loss which is recorded as a component of other comprehensive income. In addition, we have certain assets and liabilities
that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency
value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss. We have not entered into
agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future. The availability and
effectiveness of any hedging transaction may be limited and we may not be able to hedge our exchange rate risks.



18







We are subject to environmental and
safety regulations, which may increase our compliance costs and reduce our overall profitability.



We are subject to the
requirements of environmental and occupational safety and health laws and regulations in China. We may incur substantial costs
or liabilities in connection with these requirements. Additionally, these regulations may become stricter, which will increase
our costs of compliance in a manner that could reduce our overall profitability. The capital requirements and other expenditures
that may be necessary to comply with environmental requirements could increase and become a significant expense linked to the conduct
of our business.



Our operating subsidiaries must comply
with environmental protection laws that could adversely affect our profitability.



We are required to comply
with the environmental protection laws and regulations promulgated by the national and local governments of China. Yearly inspections
of waste treatment systems require the payment of a license fee which could become a penalty fee if standards are not maintained.
If we fail to comply with any of these environmental laws and regulations in China, depending on the types and seriousness of the
violation, we may be subject to, among other things, warning from relevant authorities, imposition of fines, specific performance
and/or criminal liability, forfeiture of profits made, being ordered to close down our business operations and suspension of relevant
permits.



Because the Chinese legal system is
not fully developed, our legal protections may be limited.



The Chinese legal system
is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have
limited value as precedent. Since 1979, China’s legislative bodies have promulgated laws and regulations dealing with economic
matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, China has not
developed a fully integrated legal system and the array of new laws and regulations may not be sufficient to cover all aspects
of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited
volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involves
uncertainties. In addition, published government policies and internal rules may have retroactive effects and, in some cases, the
policies and rules are not published at all. As a result, we may be unaware of our violation of these policies and rules until
sometime later. The laws of China govern our contractual arrangements with our affiliated entities and the enforcement of these
contracts and the interpretation of the laws governing these relationships are subject to uncertainty.



The PRC State Administration of Foreign
Exchange, or SAFE, restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively and
to pay dividends.



All of our sales revenues
and expenses are denominated in RMB. Under PRC law, RMB is currently convertible under the “current account,” which
includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,”
which includes foreign direct investment and loans. Currently, our PRC operating subsidiaries may purchase foreign currencies for
settlement of current account transactions, including payments of dividends to us, without the approval of SAFE, by complying with
certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase
foreign currencies in the future. Since substantially all of our future revenue will be denominated in RMB, any existing and future
restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside
China that are denominated in foreign currencies.



19







Foreign exchange transactions
by PRC operating subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require
the approval of or need to register with PRC government authorities, including SAFE. In particular, if our PRC operating subsidiaries
borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance
our PRC operating subsidiaries by means of additional capital contributions, these capital contributions must be approved by certain
government authorities, including the MOFCOM, or their respective local counterparts. These limitations could affect our PRC operating
subsidiaries’ ability to obtain foreign exchange through debt or equity financing.



The PRC government also
may at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining foreign currency, we may be unable to meet obligations that may be incurred in the future
that require payment in foreign currency.



Under the New EIT Law, as defined
below, we may be classified as a “resident enterprise” of China, which would likely result in unfavorable tax consequences
to us and our non-PRC shareholders.



Under China’s
Enterprise Income Tax Law, or the “New EIT Law”, and its implementing rules, which became effective in 2008, an enterprise
established outside of China with “de facto management bodies” within China is considered a “resident enterprise,”
meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Under the implementing
rules of the New EIT Law, de facto management means substantial and overall management and control over the production and operations,
personnel, accounting, and properties of the enterprise. Because the New EIT Law and its implementing rules are new, it is unclear
how tax authorities will determine tax residency based on the facts of each case.



In April 2009, the State
Administration of Taxation (“SAT”) issued a new circular to clarify the criteria for recognizing the resident enterprise
status for Chinese controlled foreign companies. According to the Circular Regarding the Determination Criteria on Chinese Controlled
Offshore Companies as Resident Enterprises (Circular Guoshuifa 2009 No. 82), if a foreign company simultaneously satisfies the
following four criteria:

| | · | It constitutes a Chinese controlled foreign company and shall be deemed to be a PRC resident enterprise.
| | - | --------------------------------------------------------------------------------------------------------

| | · | The premises where the senior management and the senior management bodies responsible for the routine
production and business management of the enterprise perform their functions are mainly located within China.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The financial decisions (including, borrowing, lending, financing, financial risk management, etc.)
and the personnel decisions (for example, appointment, dismissal, remuneration, etc.) of the enterprise are made by the bodies
or persons within China or are subject to the approval of the bodies or persons within China.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The enterprise’s primary properties, accounting books, company seals, minutes and archives
of the meetings of the board of directors and shareholders are located or preserved within China. The enterprise’s directors
or senior management with fifty percent or more of the voting rights usually live in China.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20







Despite the issuance
of the new clarifying circular referenced above, the application of these standards remains uncertain. If the PRC tax authorities
determine that we are a “resident enterprise” for PRC enterprise income tax purposes, unfavorable PRC tax consequences
could follow. First, we will be subject to enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC
enterprise income tax reporting obligations. Second, although under the New EIT Law and its implementing rules dividends paid to
us from our PRC subsidiaries would qualify as “tax-exempt income,” such dividends may be subject to a 10% withholding
tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect
to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes.
Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification would
result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect
to gains derived by our non-PRC shareholders from transferring our shares. We are actively monitoring the possibility of “resident
enterprise” treatment for the 2008 and 2009 tax years and are evaluating appropriate organizational changes to avoid this
treatment, to the extent possible.



If we were treated as
a “resident enterprise” by PRC tax authorities, we would be subject to tax in both the U.S. and China, and our PRC
tax may not be creditable against our U.S. tax. In addition, we have not accrued any tax liability associated with the possible
payment of dividends to our U.S. parent company. Such a tax would be an added expense appearing on our income statement, which
would reduce our net income.



The PRC legal system embodies uncertainties
which could limit the legal protections available to us and you, or could lead to penalties on us.



The PRC legal system
is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little
precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general. Our PRC operating subsidiaries are subject to laws and regulations applicable to foreign investment in China.
In addition, our VIE and all of our subsidiaries that are incorporated in China are subject to all applicable Chinese laws and
regulations. Because of the relatively short period for enacting such a comprehensive legal system, the laws, regulations and legal
requirements are relatively recent, and their interpretation and enforcement involve uncertainties. These uncertainties could limit
the legal protections available to us and other foreign investors, including you, and may lead to penalties imposed on us because
of the different understanding between the relevant authority and us. For example, according to current tax laws and regulations,
we are responsible to pay business tax on a “Self-examination and Self-application” basis. However, since there is
no clear guidance as to the applicability of certain preferential tax treatments, we may be found in violation of the interpretation
of local tax authorities with regard to the scope of taxable services and the percentage of tax rate and therefore might be subject
to penalties, including but not limited to, monetary penalties.In addition, we cannot predict the effect of future developments
in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement
thereof, or the preemption of local regulations by national laws



21







We may have limited legal recourse
under the PRC laws if disputes arise under our contracts with third parties.



The Chinese government
has enacted significant laws and regulations dealing with matters, such as corporate organization and governance, foreign investment,
commerce, taxation and trade. However, the PRC’s experience in implementing, interpreting and enforcing these laws and regulations
is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. If our new business
ventures are unsuccessful, or other adverse circumstances arise from these transactions, we face the risk that the parties to these
ventures may seek ways to terminate the transactions, or may hinder or prevent us from accessing important information regarding
the financial and business operations of these acquired companies. The resolution of these matters may be subject to the exercise
of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter
or dispute may influence their determination. Any rights we may have to specific performance or to seek an injunction under the
PRC laws, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system,
we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect
on our business, financial condition and results of operations. Although legislation in China over the past 30 years has significantly
improved the protection afforded to various forms of foreign investment and contractual arrangements in China, these laws, regulations
and legal requirements are relatively new and their interpretation and enforcement involve uncertainties, which could limit the
legal protection available to us and foreign investors, including you. The inability to enforce or obtain a remedy under any of
our future agreements could result in a significant loss of business, business opportunities or capital and could have a material
adverse effect on our results of operations.



Our labor costs are likely to increase
as a result of changes in Chinese labor laws.



We expect to experience
an increase in our cost of labor due to recent changes in Chinese labor laws, which are likely to increase costs further and also
to impose restrictions on our relationship with our employees. In June 2007, the Standing Committee of the National People’s
Congress of the PRC enacted labor law legislation called the Labor Contract Law and more strictly enforced existing labor laws.
This law, which became effective on January 1, 2008, amended and formalized workers’ rights concerning overtime hours, pensions,
layoffs, employment contracts and the role of trade unions. As a result of this law, we had to reduce the number of hours of overtime
our employees can work, substantially increase the salaries of our employees, provide additional benefits to our employees, and
revise certain of our other labor practices.The increase in labor costs has increased our operating costs, and we have
not always been able to pass through this increase to our customers. As a result, we have incurred certain operating losses as
our costs of manufacturing increased. No assurance can be given that we will not in the future be subject to labor strikes or that
we will not have to make other payments to resolve future labor issues. Furthermore, there can be no assurance that the labor laws
will not change further or that their interpretation and implementation and enforcement will not vary, which may have a negative
effect upon our business and results of operations.



Failure to comply with the U.S. Foreign
Corrupt Practices Act could subject us to penalties and other adverse consequences.



We are subject to the
U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits United States companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain
records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreign
companies, including some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive
advantage over us. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the
PRC. We can make no assurance that our employees or other agents will not engage in such conduct for which we might be held responsible.
If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences
that may have a material adverse effect on our business, financial condition and results of operations.



22







If we make equity compensation grants
to persons who are PRC citizens, they may be required to register with SAFE. We may also face regulatory uncertainties that could
restrict our ability to adopt equity compensation plans for our directors and employees and other parties under PRC laws.



On March 28, 2007, SAFE
issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership
Plan or Stock Option Plan of An Overseas Listed Company,” also known as “Circular 78.” It is not clear whether
Circular 78 covers all forms of equity compensation plans or only those which provide for the granting of stock options. For any
plans which are so covered and are adopted by a non-PRC listed company, such as our Company, after March 28, 2007, Circular 78
requires all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in
the plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings
if they participated in an overseas listed company’s covered equity compensation plan prior to March 28, 2007. We believe
that the registration and approval requirements contemplated in Circular 78 will be burdensome and time consuming.



In the future, we may
adopt an equity incentive plan and make numerous stock option grants under the plan to our officers, directors and employees, some
of whom are PRC citizens and may be required to register with SAFE. If it is determined that any of our equity compensation plans
are subject to Circular 78, failure to comply with such provisions may subject us and participants of any such equity incentive
plan who are PRC citizens to fines and legal sanctions and prevent us from being able to grant equity compensation to our PRC employees.
In that case, our ability to compensate our employees and directors through equity compensation would be hindered and our business
operations may be adversely affected.



Due to various restrictions under
PRC laws on the distribution of dividends by our PRC operating companies, we may not be able to pay dividends to our shareholders.



The Wholly-Foreign Owned
Enterprise Law (1986), as amended and the Wholly-Foreign Owned Enterprise Law Implementing Rules (1990), as amended and the Company
Law of the PRC (2006) contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under
these regulations WFOE’s may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. Additionally, a WFOE is required to set aside a certain amount of its accumulated profits
each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends, except in the event of
liquidation, and cannot be used for working capital purposes.



Furthermore, if any
of our consolidated subsidiaries in China incurs debt in the future, the instruments governing the debt may restrict our ability
to pay dividends or make other payments. If we or our consolidated subsidiaries are unable to receive all of the revenues from
our operations due to these contractual or dividend arrangements, we may be unable to pay dividends on our Common Stock. In addition,
under WFOE regulations mentioned above, we must retain a reserve equal to 10 percent of net income after taxes, not to exceed 50
percent of registered capital. Accordingly, this reserve will not be available to be distributed as dividends to our shareholders.
We presently do not intend to pay dividends in the foreseeable future. Our management intends to follow a policy of retaining all
of our earnings to finance the development and execution of our strategy and the expansion of our business.



23







We may have difficulty establishing
adequate management, legal and financial controls in the PRC.



The PRC historically
has been deficient in western style management and financial reporting concepts and practices, as well as in modern banking and
other control systems. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the
PRC. As a result of these factors, and especially given that we are an exchange listed company in the U.S. and subject to regulation
as such, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing
financial statements, books of account and corporate records and instituting business practices that meet western standards. As
there is a shortage of well-educated and experienced professionals who have bilingual and bicultural backgrounds in China, especially
in remote areas where our factories are located, we may experience high turnover in our staff. Therefore, we may, in turn, experience
difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act
and other applicable laws, rules and regulations. This may result in significant deficiencies or material weaknesses in our internal
controls which could impact the reliability of our financial statements and prevent us from complying with SEC rules and regulations
and the requirements of the Sarbanes-Oxley Act. Any such deficiencies, weaknesses or lack of compliance could have a material adverse
effect on our results of operations and the public announcement of such deficiencies could adversely impact our stock price.



Risks Related to Our Common Stock



Our officers, directors and affiliates
control us through their positions and stock ownership and their interests may differ from other stockholders.



Our officers, directors
and affiliates beneficially own approximately 39.8% of our common stock. Mr. Zuosheng Yu, our major stockholder, beneficially owns
approximately 39.5% of our common stock. Mr. Yu can effectively control us and his interests may differ from other stockholders.

All our subsidiaries
are located in China and substantially all of our assets are located outside the United States. It may therefore be difficult for
investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. federal securities
laws against us in the courts of either the United States or China and, even if civil judgments are obtained in United States courts,
such judgments may not be enforceable in Chinese courts. Most of our directors and officers reside outside of the United States.
It is unclear if extradition treaties now in effect between the United States and China would permit effective enforcement against
us or our officers and directors of criminal penalties under the U.S. federal securities laws or otherwise.



We have never paid cash dividends
and are not likely to do so in the foreseeable future.



We currently intend
to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash dividends
in the foreseeable future but will review this policy as circumstances dictate.



Our common stock is subject to price
volatility unrelated to our operations.



The market price of
our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve
our planned growth, quarterly operating results of other steel makers, trading volume in our common stock, changes in general conditions
in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is
subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities
issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.



24







Investors may experience dilution
from exercise of warrants we issued in December 2007 and December 2009.



Shares of our common
stock are issuable upon conversion of senior convertible notes and warrants to purchase common stock issued in a private placement
that closed on December 13, 2007. The senior convertible notes were initially convertible into 4,170,009 shares of our common stock
based on a conversion price of $12.47 per share and applicable interest rates. Prior to the adjustments described below, upon the
exercise of the warrants, an additional aggregate amount of 1,154,958 shares of our common stock were issuable based upon the then
exercise price of $13.51 per share. The senior convertible notes have a five year term through December 12, 2012, and the warrants
are exercisable from May 13, 2008, to May 13, 2013. The conversion price of the notes and the exercise price of the warrants (and
the number of shares issuable under the warrants) are each subject to adjustment under certain customary circumstances, including,
among others, if the sale price of securities issued by us in subsequent offerings is less than the conversion or exercise prices
then in effect. The conversion price of the notes was adjusted and reset to $4.2511, the market price (as defined in the notes)
on May 7, 2009. As of August 5, 2010, all of the convertible notes had been converted. As discussed below, the warrants have been
adjusted such that upon their exercise, an aggregate of 3,900,871 shares of our common stock are now issuable based upon the current
adjusted exercise price of $5.00 per share.



In addition to the notes
and warrants issued in December 2007, we issued 5,555,556 shares of our common stock and warrants to purchase 2,777,778 shares
of our common stock in a registered direct offering that closed on December 30, 2009. The warrants issued as part of the December
2009 transaction are exercisable beginning six months from the date of issuance for a period of two years from the initial exercise
date, and carry an initial exercise price per share equal to $5.00. Certain anti-dilution adjustment provisions contained in the
warrants issued in 2007 may have been triggered by the December 2009 transaction. Rather than giving full effect to the anti-dilution
provisions, we entered into warrant reset agreements with investors from our December 2007 financing whereby the aggregate number
of shares of common stock issuable upon exercise of the warrants issued in the December 2007 transaction is increased from 1,154,958
shares to 3,900,871 shares, and the exercise price of the December 2007 Warrants was reduced from $13.51 per share to $5.00 per
share.



The issuance of shares
of our common stock upon conversion of the notes which remain outstanding and exercise of any of our outstanding warrants (including
any increased amount of shares that may be issued in the future because of reductions in exercise price and conversion price) will
dilute our current shareholders.



ITEM 1B. UNRESOLVED STAFF COMMENTS.



None.



ITEM 2. PROPERTIES.



General Steel (China)



The properties of General
Steel (China) consist of manufacturing sites and office buildings located in Jinghai county, about 20 miles (45 kilometers) southwest
of the Tianjin city center on a total of 17.81 acres (7.21 hectares) of land, which includes 320,390 square feet (29,667 square
meters) of building space.



Under Chinese law, all
land in China is owned by the government, which grants a “land use right” to an individual or entity after a purchase
price for such “land use right” is paid to the government. The land use right allows the holder the right to use the
land for a specified long-term period of time and enjoy all the ownership incidents to the land. We are the registered owner of
the land use rights for the parcels of land identified in the chart below.



25







|Registered Owner of Land Use Right         |  | Location & Certificate of  Land Use Right                       |  | Usage          |  | Space (acres) |  | Life of Land Use Right |  | Remaining Life 
|------------------------------------------ |  | --------------------------------------------------------------- |  | -------------- |  | ------------- |  | ---------------------- |  | ---------------
|                                           |  |                                                                 |  |                |  |               |  |                        |  |                
|Tianjin Daqiuzhuang Metal Sheet Co., Ltd.  |  | No. 6 West Gangtuan Road, Daqiuzhuang, Jinghai Country, Tianjin |  | Industrial Use |  | 6.78          |  | 50 years               |  | 41 years       
|                                           |  |                                                                 |  |                |  |               |  |                        |  |                
|Tianjin Daqiuzhuang Metal Sheet Co., Ltd.  |  | No. 35 Baiyi Road, Daqiuzhuang, Jinghai County, Tianjin         |  | Industrial Use |  | 9.89          |  | 50 years               |  | 41 years       
|                                           |  |                                                                 |  |                |  |               |  |                        |  |                
|Tianjin Daqiuzhuang Metal Sheet Co., Ltd.* |  | Ying Fong Road North, Daqiuzhuang, Jinghai country Tianjin      |  | Commercial Use |  | 1.14          |  | 50 years               |  | 40 and 43 years



*In the process of changing name to General
Steel (China).



Baotou Steel Pipe Joint Venture



The properties of Baotou
Steel Pipe Joint Venture consist of our production and administrative sites located on the main production campus of the Baotou
Steel Pipe Joint Venture located in Baotou, Inner Mongolia Autonomous Region. The land is leased from Baotou Iron and Steel Group
Co., Ltd., our strategic partner in the Baotou Steel Pipe Joint Venture.



Longmen Joint Venture



The properties of Longmen
Joint Venture consist of production and administrative sites located in various locations throughout the southern half of Shaanxi
province on land totaling approximately 301 acres (121.5 hectares).



We are the registered owner
of the land use rights for the parcels of land identified in the chart below.



|Registered Owner of Land Use Right |  | Location & Certificate  Of Land Use Right                |  | Usage          |  | Space (acres) |  | Life of Land Use Right |  | Remaining Life
|---------------------------------- |  | -------------------------------------------------------- |  | -------------- |  | ------------- |  | ---------------------- |  | --------------
|                                   |  |                                                          |  |                |  |               |  |                        |  |               
|Longmen Joint Venture              |  | North Huanyuan Road, Weiyang District, Xi'an, Shaanxi    |  | Industrial Use |  | 19.1          |  | 50 Years               |  | 38 Years      
|Longmen Joint Venture              |  | Longmen Town, Hancheng, Shaanxi                          |  | Industrial Use |  | 173.2         |  | 40-48 Years            |  | 35-39 Years   
|Longmen Joint Venture              |  | Sanping Village, Shipo Town, Zhashui County, Shaanxi     |  | Industrial Use |  | 103.2         |  | 50 Years               |  | 45 Years      
|Longmen Joint Venture              |  | Zhaikouhe Village, Xunjian Town, Zhashui County, Shaanxi |  | Industrial Use |  | 1.9           |  | 50 Years               |  | 45 Years      
|Longmen Joint Venture              |  | East Taishi Avenue, Xincheng District, Hancheng, Shaanxi |  | Commercial Use |  | 3.6           |  | 40 Years               |  | 36 Years      



26







Maoming Hengda



The properties of Maoming
Hengda consist of our production and administrative sites located in two separated sites inside Maoming city, Guangdong province,
on land totaling approximately 239.6 acres (96.9 hectares).



We are the registered owner
of the land use rights for the parcels of land identified in the chart below.



|Registered Owner of Land Use Right |  | Location & Certificate Of Land Use Right                                                              |  | Usage          |  | Space (acres) |  | Life of Land Use Right |  | Remaining Life
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | -------------- |  | ------------- |  | ---------------------- |  | --------------
|                                   |  |                                                                                                       |  |                |  |               |  |                        |  |               
|Maoming Hengda                     |  | Diancheng Town,
        Dianbai County, Maoming City, Industrial Zone
        of Bohe Port, Guangdong |  | Industrial Use |  | 239.6         |  | 50 Years               |  | 44 Years      



ITEM 3. LEGAL PROCEEDINGS.



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



ITEM 4. (Removed and Reserved).



PART II



ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.



Our common stock is listed
on the New York Exchange under the symbol “GSI”. The high and low closing common stock price for each quarter of the
last two years is as follows:

|HIGH AND LOW STOCK PRICES |  | 1ST QTR |      |  | 2ND QTR |   |      | 3RD QTR |  |   | 4TH QTR | 
|------------------------- |  | ------- | ---- |  | ------- | - | ---- | ------- |  | - | ------- | 
|2010                      |  |         |      |  |         |   |      |         |  |   |         | 
|High                      |  | $       | 5.04 |  |         | $ | 4.22 |         |  | $ | 3.54    | 
|Low                       |  | $       | 3.78 |  |         | $ | 2.35 |         |  | $ | 2.28    | 
|2009                      |  |         |      |  |         |   |      |         |  |   |         | 
|High                      |  | $       | 4.59 |  |         | $ | 7.35 |         |  | $ | 5.74    | 
|Low                       |  | $       | 1.85 |  |         | $ | 2.77 |         |  | $ | 3.32    | 



27







As of March 14, 2011, there
were approximately 315 holders of record of our common stock. On the same date, the trading price of our common stock closed at
$2.45 per share.



Stock Repurchase Program





|ISSUER PURCHASES OF EQUITY SECURITIES(1)  
|------------------------------------------
|Period                                    
|December 1, 2010 through December 31, 2010







| | (1) | On December 21, 2010, we issued a press release announcing that our Board of Directors had authorized
the repurchase of up to an aggregate of one million (1,000,000) shares of our common stock as part of a share repurchase program
(the “Share Repurchase Program”). The Share Repurchase Program does not have an expiration date and these repurchases
may be made from time to time in the open market or in privately negotiated transactions in accordance with applicable laws. As
of December 31, 2010, we have repurchased in open market transactions 316,760 shares of common stock at an average per share price
of $2.7475.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Dividend Policy



Our Board of Directors
currently does not intend to declare dividends or make any other distributions to our shareholders. Any determination to pay dividends
in the future will be at our board’s discretion and will depend upon our results of operations, financial condition and prospects
as well as other factors deemed relevant by our board of directors.



Recent Sales of Unregistered Sale Securities



None



28







ITEM 6. SELECTED FINANCIAL DATA.



Year ended December, 31

|SUMMARY OF OPERATIONS                                             |  | 2010 As restated |           |   | 2009 As restated |   |           | 2008 |  |   | 2007      |   |  | 2006 |        
|----------------------------------------------------------------- |  | ---------------- | --------- | - | ---------------- | - | --------- | ---- |  | - | --------- | - |  | ---- | -------
|(USD and number of shares in thousands, except per share amounts) |  |                  |           |   |                  |   |           |      |  |   |           |   |  |      |        
|Sales                                                             |  | $                | 1,882,140 |   |                  | $ | 1,679,770 |      |  | $ | 1,351,203 |   |  | $    | 772,440
|Cost of Goods Sold                                                |  |                  | 1,850,725 |   |                  |   | 1,590,958 |      |  |   | 1,343,275 |   |  |      | 715,751
|Selling, General, and Administrative Expenses                     |  |                  | 52,577    |   |                  |   | 41,059    |      |  |   | 36,942    |   |  |      | 16,164 
|Income (Loss) from operations                                     |  |                  | (21,162   | ) |                  |   | 47,753    |      |  |   | (29,014   | ) |  |      | 40,525 
|Net (Loss) Income                                                 |  |                  |           |   |                  |   |           |      |  |   |           |   |  |      |        
|Attributable to Controlling Interest                              |  | $                | (30,006   | ) |                  | $ | (30,620   | )    |  | $ | (11,323   | ) |  | $    | 22,426 
|(Loss) Earnings per Share, Basic                                  |  | $                | (0.56     | ) |                  | $ | (0.73     | )    |  | $ | (0.32     | ) |  | $    | 0.69   
|(Loss) Earnings per Share, Diluted                                |  | $                | (0.56     | ) |                  | $ | (0.73     | )    |  | $ | (0.32     | ) |  | $    | 0.69   
|Basic Weighted Average Shares Outstanding                         |  |                  | 53,113    |   |                  |   | 41,860    |      |  |   | 35,381    |   |  |      | 32,425 
|Diluted Weighted Average Shares Outstanding                       |  |                  | 53,113    |   |                  |   | 41,860    |      |  |   | 35,381    |   |  |      | 32,558 
|LONG TERM OBLIGATIONS                                             |  |                  |           |   |                  |   |           |      |  |   |           |   |  |      |        
|Convertible Notes Payables                                        |  | $                | -         |   |                  | $ | 1,050     |      |  | $ | 7,155     |   |  | $    | 5,440  
|Derivative Liabilities                                            |  | $                | 5,573     |   |                  | $ | 23,340    |      |  | $ | 9,903     |   |  | $    | 28,483 

As of December, 31

|FINANCIAL DATA                        |  | 2010        |           |  | 2009        |   |           | 2008 |  |   | 2007    |  |  | 2006 |        
|------------------------------------- |  | ----------- | --------- |  | ----------- | - | --------- | ---- |  | - | ------- |  |  | ---- | -------
|                                      |  | As restated |           |  | As restated |   |           |      |  |   |         |  |  |      |        
|(USD in thousands, except the ratios) |  |             |           |  |             |   |           |      |  |   |         |  |  |      |        
|Total Assets                          |  | $           | 1,799,380 |  |             | $ | 1,224,370 |      |  | $ | 865,714 |  |  | $    | 478,407
|Depreciation and Amortization         |  | $           | 41,153    |  |             | $ | 33,107    |      |  | $ | 22,414  |  |  | $    | 10,337 
|Current Ratio                         |  |             | 0.72      |  |             |   | 0.59      |      |  |   | 0.43    |  |  |      | 0.67   





|Three months ended December, 31                        |  |             |           |   |             |   |            |      |  |   |         |   |  |      |        
|------------------------------------------------------ |  | ----------- | --------- | - | ----------- | - | ---------- | ---- |  | - | ------- | - |  | ---- | -------
|STATEMENT OF                                           |  |             |           |   |             |   |            |      |  |   |         |   |  |      |        
|OPERATIONAL DATA                                       |  | 2010        |           |   | 2009        |   |            | 2008 |  |   | 2007    |   |  | 2006 |        
|                                                       |  | As restated |           |   | As restated |   |            |      |  |   |         |   |  |      |        
|(USD in thousands, except share and per share amounts) |  |             |           |   |             |   |            |      |  |   |         |   |  |      |        
|Statement of Operations Data                           |  |             |           |   |             |   |            |      |  |   |         |   |  |      |        
|Sales                                                  |  | $           | 467,161   |   |             | $ | 463,277    |      |  | $ | 261,087 |   |  | $    | 268,192
|Cost of Goods sold                                     |  |             | 462,445   |   |             |   | 449,623    |      |  |   | 282,662 |   |  |      | 247,239
|Gross Profit                                           |  |             | 4,716     |   |             |   | 13,654     |      |  |   | (21,575 | ) |  |      | 20,953 
|Selling, General, and Administrative Expenses          |  |             | 17,204    |   |             |   | 11,855     |      |  |   | 8,578   |   |  |      | 5,894  
|Income (Loss) from Operations                          |  |             | (12,488   | ) |             |   | 1,799      |      |  |   | (30,153 | ) |  |      | 15,059 
|Net income (Loss) Attributable to Controlling Interest |  | $           | (18,606   | ) |             | $ | (14,652    | )    |  | $ | (9,705  | ) |  | $    | 12,057 
|Earnings (Loss) per share                              |  |             |           |   |             |   |            |      |  |   |         |   |  |      |        
|Basic                                                  |  | $           | (0.34     | ) |             |   | $ (0. 35 ) |      |  | $ | (0.27   | ) |  | $    | 0.36   
|Diluted                                                |  | $           | (0.34     | ) |             | $ | (0.35      | )    |  | $ | (0.27   | ) |  | $    | 0.36   
|                                                       |  |             |           |   |             |   |            |      |  |   |         |   |  |      |        
|Balance Sheet Data                                     |  |             |           |   |             |   |            |      |  |   |         |   |  |      |        
|Current Assets                                         |  | $           | 1,139,303 |   |             | $ | 617,607    |      |  | $ | 315,445 |   |  | $    | 232,608
|Total Assets                                           |  | $           | 1,799,380 |   |             |   | 1,224,370  |      |  | $ | 865,714 |   |  | $    | 478,407
|Total Liabilities                                      |  | $           | 1,677,858 |   |             |   | 1,066,086  |      |  | $ | 751,476 |   |  | $    | 382,974
|Noncontrolling interest                                |  | $           | 51,969    |   |             |   | 70,148     |      |  | $ | 54,330  |   |  | $    | 42,044 





29







The financial data included within the proceeding
table should be read in conjunction with our Management’s Discussion and Analysis as well as the Financial Statements and
Supplementary Data (Items 7 and 8 of this Amendment No. 1), and with our previously filed Original 10-K.



ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



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.



OVERVIEW



We were founded on the
strategy to aggressively merge, partner with, and acquire State-owned enterprises and selected steel companies with great growth
potential within China’s highly fragmented steel industry. As of December 31, 2010, we were comprised of four steel producing
and processing subsidiaries of which Longmen Joint Venture is the largest, and one raw material trading company subsidiary. Located
in Shaanxi province, Longmen Joint Venture contributed approximately 98.1% of our total revenue for the 2010 fiscal year.



Fiscal year 2010 was highlighted by increased
sales revenue, formation of a material trading company and compensation for economic losses:



| | · | Sales revenue increased by 12.0% year-over-year to $1.9
billion, up from $1.7 billion in 2009.
| | - | ----------------------------------------------------------------------------------------------

| | · | The construction of the two 1,280 cubic meter blast furnaces,
two 120 metric ton converters and one 400 square meter sintering machine funded by Shaanxi Steel at the business property of Longmen
Joint Venture were finalized.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30









| | · | In connection with the construction of the two new blast furnaces, to compensate the Company, in the fourth quarter of 2010, Shaanxi Steel reimbursed Longmen Joint Venture $16.4 million (RMB 108 million) related to the value of assets dismantled, various site preparation costs incurred by Longmen Joint Venture and for rent under a 40-year property sub-lease that was entered into by the parties in June 2009 (the "Longmen Sub-lease"), and $27.8 million (RMB 183 million) for the reduced production efficiency caused by the construction. In addition, in 2010 and 2011, Shaanxi Steel reimbursed Longmen Joint Venture $13.5 million (RMB 89 million) each year for production inefficiencies related to the two new blast furnaces, two new converters and one new sintering machine constructed and owned by Shaanxi Steel. The compensations total $57.7 million (RMB 380 million), among which $52.0 million (RMB 343 million) as of December 31, 2010, was recorded as a deferred sub-lease income from the land which was sub-leased by Longmen Joint Venture to Shaanxi Steel on the new furnaces constructed.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In December 2010, we brought online a new 400,000 metric tons capacity rebar production line at Maoming Hengda’s facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | · | In September 2010, we formed Tianwu JV with TME Group, one of the largest and most diversified commodity trading groups in China. We hold a 60% controlling interest in Tianwu JV. Tianwu JV will source raw materials including iron ore domestically and overseas, and is expected to supply approximately 20% to 50% of our iron-ore needs amounting to approximately two to three million metric tons on an annual basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | · | On December 21, 2010, we announced the adoption of a share repurchase program (“Share Repurchase Program”) pursuant to which we may repurchase up to an aggregate of 1,000,000 shares of our common stock. The repurchases may be made from time to time in the open market or in privately negotiated transactions in accordance with applicable federal securities laws. The Share Repurchase Program does not have an expiration date. As of December 31, 2010, we have repurchased 316,760 shares of common stock in open market transactions at an average price of $2.7475 price per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



The results reflect
the strong demand for our construction steel products in our principal markets of Shaanxi and western China. Our subsidiary, Longmen
Joint Venture, continues to benefit from a large number of infrastructure projects in the region fueled by the national stimulus
plan and the national “Go West” economic development initiative.



RESULTS OF OPERATIONS



Industry Environment



In 2010, China’s
steel industry experienced positive growth compared to fiscal 2009 due to the recovering and restabilazation of the domestic economy.
While the price of steel continued to fluctuate in 2010, the price was still lower, on average, than the price that existed before
the 2008 financial crisis. However, the price did reach its highest point of the year in the end of 2010. In addition, according
to the Ministry of Industry and Information Technology, the price of rebar had increased approximately 23.1% at the end of the
year of 2010 compared to the beginning of the year.As a result
of the gradual recovery in the global markets, the demand for raw materials has increased due to increased production of main crude
steel producers which has resulted in rapid increases in the international demand for such raw materials which has resulted in
increased prices of raw materials in China. Such increased prices in raw materials, coupled with the relatively lower price of
steel in China, have led to a decrease in the overall profitability of China’s steel industry.



31







Overview of Company Operations.



Income Statement for the year ended December
31, 2010, 2009 and 2008:





|                                                                          |  |             |           |   |             |   |           |      |  |   | Percentage Change |  
|------------------------------------------------------------------------- |  | ----------- | --------- | - | ----------- | - | --------- | ---- |  | - | ----------------- | -
|                                                                          |  | 2010        |           |   | 2009        |   |           | 2008 |  |   | 2010 VS 2009      |  
|Unit-thousands except share data                                          |  | As restated |           |   | As restated |   |           |      |  |   | As restated       |  
|Sales                                                                     |  | $           | 1,882,140 |   |             | $ | 1,679,770 |      |  | $ | 1,351,203         |  
|Cost of Goods Sold                                                        |  |             | 1,850,725 |   |             |   | 1,590,958 |      |  |   | 1,343,275         |  
|Gross Profit                                                              |  |             | 31,415    |   |             |   | 88,812    |      |  |   | 7,928             |  
|Gross Profit Margin %                                                     |  |             | 1.7       | % |             |   | 5.3       | %    |  |   | 0.6               | %
|Selling, General and Administrative Expenses                              |  |             | 52,577    |   |             |   | 41,059    |      |  |   | 36,942            |  
|Income (Loss) from Operations                                             |  |             | (21,162   | ) |             |   | 47,753    |      |  |   | (29,014           | )
|                                                                          |  |             |           |   |             |   |           |      |  |   |                   |  
|Total Other Income (expense), net                                         |  |             | (33,891   | ) |             |   | (54,857   | )    |  |   | 3,738             |  
|                                                                          |  |             |           |   |             |   |           |      |  |   |                   |  
|Income (Loss) Before Provision for Income Tax and Noncontrolling Interest |  |             | (55,053   | ) |             |   | (7,104    | )    |  |   | (25,276           | )
|                                                                          |  |             |           |   |             |   |           |      |  |   |                   |  
|Total (Benefit) Provision for Income Taxes                                |  |             | (8,782    | ) |             |   | 4,449     |      |  |   | (5,411            | )
|Loss before Noncontrolling Interest                                       |  |             | (46,271   | ) |             |   | (11,553   | )    |  |   | (19,865           | )
|Less: Net Income (loss) Attributable to Noncontrolling Interest           |  |             | (16,265   | ) |             |   | 19,067    |      |  |   | (8,542            | )
|Net Loss Attributable to Controlling Interest                             |  | $           | (30,006   | ) |             | $ | (30,620   | )    |  | $ | (11,323           | )
|Loss Per Share                                                            |  |             |           |   |             |   |           |      |  |   |                   |  
|Basic                                                                     |  | $           | (0.56     | ) |             | $ | (0.73     | )    |  | $ | (0.32             | )
|Diluted                                                                   |  | $           | (0.56     | ) |             | $ | (0.73     | )    |  | $ | (0.32             | )





Revenue



Fiscal year ended December 31, 2010
compared to fiscal year ended December 31, 2009 and 2008



|Revenue by Subsidiary and Product |  | Percentage Change | 
|--------------------------------- |  | ----------------- | 
|USD in thousands                  |  | 2010              | 
|                                  |  |                   | 
|Subsidiary                        |  | Product           | 
|Longmen Joint Venture             |  | Rebar             | 
|Others                            |  |                   | 
|                                  |  |                   | 
|Total Revenue                     |  |                   | 



32







Percentage Change



|In thousands metric tons |  | 2010    |  |             | 2009  |  |             | 2008 |       |  | 2010 VS 2009 |  |             | 2009 VS 2008 | 
|------------------------ |  | ------- |  | ----------- | ----- |  | ----------- | ---- | ----- |  | ------------ |  | ----------- | ------------ | 
|                         |  |         |  | As restated |       |  | As restated |      |       |  |              |  | As restated |              | 
|Subsidiary               |  | Product |  |             |       |  |             |      |       |  |              |  |             |              | 
|Longmen Joint Venture    |  | Rebar   |  |             | 3,510 |  |             |      | 3,420 |  |              |  | 2,030       |              | 
|Others                   |  |         |  |             | 415   |  |             |      | 439   |  |              |  | 278         |              | 
|                         |  |         |  |             |       |  |             |      |       |  |              |  |             |              | 
|Total Production         |  |         |  |             | 3,925 |  |             |      | 3,859 |  |              |  | 2,308       |              | 



Total Sales Revenue
for the fiscal year 2010 increased 12.0% to $1.9 billion from $1.7 billion in last year. The increase in sales revenue compared
to last year is predominantly due to the sales volume increase of 1.7% and a 16.1% increase in the average selling price of rebar
at Longmen Joint Venture to approximately $524.6 (RMB3,546) in 2010 from approximately $452.0 (RMB3,083) in 2009.



Longmen Joint Venture
comprised 98.1% of total sales for 2010. We operated at about 89% of our total capacity in 2010 due to a stable market demand for
our construction steel products.



Maoming Hengda comprised
$10.0 million, or less than 1% of our total sales in 2010. The decrease in sales revenue compared to last year is primarily due
to a greater number of processing contracts versus production contracts. In 2010, Maoming Hengda only executed processing contracts
which generated less sale revenue whereas both processing and production contracts were performed in 2009.



33







Income Statement for the three months ended
December 31, 2010 and 2009:



|Income Statement                                                          |  |                     |         |   |                     |   |         | Percentage 
Change | 
|------------------------------------------------------------------------- |  | ------------------- | ------- | - | ------------------- | - | ------- | ------------------ | 
|Unit-thousands except share data                                          |  | 2010 Q4 As restated |         |   | 2009 Q4 As restated |   |         | 2010 Q4 VS 2009 Q4 | 
|                                                                          |  | (Unaudited)         |         |   | As restated         |  
|Sales                                                                     |  | $                   | 467,161 |   |                     | $ | 463,277 |                    | 
|Cost of Goods Sold                                                        |  |                     | 462,445 |   |                     |   | 449,623 |                    | 
|Gross Profit                                                              |  |                     | 4,716   |   |                     |   | 13,654  |                    | 
|Gross Profit Margin %                                                     |  |                     | 1.0     | % |                     |   | 2.9     | %                  | 
|Selling, General and Administrative Expenses                              |  |                     | 17,204  |   |                     |   | 11,855  |                    | 
|Income (loss) from Operations                                             |  |                     | (12,488 | ) |                     |   | 1,799   |                    | 
|Total Other expense, net                                                  |  |                     | (18,405 | ) |                     |   | (18,985 | )                  | 
|Income (Loss) Before Provision for Income Tax and Noncontrolling Interest |  |                     | (30,893 | ) |                     |   | (17,186 | )                  | 
|Total Expense (Benefit) for Income Taxes                                  |  |                     | (3,698  | ) |                     |   | (1,416  | )                  | 
|                                                                          |  |                     |         |   |                     |   |         |                    | 
|Income (Loss) before Noncontrolling Interest                              |  |                     | (27,195 | ) |                     |   | (15,770 | )                  | 
|                                                                          |  |                     |         |   |                     |   |         |                    | 
|Less: Net Income Attributable to Noncontrolling Interest                  |  |                     | (8,589  | ) |                     |   | (1,118  | )                  | 
|Net Income (Loss) Attributable to Controlling Interest                    |  | $                   | (18,606 | ) |                     | $ | (14,652 | )                  | 
|Earnings(Loss) Per Share                                                  |  |                     |         |   |                     |   |         |                    | 
|Basic                                                                     |  | $                   | (0.34   | ) |                     | $ | (0.35   | )                  | 
|Diluted                                                                   |  | $                   | (0.34   | ) |                     | $ | (0.35   | )                  | 



Three months ended December 31, 2010
compared to three months ended December 31, 2009





|Revenue by Subsidiary and Product |  |             |  |                             |  |  |                             |  |  |                                                |      
|--------------------------------- |  | ----------- |  | --------------------------- |  |  | --------------------------- |  |  | ---------------------------------------------- | -----
|USD in thousands                  |  |             |  |                             |  |  |                             |  |  | Percentage Change                              |      
|Subsidiary                        |  | Product     |  | 2010 Q4
        As restated |  |  | 2009 Q4
        As restated |  |  | 2010 Q4 VS
        2009 Q4
        As restated |      
|                                  |  |             |  | (Unaudited)                 |  |  |                             | 
|Longmen Joint Venture             |  | Rebar       |  | 456,339                     |  |  | 433,489                     |  |  |                                                | 5.3  
|Other                             |  |             |  | 10,822                      |  |  | 29,788                      |  |  |                                                | (63.7
|                                  |  | Total Sales |  | 467,161                     |  |  | 463,277                     |  |  |                                                | 0.8  



|Production by Subsidiary and Product
        (in thousand metric tons) |  |                  |  |                             |     |  |                             | Percentage Change |      
|---------------------------------------------------------------------- |  | ---------------- |  | --------------------------- | --- |  | --------------------------- | ----------------- | -----
|Subsidiary                                                             |  | Product          |  | 2010 Q4
        As restated |     |  | 2009 Q4
        As restated |                   |      
|                                                                       |  |                  |  | (Unaudited)                 |     |  |                             |                   |      
|Longmen Joint Venture                                                  |  | Rebar            |  |                             | 805 |  |                             |                   | 969  
|Other                                                                  |  |                  |  |                             | 134 |  |                             |                   | 180  
|                                                                       |  | Total Production |  |                             | 939 |  |                             |                   | 1,149



Total Sales Revenue
for the three months ended December 31, 2010 only increased 0.8% to $467.2 million from $463.3 million for the same period last
year. The slight increase is predominantly a result of a 25.3% rise in the average selling price of rebar from approximately $447.2
(RMB3,048) in the fourth quarter of 2009 to approximately $560.2 (RMB3,787) in fourth quarter of 2010 and a 18.3% drop of production
decrease from 1,149 metric tons in the fourth quarter of 2009 to 939 metric tons in the fourth quarter of 2010 due to the production
inefficiency caused by the construction of Shaanxi Steel’s blast furnaces.



34







Longmen Joint Venture
comprised 97.7% of total sales for the fourth quarter of 2010. Compared to the same period in 2009, the production decreased 16.9%
to 805,000 metric tons from 969,000 metric tons. The decrease is due to the negative impact of blast furnace construction by Shaanxi
Steel, as is more fully described in the gross profit analysis section. Total Sales Revenue of Longmen Joint Venture for the three
months ended December 31, 2010 increased 5.3% to $456.3 million from $433.5 million in the same period last year. The increase
is predominantly a result of a 25.3% rise in the average selling price of rebar to approximately $560.2 (RMB3,787) in fourth quarter
of 2010 from approximately $447.2 (RMB3,048) in the fourth quarter of 2009.



Compared to the same
period last year, the sales revenue of other subsidiaries decreased 63.7% to $10.8 million from $29.8 million in the fourth quarter
in 2009. The decrease is mainly because we changed the operating model at General Steel (China) and only executed processing contracts
at Maoming Hengda which generated less sale revenue in 2010.



Cost of Goods Sold

Fiscal year ended December 31, 2010
compared with fiscal years ended December 31, 2009 and 2008



|Cost of Goods Sold                   |  |                  |           |  | Percentage Change |  
|------------------------------------ |  | ---------------- | --------- |  | ----------------- | -
|USD in thousands                     |  | 2010 As restated |           |  | 2009 As restated  |  
|                                     |  |                  |           |  |                   |  
|Cost of Goods Sold                   |  | $                | 1,369,523 |  |                   | $
|Cost of Goods Sold - Related Parties |  | $                | 481,202   |  |                   | $
|Total Cost of Goods Sold             |  | $                | 1,850,725 |  |                   | $



Three months ended December 31, 2010
compared to three months ended December 31, 2009



|                                     |  |                     |         |  |                     |   |         | Percentage Change              | 
|------------------------------------ |  | ------------------- | ------- |  | ------------------- | - | ------- | ------------------------------ | 
|(USD in thousands)                   |  | 2010 Q4 As restated |         |  | 2009 Q4 As restated |   |         | 2010 Q4 VS 2009 Q4 As restated | 
|Cost of Goods Sold                   |  | $                   | 347,671 |  |                     | $ | 319,082 |                                | 
|Cost of Goods Sold - Related Parties |  | $                   | 114,774 |  |                     | $ | 130,541 |                                | 
|Total Cost of Goods Sold             |  | $                   | 462,445 |  |                     | $ | 449,623 |                                | 



Our primary cost of
goods sold is the cost of raw materials such as iron ore, coke, alloy and scrap steel. The costs of iron ore and coke account for
approximately 80% of our total cost of sales. As a result, the cost of goods sold increased by 16.3% to $1.9 billion in 2010 from
$1.6 billion in the year ago period. The increase is mainly due to the ascending of sales volume and the rise of iron ore and coke
price. The cost of goods sold increased 2.9% slightly to $462.4 million in the fourth quarter of 2010 from $449.6 million in the
same period of 2009 due to the negative impact of Shaanxi Steel’s construction and production inefficiencies in the fourth
quarter of 2010 and which is discussed in detail in the following section.



35







Gross Profit



Fiscal year ended December 31, 2010
compared to fiscal year ended December 31, 2009 and 2008



|                    |  |                  |        |   | Percentage Change |  
|------------------- |  | ---------------- | ------ | - | ----------------- | -
|USD in thousands    |  | 2010 As restated |        |   | 2009 As restated  |  
|                    |  |                  |        |   |                   |  
|Gross Profit        |  | $                | 31,415 |   |                   | $
|Gross Profit Margin |  |                  | 1.7    | % |                   |  



Gross profit for 2010
decreased 64.6% to $31.4 million from $88.8 million in 2009. The decrease is primarily attributable to a drop in gross profit at
Longmen Joint Venture because the costs for production inefficiencies from construction of furnaces that Shaanxi Steel compensated
are recorded as deferred lease income. The purchase price of our primary raw materials including iron ore and coke increased in
2010, which had a negatively impact on gross profit margin.



Three months ended December 31, 2010
compared to three months ended December 31, 2009



|(USD in thousands)  |  |                     |       |   |                     |   |        | Percentage Change              | 
|------------------- |  | ------------------- | ----- | - | ------------------- | - | ------ | ------------------------------ | 
|                    |  | 2010 Q4 As restated |       |   | 2009 Q4 As restated |   |        | 2010 Q4 VS 2009 V4 As restated | 
|                    |  | (Unaudited)         |       |   |                     |  
|Gross Profit        |  | $                   | 4,716 |   |                     | $ | 13,654 |                                | 
|Gross Profit Margin |  |                     | 1.0   | % |                     |   | 2.9    | %                              | 



The gross margin decreased
in the fourth quarter 2010 to 1.0% compared to 2.9% in the same period last year. The decrease is predominantly due to certain
fees and costs for production inefficiencies from construction of furnaces that Shaanxi Steel compensated but recorded as deferred
lease income. The deferred lease income will be amortized over the 40 year sub-lease term at Longmen Joint Venture during the construction
of blast furnaces by Shaanxi Steel.



Selling, General and Administrative Expenses

Fiscal year ended December 31, 2010
compared with fiscal year ended December 31, 2009 and 2008



|Selling, General and Administrative Expenses                        |  |                  |        |   | Percentage Change |  
|------------------------------------------------------------------- |  | ---------------- | ------ | - | ----------------- | -
|USD in thousands                                                    |  | 2010 As restated |        |   | 2009 As restated  |  
|                                                                    |  |                  |        |   |                   |  
|Selling, General and Administrative expenses                        |  | $                | 52,577 |   |                   | $
|                                                                    |  |                  |        |   |                   |  
|Selling, General and Administrative expenses as percentage of sales |  |                  | 2.8    | % |                   |  



36







SG&A Expenses increased
28.1% to $52.6 million in 2010 compared to $41.1 million in 2009. The increase is mainly due to the climbing transportation and
sales agent charges at Longmen Joint Venture related to the increase of shipping volume and long distance sales deliveries to markets
in Henan, Hubei and Chongqing. SG&A expenses as a percentage of revenue increased slightly to 2.8% for 2010 from 2.4% in 2009
and 2.7% in 2008.



Three months ended December 31, 2010
compared with three months ended December 31, 2009



|(USD in thousands)                           |  | 2010 Q4 As restated |        |   | 2009 Q4 As restated |   |        | Percentage Change 2010 Q4 VS 2009 Q4 As restated | 
|-------------------------------------------- |  | ------------------- | ------ | - | ------------------- | - | ------ | ------------------------------------------------ | 
|                                             |  | (Unaudited)         |        |   |                     |  
|Selling, General and Administrative expenses |  | $                   | 17,204 |   |                     | $ | 11,855 |                                                  | 
|SG&A/Revenue %                               |  |                     | 3.7    | % |                     |   | 2.6    | %                                                | 



Selling, general and
administrative expenses, including transportation charges, executive compensation, office expenses, legal and accounting charges,
travel charges, equipment maintenance and various taxes increased 45.1% to $17.2 million for the three months ended December 31,
2010 compared to $11.9 million in the same period of 2009. The increase is mainly due to the rising transportation and sales agent
charges on long distance deliveries outside of Shaanxi province.



Selling, general and
administrative expenses as a percentage of revenue increased to 3.7% for the fourth quarter of 2010 from 2.6% in the same period
of 2009. The increase is mainly due to the rising transportation and sales agent charges on long distance deliveries outside of
Shaanxi province.



Income (Loss) from Operations



Fiscal year ended December 31, 2010
compared to fiscal year ended December 31, 2009 and 2008



|                              |  |                  |         |   | Percentage Change |  
|----------------------------- |  | ---------------- | ------- | - | ----------------- | -
|USD in thousands              |  | 2010 As restated |         |   | 2009 As restated  |  
|                              |  |                  |         |   |                   |  
|Income (Loss) from Operations |  | $                | (21,162 | ) |                   | $



The loss from operations
in 2010 amounted to $21.2 million, as compared to income of $47.8 million income for the same period last year. The decrease is
predominantly due to the drop in gross profit caused by higher purchase price of iron ore and coke in 2010 and costs for production
inefficiencies from construction of furnaces that Shaanxi Steel compensated but recorded as deferred lease income.



Three months ended December 31, 2010
compared with three months ended December 31, 2009



|(USD in thousands)            |  |                     |         |   |                     |   |       | Percentage Change              | 
|----------------------------- |  | ------------------- | ------- | - | ------------------- | - | ----- | ------------------------------ | 
|                              |  | 2010 Q4 As restated |         |   | 2009 Q4 As restated |   |       | 2010 Q4 VS 2009 Q4 As restated | 
|                              |  | (Unaudited)         |         |   |                     |  
|Income (Loss) from Operations |  | $                   | (12,488 | ) |                     | $ | 1,799 |                                | 



37







Loss from operations
for the three months ended December 31, 2010 decreased to $12.5 million from $1.8 million income for the same period last year.
The decrease is primarily due to the revenue loss and cost increase from the production inefficiency caused by the construction
of blast furnaces of Shaanxi Steel. Also costs for production inefficiencies from construction of the furnaces that Shaanxi Steel
compensated but recorded as deferred lease income, has resulted in an extra decrease.



Total Other Income (Expense), Net

Fiscal year ended December 31, 2010
compared with fiscal years ended December 31, 2009 and 2008



|Total Other Income (Expense), Net              |  |                  |         |   | Percentage Change | 
|---------------------------------------------- |  | ---------------- | ------- | - | ----------------- | 
|USD in thousands                               |  | 2010 As restated |         |   | 2009 As restated  | 
|Interest Income                                |  | $                | 6,154   |   |                   | 
|Finance/interest expense                       |  |                  | (51,283 | ) |                   | 
|Change in Fair Value of Derivative Liabilities |  |                  | 15,055  |   |                   | 
|Gain from Debt Extinguishment                  |  |                  | -       |   |                   | 
|Government Grant                               |  |                  | -       |   |                   | 
|Loss on Disposal of Fixed Assets               |  |                  | (9,447  | ) |                   | 
|Realized income from future contract           |  |                  | 1,424   |   |                   | 
|Income from Investment                         |  |                  | 6,383   |   |                   | 
|Lease Income                                   |  |                  | 943     |   |                   | 
|Other Non-operating Income, net                |  |                  | (3,120  | ) |                   | 
|Total Other (Expense) Income, Net              |  |                  | (33,891 | ) |                   | 



Total other expenses for
the year ended December 31, 2010 were $33.9 million compared to $54.9 million in 2009 and total other income of $3.7 million in
2008.



The decrease of total
other expenses, net was mainly a result of the combined effect of a $23.4 million increase in Finance/Interest expense and a gain
of $48.2 million in the change in fair value of derivative liabilities.



Three months ended December 31, 2010
compared with three months ended December 31, 2009



|OTHER INCOME(EXPENSE), NET                     |  |                     |         |   | Percentage Change   |  
|---------------------------------------------- |  | ------------------- | ------- | - | ------------------- | -
|(USD in thousands)                             |  | 2010 Q4 As restated |         |   | 2009 Q4 As restated |  
|                                               |  | (Unaudited)         |         |   |                     |  
|Interest Income                                |  | $                   | 2,678   |   |                     | $
|Finance/interest Expense                       |  |                     | (13,666 | ) |                     |  
|Change in Fair Value of Derivative Liabilities |  |                     | 1,476   |   |                     |  
|Gain from Debt Extinguishment                  |  |                     | -       |   |                     |  
|Government Grant                               |  |                     | (1,381  | ) |                     |  
|Gain from Investment in Future Contracts       |  |                     | 1,424   |   |                     |  
|Loss on Disposal of Fixed assets               |  |                     | (9,447  | ) |                     |  
|Income from Investment                         |  |                     | 2,316   |   |                     |  
|Lease Income                                   |  |                     | 345     |   |                     |  
|Other Non-operating Expense, net               |  | $                   | (2,150  | ) |                     | $
|Total Other Expense, net                       |  | $                   | (18,405 | ) |                     | $



38







Total other expenses,
net for the three months ended December 31, 2010 were $18.4 million, a 3.1% decrease compared to $19.0 million in the same period
last year. The decrease of total other expenses, net was mainly a result of the combined effect of a $4.2 million increase in Finance/Interest
expense, a $9.5 million loss on disposal of fixed assets and a loss of $1.5 million in the change in fair value of derivative liabilities.



Change in Fair Value of Derivative
Liabilities



According to GAAP,
our December 2007 Convertible 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 years ended December 31, 2010 was a gain of $15.1 million compared to a loss of $33.2 million
for the same period last year. The change in fair value of derivative liabilities for the three months ended December 31, 2010
was a gain of $1.5 million compared to a loss of $9.9 million for the same period last year. This gain is due to a change of stock
price of our common stock as of December 31, 2010 compared to the one as of 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 $1.5 million and $15.1 million gain for the three months and the year ended December 31, 2010, respectively.



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 been
converted into common stock.



Net Income (Loss) Before Noncontrolling
Interest



Fiscal year ended December 31, 2010
compared with fiscal year ended December 31, 2009 and 2008



|Net Income (Loss) Before Noncontrolling Interest |  |                  |         |   | Percentage Change |  
|------------------------------------------------ |  | ---------------- | ------- | - | ----------------- | -
|USD in thousands                                 |  | 2010 As restated |         |   | 2009 As restated  |  
|                                                 |  |                  |         |   |                   |  
|Net loss before noncontrolling interest          |  | $                | (46,271 | ) |                   | $



Three months ended December 31, 2010
compared with three months ended December 31, 2009



|                                        |  | 2010 Q4 As restated |         |   | 2009 Q4 As restated |   |         | Percentage Change As restated | 
|--------------------------------------- |  | ------------------- | ------- | - | ------------------- | - | ------- | ----------------------------- | 
|                                        |  | (Unaudited)         |         |   |                     |  
|                                        |  |                     |         |   |                     |   |         |                               | 
|Net loss before noncontrolling interest |  | $                   | (27,195 | ) |                     | $ | (15,770 | )                             | 



39







Net (Loss) Income attributable to General
Steel Holdings, Inc.



Fiscal year ended December 31, 2010
compared to fiscal year ended December 31, 2009 and 2008



|                                                                |  |                  |         |   | Percentage Change |  
|--------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------- | -
|USD in thousands                                                |  | 2010 As restated |         |   | 2009 As restated  |  
|Net loss before noncontrolling interest                         |  | $                | (46,271 | ) |                   | $
|Less: Net income (loss) attributable to noncontrolling interest |  | $                | (16,265 | ) |                   | $
|Net loss attributable to controlling interest                   |  | $                | (30,006 | ) |                   | $



Three months ended December 31, 2010
compared with three months ended December 31, 2009



|(USD in thousands)                                     |  |                     |         |   |                     |   |         | Percentage Change              | 
|------------------------------------------------------ |  | ------------------- | ------- | - | ------------------- | - | ------- | ------------------------------ | 
|                                                       |  | 2010 Q4 As restated |         |   | 2009 Q4 As restated |   |         | 2010 Q4 VS 2009 Q4 As restated | 
|                                                       |  | (Unaudited)         |        
|Net loss before noncontrolling interest                |  | $                   | (27,195 | ) |                     | $ | (15,770 | )                              | 
|Less: Net loss attributable to noncontrolling interest |  | $                   | (8,589  | ) |                     | $ | (1,118  | )                              | 
|Net loss attributable to controlling interest          |  | $                   | (18,606 | ) |                     | $ | (14,652 | )                              | 



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



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



40







(Loss) Earnings per Share



Fiscal year ended December 31, 2010
compared to fiscal year ended December 31, 2009 and 2008



|                                              |  |                  |         |   | Percentage Change |  
|--------------------------------------------- |  | ---------------- | ------- | - | ----------------- | -
|(in thousands, except earnings per share)     |  | 2010 As restated |         |   | 2009 As restated  |  
|Net loss attributable to controlling interest |  | $                | (30,006 | ) |                   | $
|                                              |  |                  |         |   |                   |  
|Weighted average number of shares             |  |                  |         |   |                   |  
|                                              |  |                  |         |   |                   |  
|Basic                                         |  |                  | 53,113  |   |                   |  
|Diluted                                       |  |                  | 53,113  |   |                   |  
|                                              |  |                  |         |   |                   |  
|Loss per share                                |  |                  |         |   |                   |  
|                                              |  |                  |         |   |                   |  
|Basic                                         |  | $                | (0.56   | ) |                   | $
|Diluted                                       |  | $                | (0.56   | ) |                   | $



Three months ended December 31, 2010
compared three months ended December 31, 2009



|(in thousands, except earnings per share)     |  |                     |         |   |                     |   |         | Percentage Change            | 
|--------------------------------------------- |  | ------------------- | ------- | - | ------------------- | - | ------- | ---------------------------- | 
|                                              |  | 2010 Q4 As restated |         |   | 2009 Q4 As restated |   |         | 2010 Q4 VS2009 Q4As restated | 
|                                              |  | (Unaudited)         |         |   |                     |  
|Net loss attributable to controlling interest |  | $                   | (18,606 | ) |                     | $ | (14,652 | )                            | 
|                                              |  |                     |         |   |                     |   |         |                              | 
|Weighted average number of shares             |  |                     |         |   |                     |   |         |                              | 
|Basic                                         |  |                     | 54,704  |   |                     |   | 41,860  |                              | 
|Diluted                                       |  |                     | 54,704  |   |                     |   | 41,860  |                              | 
|                                              |  |                     |         |   |                     |   |         |                              | 
|Loss per share                                |  |                     |         |   |                     |   |         |                              | 
|Basic                                         |  | $                   | (0.34   | ) |                     | $ | (0.35   | )                            | 
|Diluted                                       |  | $                   | (0.34   | ) |                     | $ | (0.35   | )                            | 



Income Taxes



We did not conduct any
business and did not maintain any branch office in the United States during the three months ended December 31, 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 Coastal Economic Development Zone and is subject to an effective income tax rate at 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
by the end of 2010. This special tax treatment will be evaluated on a year-to-year basis by the local tax bureau.



41







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



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



Tianwu Joint Venture
is located in Tianjin Coastal Economic Development Zone and is subject to an effective income tax rate at 25%.



For the three months
ended December 31, 2010, we had a total tax benefit of $3.7 million. For the years ended December 31, 2010, we had a total tax
benefit of $8.8 million.



We had cumulative undistributed
deficit of foreign subsidiaries of approximately $21.3 million as of December 31, 2010. Accordingly, no provision has been made
for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income
taxes that would have to be provided if we concluded that such earnings will be remitted in the future.



We were incorporated
in the United States and have incurred net operating losses for income tax purposes for the years ended December 31, 2010 and 2009.
The net operating loss carry forwards for United States income taxes amounted to $1.8 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 December 31, 2010 was $0.6 million. The net change in the valuation
allowance for the year ended December 31, 2010, versus the year ended December 31, 2009, 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 Hengda by a third party and TME Group’s 40% interest in Tianwu
GS.



Accounts Receivable



Accounts receivable
and accounts receivable-related party were $22.7 million as of December 31, 2010 has decreased from $27.4 million on December 31,
2009. This decrease was due to a combination effect of increase of accounts receivable and decrease of accounts receivable-related
parties. Accounts receivable has increased to $18.5 million as of December 31, 2010 from $9.1 million as of December 31, 2009 due
to the fact that we have extended the payment terms with certain government projects.



42







Inventories



We had an inventory
balance of $453.6 million as of December 31, 2010 compared to $177.4 million as of December 31, 2009. Such balance is comprised
of raw material and finished products. The increase of raw materials at the end of 2010 is due to the management’s expectation
of price rise and preparation for the test run of the new furnaces.







|                  |  | December 31,2010 |         |  | December 31,2009 |   |         | Percentage Change | 
|----------------- |  | ---------------- | ------- |  | ---------------- | - | ------- | ----------------- | 
|(in thousands)    |  | As restated      |         |  | As restated      |   |         | As restated       | 
|                  |  |                  |         |  |                  |   |         |                   | 
|Supplies          |  | $                | 13,733  |  |                  | $ | 12,235  |                   | 
|Raw materials     |  |                  | 381,178 |  |                  |   | 134,874 |                   | 
|Finished goods    |  |                  | 58,725  |  |                  |   | 30,260  |                   | 
|Total inventories |  | $                | 453,636 |  |                  | $ | 177,369 |                   | 



Quarterly Data



|Year Ended December 31,                                |  | First       |         |   | Second  |   |         | Third   |  |   | Fourth  |   |  |           |        
|------------------------------------------------------ |  | ----------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | --------- | -------
|(In thousands except per share data                    |  | Quarter     |         |   | Quarter |   |         | Quarter |  |   | Quarter |   |  | Full Year |        
|                                                       |  | As restated |        
|2010                                                   |  |             |         |   |         |   |         |         |  |   |         |   |  |           |        
|Revenues                                               |  | $           | 453,023 |   |         | $ | 501,679 |         |  | $ | 460,277 |   |  | $         | 467,161
|Gross profit                                           |  | $           | 5,746   |   |         | $ | 7,364   |         |  | $ | 13,589  |   |  | $         | 4,716  
|Net loss  attributable to controlling Interest         |  | $           | (5,612  | ) |         | $ | (2,004  | )       |  | $ | (3,784  | ) |  | $         | (18,606
|Basic loss per Share                                   |  | $           | (0.11   | ) |         | $ | (0.04   | )       |  | $ | (0.07   | ) |  | $         | (0.34  
|Diluted loss per Share                                 |  | $           | (0.11   | ) |         | $ | (0.04   | )       |  | $ | (0.07   | ) |  | $         | (0.34  
|                                                       |  |             |         |   |         |   |         |         |  |   |         |   |  |           |        
|2009                                                   |  |             |         |   |         |   |         |         |  |   |         |   |  |           |        
|Revenues                                               |  | $           | 322,794 |   |         | $ | 408,947 |         |  | $ | 484,752 |   |  | $         | 463,277
|Gross profit                                           |  | $           | 12,921  |   |         | $ | 22,499  |         |  | $ | 39,738  |   |  | $         | 13,654 
|Net income (loss) attributable to controlling Interest |  | $           | 7,334   |   |         | $ | (31,789 | )       |  | $ | 8,487   |   |  | $         | (14,652
|Basic earnings (loss) per Share                        |  | $           | 0.20    |   |         | $ | (0.80   | )       |  | $ | 0.19    |   |  | $         | (0.35  
|Diluted earnings (loss) per Share                      |  | $           | 0.20    |   |         | $ | (0.80   | )       |  | $ | 0.17    |   |  | $         | (0.35  



LIQUIDITY AND CAPITAL RESOURCES



As of December 31, 2010,
we had cash and restricted cash aggregating $263.1 million.



For the year ended December
31, 2010, we used cash flow from continuing operations, borrowings, cash and cash equivalents to fund working capital requirements,
pay interest payments, capital expenditures and to make investments.



43







We believe our cash
flows from operations (which include customer prepayment and vendor financing), existing cash balances, and credit facilities will
be adequate to finance our working capital requirements, fund capital expenditures, make required debt and interest payments, pay
taxes, and support our operating strategies.



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 December 31, 2010,
we had $480.2 million in short-term notes payables liabilities, which are secured by restricted cash of $167.7 million and restricted
notes receivable of $159.3 million and other assets. These are lines of credit extended by banks for a maximum of 6 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. We pay zero interest on this type of credit
as 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 December 31, 2010,
we had $285.2 million in short-term bank loans. These are bank loans with a one year term and must be paid in full upon maturity.
There are no additional significant financial covenants tied to these loans. Chinese banks have not been impacted as heavily by
the financial crisis as U.S. banks and we believe our current creditors will renew their lending to us after our loans mature as
they have in the past.



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



For more details about
our debts, please see Note 8  in our Notes to the financial statements.



Cash-flow



Operating activities



Net cash used in operating activities for
the year ended December 31, 2010 was an outflow $164.2 million compared to an inflow $4.8 million in the same period of 2009. This
change was mainly due to the combination of the following factors:



Some non-cash items included in net income
resulting an impact of $21.9 million on the cash flow statement in 2010, compared to $71.1 million in the same period in 2009.
The non-cash items are the following:



| | - | depreciation and amortization
| | - | -----------------------------

| | - | debt extinguishment
| | - | -------------------

| | - | bad debt allowance
| | - | ------------------



44







| | - | inventory written-off
| | - | ---------------------

| | - | impairment of long-lived assets
| | - | -------------------------------

| | - | gain/loss on disposal of equipment
| | - | ----------------------------------

| | - | stock issued for services and compensation
| | - | ------------------------------------------

| | - | net income from compensation
| | - | ----------------------------

| | - | make whole shares interest expense on notes conversion
| | - | ------------------------------------------------------

| | - | amortization of deferred note issuance cost and discount on convertible notes
| | - | -----------------------------------------------------------------------------

| | - | change in fair value of derivative instrument
| | - | ---------------------------------------------

| | - | income from investment
| | - | ----------------------

| | - | deferred tax assets
| | - | -------------------



The primary reasons for the material fluctuations
in cash inflow are as follow:



| | 1. | Accounts payable/Accounts payable – related parties: the increase in accounts payable is
mainly due to the increased raw material purchase for the trial production of the two new blast furnaces systems and the management
expected that the raw materials purchase price and steel sales prices are going to be increased in the first quarter of 2011 and
intended to storage more inventories.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Other payables – related parties: the increase is mainly due to additional borrowing from
the entities that are under common control by our CEO
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Deferred Lease Income: the increase is mainly due to the receipt of
compensation in related to the construction of two new blastfurnacessystems in the fourth quarter of 2010 that will be deferred for future periods.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The primary reasons for the material fluctuations
in cash outflows are as follow:

| | 1. | Other receivables – related parties: the increase is mainly due to the additional borrowings
to the entities that are under common control by our CEO
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Inventories: the increase is mainly due to the increase of their raw materials storage for the
trial production of the two new blast furnaces systems and the management expected that the raw materials purchase price and steel
sales prices are going to be increased in the first quarter of 2011 and intended to storage more inventories.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Customer deposit: the decrease is mainly due to the completion of our customers’ orders during
2010.
| | -- | ----------------------------------------------------------------------------------------------------



Investing activities



Net cash used by investing
activities was $86.9 million for the year ended December 31, 2010 compared to $166.3 million for the year ended December 31, 2009.
Fluctuation in cash outflow between two periods was mainly due to the equipment purchases and advance on equipment purchases for
the production line relocated from Maoming Hengda to Longmen Joint Venture in 2010, which improved the useful life of the production
line, as well as the quality of the goods and efficiency of the production as a result of the technical updates. In 2009, our cash
flow is mainly due to the equipment purchases in relation to our two 1,280 cubic meter blast furnaces at Longmen Joint Venture.



Financing activities



Net cash provided by
financing activities was $232.4 million for the year ended December 31, 2010 compared to $228.8 million for the year ended December
31, 2009.



45







Compared to same the period in 2009, the
increase of cash inflow from financing activities was mainly driven by the following:



| | 1. | Short term loan: The Company increased more loan borrowing from the bank compared to the same period
last year
| | -- | --------------------------------------------------------------------------------------------------------------

| | 2. | Notes payables: The Company increased more notes borrowing from the bank to settling the payables
to suppliers
| | -- | --------------------------------------------------------------------------------------------------------------



Compared
to the same period in 2009, the increase of cash outflow from financing activities was mainly driven by the increase in restricted
notes receivable as the Company has notes receivable pledged as collateral for short-term loans and
short-term notes payable issued by banks, which is consistent to the increase of the loans and notes borrowings.



Substantially, all of
our operations are conducted in China and substantially all of our assets are located in China. In addition, substantially all
of our transactions are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result,
China has strict rules for converting RMB to other currencies and the transfer of funds from PRC subsidiaries to the offshore structure
and the U.S. holding companies.



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



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



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



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



46







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 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.



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
regulation



Longmen Joint Venture:



Along with our joint
venture partner Longmen Steel Group and Shaanxi Steel, we have invested RMB580 million in a series of comprehensive projects to
reduce its waste emissions of coal gas, water, and solid waste. In 2005, we received ISO 14001 certification for our overall environmental
management system. We have received several awards from the Shaanxi provincial government as a result of our increased effort in
environmental protection.



We have spent more than
RMB57 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, 1.08 metric tons of new water was consumed per metric ton of steel produced.



We have one 10,000 cubic
meter coke-oven gas tank and one 50,000 cubic meter blast furnace coal gas tank and one 80,000 cubic meter converter furnace coal
gas tank to collect the residual coal gas produced from our facility and that of surrounding enterprises. We also have spent RMB230
million on a thermal power plant with two 25 Kilowatt generators that use the residual coal gas from the blast furnaces and converters
as fuel to generate power.



We have 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, and ornamental tiles.



47







In 2009, we treated
and recycled about 6.8 million tons of waste water, 335,320 tons of slag, 130 million m3 of gas from the converters and 6.1
billion m3 of gas from the blast furnaces. We also reused 855,714 tons of hot steam and generated 433 million KWH of electricity.



Recently, we spent more
than RMB60 million on the technical upgrade and renovation of the converters and RMB5.5 billion on the upgrade of the blast furnaces
and the sintering machines.



OFF-BALANCE SHEET ARRANGEMENTS



There were no off-balance
sheet arrangements for the 2010 fiscal year.



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. Throughout our operating history, we have funded our contractual obligations and
commercial commitments through financing arrangements and operating cash flow, including but not limited to the operating income,
payments collected from the customers in advance and stock issuances. Below, we have presented 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 December 31, 2010 and the effect these obligations are expected to have on our liquidity
and cash flows in future periods.



|                                                                    |  | Payment due by period        |          
|------------------------------------------------------------------- |  | ---------------------------- | ---------
|                                                                    |  | Less than                    |          
|Contractual obligations                                             |  | Total As restated            |          
|                                                                    |  | Dollars amounts in thousands |          
|Bank loans                                                          |  | $                            | 285,198  
|Other loans                                                         |  |                              | 233,280  
|Notes payable                                                       |  |                              | 480,152  
|Deposits due to sales representatives                               |  |                              | 52,079   
|Lease with Bao Gang Group                                           |  |                              | 410      
|Construction obligations - Longmen Joint Venture and Maoming Hengda |  |                              | 13,912   
|Total                                                               |  | $                            | 1,065,031



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



As of December 31, 2010, Longmen Joint Venture
guaranteed bank loans for related parties and third parties, including line of credit and others, amounted to $60.5 million.



48







|                                                    |  | Guarantee    |        |  |                
|--------------------------------------------------- |  | ------------ | ------ |  | ---------------
|Nature of                                           |  | amount       |        |  |                
|guarantee                                           |  | In thousands |        |  | Guaranty period
|Line of credit                                      |  | $            | 11,608 |  |                
|Bank Loans                                          |  |              | 7,585  |  |                
|Notes payable                                       |  |              | 18,238 |  |                
|Confirming Storage                                  |  |              | 19,089 |  |                
|Financing by the rights of goods delivery in future |  |              | 3,946  |  |                
|Total                                               |  | $            | 60,466 |  |                



Critical Accounting Policies



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



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



Principles of consolidation –
subsidiaries



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



Revenue recognition



We follow the generally
accepted accounting principles of the United States regarding revenue recognition. Sales revenue is recognized at the date of shipment
to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant
obligations of us exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue
recognition are recorded as customer deposits. Sales revenue represents the invoiced value of goods, net of value-added tax (VAT).
All 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.



49







Use of estimates



The preparation of financial
statements in conformity with generally accepted accounting principles of the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates
reflected in 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 define fair value, establish a three-level valuation
hierarchy for disclosures of fair value measurement and enhance 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.



The December 2007 Warrants
issued in conjunction with the December 2007 Notes and December 2009 Warrants issued in connection with a registered direct offering,
were carried at fair value. The fair value was determined using the Cox Rubenstein Binomial Model. Because all inputs to the valuation
methodology include quoted prices are observable, fair value is carried as level 2 inputs, and the change in earnings was recorded.
As a result, the derivative liability is carried on the balance sheet at its fair value.



50







Noncontrolling interests



Effective January 1,
2009, we adopted generally accepted accounting principals regarding noncontrolling interests 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, the foreign currency translation adjustment is allocated between controlling and noncontrolling
interests.



As a result, we reclassified
noncontrolling interests in the amounts of $52.0 million and $70.1 million from the mezzanine section to equity on December 31,
2010 and 2009 balance sheets, respectively.



Deferred lease income



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



Deferred lease income
represents the remaining balance of compensation being deferred. As of December 31, 2010 and December 31, 2009, the balance of
$57.6 million and $16.5 million represented the balance of remaining deferred lease income respectively.



Recent Accounting Pronouncements



In January 2010, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.



51







In April 2010, the FASB issued ASU 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 2010-13 to have a significant impact
on its consolidated financial statements.



In July 2010, the FASB
issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”
This update amends codification topic 310 on receivables to improve the disclosures that an entity provides about the credit quality
of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required
to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing
receivables and related allowance for credit losses. This guidance is being phased in, with the new disclosure requirements for
period end balances effective as of December 31, 2010, and the new disclosure requirements for activity during the reporting period
are effective March 31, 2011. The troubled debt restructuring disclosures in this ASU have been delayed by ASU 2011-01 “Deferral
of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20,” which was issued in January
2011.



In December 2010, the
FASB issued ASU 2010-28 which amend “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill
impairment test for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to
perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should
consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent
with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual
tests if an event occurs or circumstances changes that would more likely than not reduce the faire value of a reporting unit below
its carrying amount. ASU 2010-28 is effective for fiscal years, and interim periods within those years beginning after December
15, 2010. Early adoption is not permitted. The Company is currently evaluating the impact of this ASU; however, the Company does
not expect the adoption of this ASU will have a material impact on its consolidated financial statements.



52







In December 2010, the
FASB issued ASU 2010-29 which address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure
requirements for business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements,
the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during
the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the
supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring
pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.
ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company is currently
evaluating the impact of this ASU and expected the adoption of this ASU will have an impact on its future business combinations.



ITEM 7A. 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 2010 annual production capacity of 7 million metric tons, a $1 change in
the annual average price of our steel products would change annual pre-tax profits by approximately $7 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, Maoming Hengda, and Tianwu Joint Venture 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 RMB 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 RMB exchange
rate would result in a $1.9 million decrease in net income.





53







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and 
Stockholders of General Steel
Holdings, Inc.



We have audited the accompanying consolidated balance sheets
of General Steel Holdings, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations
and other comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December
31, 2010. General Steel Holdings, Inc.’s management is responsible for these consolidated financial statements. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of General Steel Holdings, Inc. as of December 31, 2010
and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2010 in conformity with accounting principles generally accepted in the United States of America.



We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), General Steel Holdings, Inc.’s internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Frameworkissued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2011, except for the
effects of the material weakness described in the ninth paragraph of that report, as to which the date is August 29, 2012, expressed
an adverse opinion on the effectiveness of internal control over financial reporting.



/s/ Frazer Frost, LLP





Brea, California

March 16, 2011, except for the effects on the consolidated financial
statements of the restatement described in Note 2, as to which the date is August 29, 2012





54







ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.



GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2010 AND 2009

(In thousands, except per share data)

(As restated)



|ASSETS                                                                                                                                                                                           |  |      |           |   |      |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --------- | - | ---- | -
|                                                                                                                                                                                                 |  | 2010 |           |   | 2009 |  
|CURRENT ASSETS:                                                                                                                                                                                  |  |      |           |   |      |  
|Cash                                                                                                                                                                                             |  | $    | 65,271    |   |      | $
|Restricted cash                                                                                                                                                                                  |  |      | 197,797   |   |      |  
|Notes receivable                                                                                                                                                                                 |  |      | 49,147    |   |      |  
|Restricted notes receivable                                                                                                                                                                      |  |      | 240,298   |   |      |  
|Accounts receivable, net                                                                                                                                                                         |  |      | 18,500    |   |      |  
|Accounts receivable - related parties                                                                                                                                                            |  |      | 4,160     |   |      |  
|Other receivables, net                                                                                                                                                                           |  |      | 11,150    |   |      |  
|Other receivables - related parties                                                                                                                                                              |  |      | 10,938    |   |      |  
|Dividend receivable                                                                                                                                                                              |  |      | -         |   |      |  
|Inventories                                                                                                                                                                                      |  |      | 453,636   |   |      |  
|Advances on inventory purchase                                                                                                                                                                   |  |      | 24,577    |   |      |  
|Advances on inventory purchase - related parties                                                                                                                                                 |  |      | 6,187     |   |      |  
|Prepaid expense                                                                                                                                                                                  |  |      | 5,018     |   |      |  
|Prepaid value added tax                                                                                                                                                                          |  |      | 37,323    |   |      |  
|Deferred tax assets                                                                                                                                                                              |  |      | 15,301    |   |      |  
|TOTAL CURRENT ASSETS                                                                                                                                                                             |  |      | 1,139,303 |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|PLANT AND EQUIPMENT, net                                                                                                                                                                         |  |      | 602,612   |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|OTHER ASSETS:                                                                                                                                                                                    |  |      |           |   |      |  
|Advances on equipment purchase                                                                                                                                                                   |  |      | 14,898    |   |      |  
|Investment in unconsolidated subsidiaries                                                                                                                                                        |  |      | 17,456    |   |      |  
|Long-term deferred expense                                                                                                                                                                       |  |      | 1,439     |   |      |  
|Intangible assets, net of accumulated amortization                                                                                                                                               |  |      | 23,672    |   |      |  
|Note issuance cost                                                                                                                                                                               |  |      | -         |   |      |  
|TOTAL OTHER ASSETS                                                                                                                                                                               |  |      | 57,465    |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|TOTAL ASSETS                                                                                                                                                                                     |  | $    | 1,799,380 |   |      | $
|                                                                                                                                                                                                 |  |      |           |   |      |  
|LIABILITIES AND EQUITY                                                                                                                                                                           |  |      |           |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|CURRENT LIABILITIES:                                                                                                                                                                             |  |      |           |   |      |  
|Short term notes payable                                                                                                                                                                         |  | $    | 480,152   |   |      | $
|Accounts payable                                                                                                                                                                                 |  |      | 241,367   |   |      |  
|Accounts payable - related parties                                                                                                                                                               |  |      | 79,694    |   |      |  
|Short term loans - bank                                                                                                                                                                          |  |      | 285,198   |   |      |  
|Short term loans - others                                                                                                                                                                        |  |      | 127,712   |   |      |  
|Short term loans - related parties                                                                                                                                                               |  |      | 14,548    |   |      |  
|Other payables and accrued liabilities                                                                                                                                                           |  |      | 30,087    |   |      |  
|Other payables - related parties                                                                                                                                                                 |  |      | 18,214    |   |      |  
|Customer deposits                                                                                                                                                                                |  |      | 133,464   |   |      |  
|Customer deposits - related parties                                                                                                                                                              |  |      | 54,922    |   |      |  
|Deposit due to sales representatives                                                                                                                                                             |  |      | 52,079    |   |      |  
|Taxes payable                                                                                                                                                                                    |  |      | 6,237     |   |      |  
|Deferred lease income                                                                                                                                                                            |  |      | 57,591    |   |      |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                        |  |      | 1,581,265 |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|NONCURRENT LIABILITIES:                                                                                                                                                                          |  |      |           |   |      |  
|Long term loans - related parties                                                                                                                                                                |  |      | 91,020    |   |      |  
|TOTAL NONCURRENT LIABILITIES                                                                                                                                                                     |  |      | 91,020    |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|CONVERTIBLE NOTES PAYABLE, net of debt discount of $0 and $2,250 
as of December 31, 2010 and
    2009, respectively                                                                             |  |      | -         |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|DERIVATIVE LIABILITIES                                                                                                                                                                           |  |      | 5,573     |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|TOTAL LIABILITIES                                                                                                                                                                                |  |      | 1,677,858 |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|COMMITMENT AND CONTINGENCIES                                                                                                                                                                     |  |      |           |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|EQUITY:                                                                                                                                                                                          |  |      |           |   |      |  
|Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares
 issued and
    outstanding as of December 31, 2010 and 2009                                                   |  |      | 3         |   |      |  
|Common Stock, $0.001 par value, 200,000,000 shares authorized, 54,678,083 
and     51,618,595
    issued, 54,522,973 and  51,618,595 outstanding as of 
December 31, 2010 and 2009, respectively |  |      | 55        |   |      |  
|Treasury stock, $0.001 par value, 316,760 shares as of December 31, 2010                                                                                                                         |  |      | (871      | ) |      |  
|Paid-in-capital                                                                                                                                                                                  |  |      | 104,970   |   |      |  
|Statutory reserves                                                                                                                                                                               |  |      | 6,202     |   |      |  
|Accumulated deficits                                                                                                                                                                             |  |      | (51,793   | ) |      |  
|Accumulated other comprehensive income                                                                                                                                                           |  |      | 10,987    |   |      |  
|TOTAL SHAREHOLDER'S EQUITY                                                                                                                                                                       |  |      | 69,553    |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|NONCONTROLLING INTERESTS                                                                                                                                                                         |  |      | 51,969    |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|TOTAL EQUITY                                                                                                                                                                                     |  |      | 121,522   |   |      |  
|                                                                                                                                                                                                 |  |      |           |   |      |  
|TOTAL LIABILITIES AND EQUITY                                                                                                                                                                     |  | $    | 1,799,380 |   |      | $



See report of independent registered public
accounting firm.

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





55







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

(In thousands, except
per share data)



|                                                                        |  | 2010        |            |   | 2009        |   |            | 2008 | 
|----------------------------------------------------------------------- |  | ----------- | ---------- | - | ----------- | - | ---------- | ---- | 
|                                                                        |  | As restated |            |   | As restated |   |            |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|SALES                                                                   |  | $           | 1,392,770  |   |             | $ | 1,205,191  |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|SALES - RELATED PARTIES                                                 |  |             | 489,370    |   |             |   | 474,579    |      | 
|TOTAL SALES                                                             |  |             | 1,882,140  |   |             |   | 1,679,770  |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|COST OF GOODS SOLD                                                      |  |             | 1,369,523  |   |             |   | 1,141,471  |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|COST OF GOODS SOLD - RELATED PARTIES                                    |  |             | 481,202    |   |             |   | 449,487    |      | 
|TOTAL COST OF GOODS SOLD                                                |  |             | 1,850,725  |   |             |   | 1,590,958  |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|GROSS PROFIT                                                            |  |             | 31,415     |   |             |   | 88,812     |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|SELLING, GENERAL AND  ADMINISTRATIVE EXPENSES                           |  |             | 52,577     |   |             |   | 41,059     |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|INCOME (LOSS) FROM OPERATIONS                                           |  |             | (21,162    | ) |             |   | 47,753     |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|OTHER INCOME (EXPENSE)                                                  |  |             |            |   |             |   |            |      | 
|Interest income                                                         |  |             | 6,154      |   |             |   | 3,334      |      | 
|Finance/interest expense                                                |  |             | (51,283    | ) |             |   | (27,843    | )    | 
|Change in fair value of derivative liabilities                          |  |             | 15,055     |   |             |   | (33,159    | )    | 
|Gain from debt extinguishment                                           |  |             | -          |   |             |   | 7,331      |      | 
|Government grant                                                        |  |             | -          |   |             |   | 3,430      |      | 
|Loss on disposal of fixed assets                                        |  |             | (9,447     | ) |             |   | (15,265    | )    | 
|Realized income from future contracts                                   |  |             | 1,424      |   |             |   | -          |      | 
|Income from equity investments                                          |  |             | 6,383      |   |             |   | 6,257      |      | 
|Lease income                                                            |  |             | 943        |   |             |   | 119        |      | 
|Other non-operating (expense) income, net                               |  |             | (3,120     | ) |             |   | 939        |      | 
|Total other income (expense), net                                       |  |             | (33,891    | ) |             |   | (54,857    | )    | 
|                                                                        |  |             |            |   |             |   |            |      | 
|LOSS BEFORE PROVISION FOR INCOME TAXES 
AND
    NONCONTROLLING INTEREST |  |             | (55,053    | ) |             |   | (7,104     | )    | 
|                                                                        |  |             |            |   |             |   |            |      | 
|PROVISION FOR INCOME TAXES                                              |  |             |            |   |             |   |            |      | 
|Current                                                                 |  |             | 1,267      |   |             |   | 2,154      |      | 
|Deferred                                                                |  |             | (10,049    | ) |             |   | 2,295      |      | 
|Total (benefit) provision for income taxes                              |  |             | (8,782     | ) |             |   | 4,449      |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|NET LOSS BEFORE NONCONTROLLING INTEREST                                 |  |             | (46,271    | ) |             |   | (11,553    | )    | 
|                                                                        |  |             |            |   |             |   |            |      | 
|Less: Net income (loss) attributable to noncontrolling interest         |  |             | (16,265    | ) |             |   | 19,067     |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST                           |  |             | (30,006    | ) |             |   | (30,620    | )    | 
|                                                                        |  |             |            |   |             |   |            |      | 
|OTHER COMPREHENSIVE INCOME (LOSS)                                       |  |             |            |   |             |   |            |      | 
|Foreign currency translation adjustments                                |  |             | 2,869      |   |             |   | (587       | )    | 
|Comprehensive income attributable to noncontrolling interest            |  |             | 1,754      |   |             |   | 349        |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|COMPREHENSIVE LOSS                                                      |  | $           | (25,383    | ) |             | $ | (30,858    | )    | 
|                                                                        |  |             |            |   |             |   |            |      | 
|WEIGHTED AVERAGE NUMBER OF SHARES                                       |  |             |            |   |             |   |            |      | 
|Basic & Diluted                                                         |  |             | 53,113,177 |   |             |   | 41,860,238 |      | 
|                                                                        |  |             |            |   |             |   |            |      | 
|LOSS PER SHARE                                                          |  |             |            |   |             |   |            |      | 
|Basic & Diluted                                                         |  | $           | (0.56      | ) |             | $ | (0.73      | )    | 



See report of independent registered public
accounting firm.

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





56









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)



|                                                                    |  | Preferred
    stock |           |  | Common
    stock |   |   | Treasury
    stock |  |  |               |   |  | Retained
    earnings / 
Accumulated deficits |       |   |               |  |         | Accumulated other |  |   |           |   |  |              |        
|------------------------------------------------------------------- |  | ------------------- | --------- |  | ---------------- | - | - | ------------------ |  |  | ------------- | - |  | --------------------------------------------- | ----- | - | ------------- |  | ------- | ----------------- |  | - | --------- | - |  | ------------ | -------
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         | Paid-in           |  |   | Statutory |   |  |              |        
|                                                                    |  | Shares              |           |  | Par
    value    |   |   | Shares             |  |  | Par
    value |   |  | Shares                                        |       |   | Par
    value |  |         | capital           |  |   | reserves  |   |  | Unrestricted |        
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|BALANCE, December 31, 2007                                          |  |                     | 3,092,899 |  |                  | $ | 3 |                    |  |  | 34,634,765    |   |  | $                                             | 35    |   |               |  | -       |                   |  |   | -         |   |  | $            | 23,429 
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Net loss attributable to controlling interest                       |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Net income attributable to noncontrolling interest                  |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Adjustment to statutory reserve                                     |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Common stock issued for compensation                                |  |                     |           |  |                  |   |   |                    |  |  | 491,804       |   |  |                                               | 0.49  |   |               |  |         |                   |  |   |           |   |  |              | 3,929  
|Common stock transferred by CEO for compensation                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              | 207    
|Common stock issued for consulting fee                              |  |                     |           |  |                  |   |   |                    |  |  | 100,000       |   |  |                                               | 0.10  |   |               |  |         |                   |  |   |           |   |  |              | 360    
|Common stock issued for public relations                            |  |                     |           |  |                  |   |   |                    |  |  | 25,000        |   |  |                                               | 0.03  |   |               |  |         |                   |  |   |           |   |  |              | 90     
|Common stock issued for cash                                        |  |                     |           |  |                  |   |   |                    |  |  | 140,000       |   |  |                                               | 0.14  |   |               |  |         |                   |  |   |           |   |  |              | 700    
|Acquired noncontrolling interest                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Notes converted to common stock                                     |  |                     |           |  |                  |   |   |                    |  |  | 541,299       |   |  |                                               | 0.54  |   |               |  |         |                   |  |   |           |   |  |              | 6,103  
|Make whole shares issued on notes conversion                        |  |                     |           |  |                  |   |   |                    |  |  | 195,965       |   |  |                                               | 0.18  |   |               |  |         |                   |  |   |           |   |  |              | 2,310  
|Foreign currency translation adjustments                            |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|BALANCE, December 31, 2008                                          |  |                     | 3,092,899 |  |                  | $ | 3 |                    |  |  | 36,128,833    |   |  | $                                             | 36    |   |               |  | -       |                   |  | $ | -         |   |  | $            | 37,128 
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Net loss attributable to controlling interest,
    as restated      |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Net income attributable to noncontrolling interest,
    as restated |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Disposal of subsidiaries                                            |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Distribution of dividend to noncontrolling shareholders             |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Adjustment to statutory reserve                                     |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Common stock issued for compensation                                |  |                     |           |  |                  |   |   |                    |  |  | 596,650       |   |  |                                               | 0.77  |   |               |  |         |                   |  |   |           |   |  |              | 1,875  
|Common stock issued for interest payments                           |  |                     |           |  |                  |   |   |                    |  |  | 196,305       |   |  |                                               | 0.20  |   |               |  |         |                   |  |   |           |   |  |              | 745    
|Common stock issued for repayment of debt                           |  |                     |           |  |                  |   |   |                    |  |  | 300,000       |   |  |                                               | 0.30  |   |               |  |         |                   |  |   |           |   |  |              | 1,800  
|Notes converted to common stock                                     |  |                     |           |  |                  |   |   |                    |  |  | 7,045,274     |   |  |                                               | 7.05  |   |               |  |         |                   |  |   |           |   |  |              | 32,072 
|Make whole shares issued on notes conversion                        |  |                     |           |  |                  |   |   |                    |  |  | 1,795,977     |   |  |                                               | 1.80  |   |               |  |         |                   |  |   |           |   |  |              | 7,085  
|Common stock transferred by CEO for compensation                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              | 276    
|Reduction of registered capital                                     |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Common stock issued for private placement                           |  |                     |           |  |                  |   |   |                    |  |  | 5,555,556     |   |  |                                               | 5.56  |   |               |  |         |                   |  |   |           |   |  |              | 14,607 
|Foreign currency translation adjustments, as restated               |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|BALANCE, December 31, 2009, as restated                             |  |                     | 3,092,899 |  |                  | $ | 3 |                    |  |  | 51,618,595    |   |  | $                                             | 52    |   |               |  | -       |                   |  | $ | -         |   |  | $            | 95,588 
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Net loss attributable to controlling interest,
    as restated      |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Net income attributable to noncontrolling interest,
    as restated |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Distribution of dividend to noncontrolling shareholders             |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Noncontrolling interest acquired                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Registered capital received from noncontrolling
    shareholders    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Adjustment to special reserve                                       |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|Common stock issued for compensation                                |  |                     |           |  |                  |   |   |                    |  |  | 733,300       |   |  |                                               | 0.73  |   |               |  |         |                   |  |   |           |   |  |              | 2,201  
|Common stock issued for repayment of debt                           |  |                     |           |  |                  |   |   |                    |  |  | 928,163       |   |  |                                               | 0.93  |   |               |  |         |                   |  |   |           |   |  |              | 2,403  
|Common stock transferred by CEO for compensation                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              | 276    
|Notes converted to common stock                                     |  |                     |           |  |                  |   |   |                    |  |  | 1,208,791     |   |  |                                               | 1.21  |   |               |  |         |                   |  |   |           |   |  |              | 3,544  
|Make whole shares issued on notes conversion                        |  |                     |           |  |                  |   |   |                    |  |  | 271,507       |   |  |                                               | 0.27  |   |               |  |         |                   |  |   |           |   |  |              | 741    
|Common stock issued for accrued interest on notes                   |  |                     |           |  |                  |   |   |                    |  |  | 79,377        |   |  |                                               | 0.08  |   |               |  |         |                   |  |   |           |   |  |              | 217    
|Treasury stock purchased                                            |  |                     |           |  |                  |   |   |                    |  |  | (316,760      | ) |  |                                               | (0.32 | ) |               |  | 316,760 |                   |  |   | (871      | ) |  |              |        
|Foreign currency translation adjustments, as restated               |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|                                                                    |  |                     |           |  |                  |   |   |                    |  |  |               |   |  |                                               |       |   |               |  |         |                   |  |   |           |   |  |              |        
|BALANCE, December 31, 2010, as restated                             |  |                     | 3,092,899 |  |                  | $ | 3 |                    |  |  | 54,522,973    |   |  | $                                             | 55    |   |               |  | 316,760 |                   |  | $ | (871      | ) |  | $            | 104,970



See report of independent registered public
accounting firm.

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





57







GENERAL STEEL HOLDINGS,
INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009  AND 2008

(In thousands, except per share data)





|                                                                                          |  | 2010        |          |   | 2009        |   |          | 2008 | 
|----------------------------------------------------------------------------------------- |  | ----------- | -------- | - | ----------- | - | -------- | ---- | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |  | As restated |          |   | As restated |   |          |      | 
|Consolidated net loss                                                                     |  | $           | (46,271  | ) |             | $ | (11,553  | )    | 
|Adjustments to reconcile net loss to cash used in (provided by) operating activities:     |  |             |          |   |             |   |          |      | 
|Depreciation and amortization                                                             |  |             | 41,153   |   |             |   | 33,107   |      | 
|Debt extinguishment                                                                       |  |             | -        |   |             |   | (7,331   | )    | 
|Bad debt allowance                                                                        |  |             | 326      |   |             |   | (714     | )    | 
|Inventory written-off                                                                     |  |             | 1,061    |   |             |   | (1,533   | )    | 
|Impairment of long-lived assets                                                           |  |             | 1,747    |   |             |   | -        |      | 
|Loss (gain) on disposal of equipment                                                      |  |             | 8,257    |   |             |   | 12,995   |      | 
|Stock issued for services and compensation                                                |  |             | 2,479    |   |             |   | 2,063    |      | 
|Net income from compensation                                                              |  |             | (1,377   | ) |             |   | -        |      | 
|Make whole shares interest expense on notes conversion                                    |  |             | 1,130    |   |             |   | 2,892    |      | 
|Amortization of deferred note issuance cost and discount on convertible notes             |  |             | 17       |   |             |   | 60       |      | 
|Change in fair value of derivative instrument                                             |  |             | (15,055  | ) |             |   | 33,159   |      | 
|Income from investment                                                                    |  |             | (7,806   | ) |             |   | (6,257   | )    | 
|Deferred tax assets                                                                       |  |             | (10,058  | ) |             |   | 2,700    |      | 
|Changes in operating assets and liabilities                                               |  |             |          |   |             |   |          |      | 
|Notes receivable                                                                          |  |             | (18,498  | ) |             |   | 9,017    |      | 
|Accounts receivable                                                                       |  |             | (8,647   | ) |             |   | 18,911   |      | 
|Accounts receivable - related parties                                                     |  |             | 14,065   |   |             |   | (37,829  | )    | 
|Other receivables                                                                         |  |             | (3,210   | ) |             |   | 3,526    |      | 
|Other receivables - related parties                                                       |  |             | (38,524  | ) |             |   | 6,666    |      | 
|Inventories                                                                               |  |             | (270,046 | ) |             |   | (116,196 | )    | 
|Advances on inventory purchase                                                            |  |             | 4,681    |   |             |   | 52,655   |      | 
|Advances on inventory purchase - related parties                                          |  |             | 13,782   |   |             |   | (13,341  | )    | 
|Accounts payable                                                                          |  |             | 76,003   |   |             |   | 10,421   |      | 
|Accounts payable - related parties                                                        |  |             | 45,480   |   |             |   | 55,445   |      | 
|Other payables and accrued liabilities                                                    |  |             | (1,527   | ) |             |   | 12,578   |      | 
|Other payables - related parties                                                          |  |             | 30,618   |   |             |   | (13,346  | )    | 
|Customer deposits                                                                         |  |             | (24,433  | ) |             |   | (23,400  | )    | 
|Customer deposits - related parties                                                       |  |             | 18,855   |   |             |   | (14,319  | )    | 
|Taxes payable                                                                             |  |             | (19,543  | ) |             |   | (22,067  | )    | 
|Deferred lease income                                                                     |  |             | 41,104   |   |             |   | 16,487   |      | 
|Net cash (used in) provided by operating activities                                       |  |             | (164,237 | ) |             |   | 4,796    |      | 
|                                                                                          |  |             |          |   |             |   |          |      | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |  |             |          |   |             |   |          |      | 
|Restricted cash                                                                           |  |             | 741      |   |             |   | (61,303  | )    | 
|Acquired long term investment                                                             |  |             | (2,021   | ) |             |   | (6,597   | )    | 
|Dividend receivable                                                                       |  |             |          |   |             |   | -        |      | 
|Cash proceeds from disposal of long-term investment                                       |  |             | 8,137    |   |             |   | 4,912    |      | 
|Cash proceeds from investment in future contracts                                         |  |             | 1,424    |   |             |   | -        |      | 
|Long-term other receivable                                                                |  |             | -        |   |             |   | -        |      | 
|Cash proceeds from sales of equipment                                                     |  |             | 1,828    |   |             |   | 7,231    |      | 
|Advance on equipment purchases                                                            |  |             | (7,106   | ) |             |   | 1,604    |      | 
|Equipments purchase and intangible assets                                                 |  |             | (89,916  | ) |             |   | (112,194 | )    | 
|Net cash used in investing activities                                                     |  |             | (86,913  | ) |             |   | (166,347 | )    | 
|                                                                                          |  |             |          |   |             |   |          |      | 
|CASH FLOWS FINANCING ACTIVITIES:                                                          |  |             |          |   |             |   |          |      | 
|Notes receivable - restricted                                                             |  |             | (234,342 | ) |             |   | -        |      | 
|Dividend payable                                                                          |  |             | -        |   |             |   | (2,343   | )    | 
|Cash received on stock issuance                                                           |  |             | -        |   |             |   | 23,090   |      | 
|Payments made for treasury stock acquired                                                 |  |             | (870     | ) |             |   | -        |      | 
|Capital contributed by noncontrolling interest                                            |  |             | 1,184    |   |             |   | -        |      | 
|Payments made to dividend distribution                                                    |  |             | (2,855   | ) |             |   | -        |      | 
|Borrowings on short term loans - bank                                                     |  |             | 327,807  |   |             |   | 174,290  |      | 
|Payments on short term loans - bank                                                       |  |             | (199,905 | ) |             |   | (93,212  | )    | 
|Borrowings on short term loan - others                                                    |  |             | 152,517  |   |             |   | 159,296  |      | 
|Payments on short term loans - others                                                     |  |             | (174,913 | ) |             |   | (126,650 | )    | 
|Borrowings on short term loan - related parties                                           |  |             | 71,714   |   |             |   | 4,398    |      | 
|Payments on short term loans - related parties                                            |  |             | (11,850  | ) |             |   | -        |      | 
|Borrowings on short term notes payable                                                    |  |             | 905,124  |   |             |   | 636,136  |      | 
|Payments on short term notes payable                                                      |  |             | (693,633 | ) |             |   | (587,598 | )    | 
|Borrowings on long term loan - related parties                                            |  |             | 91,020   |   |             |   | -        |      | 
|Deposits due to sales representatives                                                     |  |             | 1,431    |   |             |   | 41,370   |      | 
|Net cash provided by financing activities                                                 |  |             | 232,429  |   |             |   | 228,777  |      | 
|                                                                                          |  |             |          |   |             |   |          |      | 
|EFFECTS OF EXCHANGE RATE CHANGE IN CASH                                                   |  |             | 1,874    |   |             |   | (3       | )    | 
|                                                                                          |  |             |          |   |             |   |          |      | 
|(DECREASE) INCREASE IN CASH                                                               |  |             | (16,847  | ) |             |   | 67,223   |      | 
|                                                                                          |  |             |          |   |             |   |          |      | 
|CASH, beginning of period                                                                 |  |             | 82,118   |   |             |   | 14,895   |      | 
|                                                                                          |  |             |          |   |             |   |          |      | 
|CASH, end of period                                                                       |  | $           | 65,271   |   |             | $ | 82,118   |      | 
|                                                                                          |  |             |          |   |             |   |          |      | 
|Non-cash transactions of investing and financing activities:                              |  |             |          |   |             |   |          |      | 
|Share issuance for debt settlement                                                        |  | $           | 2,404    |   |             | $ | 82,118   |      | 
|Other receivable - related parties offset with short-term loans of the same related party |  | $           | 43,323   |   |             | $ | -        |      | 



See report of independent registered public
accounting firm.

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





58







GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010



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.



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



Note 2 – Restatement



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



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



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



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





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



See report of independent registered public accounting firm.





59









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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



As a result of the restatement, the deferred
lease income on the land used right was $57.6 million and $16.5 million as of December 31, 2010 and 2009, respectively. For the
year ended December 31, 2010 and 2009, the Company recognized deferred lease income of $942,619 and $118,900, respectively.
The net loss attributable to controlling interest increased by $22.3 million and $5.4 million for the years ended December 31,
2010 and 2009, respectively.



The impact of these restatements on the
December 31, 2010 and 2009 financial statements is reflected in the following table:

(In thousands except earnings per share)

|                                                    |  | December 31, 2010 |           |   | December 31, 2009 |  
|--------------------------------------------------- |  | ----------------- | --------- | - | ----------------- | -
|Consolidated Balance Sheets                         |  | Original          |           |   | Restatement       |  
|Current Assets                                      |  | $                 | 1,154,591 |   |                   | $
|Plant and Equipments, net                           |  |                   | 602,612   |   |                   |  
|Total Assets                                        |  |                   | 1,814,668 |   |                   |  
|Total Liabilities                                   |  |                   | 1,644,765 |   |                   |  
|Accumulated Deficits                                |  |                   | (24,086   | ) |                   |  
|Total Shareholders' Equity                          |  |                   | 98,986    |   |                   |  
|Consolidated Statements of Operation                |  |                   |           |   |                   |  
|Gross Profit                                        |  | $                 | 71,913    |   |                   | $
|Other Expense, net                                  |  |                   | (28,561   | ) |                   |  
|Net Loss Attributable to Controlling Interest       |  |                   | (7,675    | ) |                   |  
|                                                    |  |                   |           |   |                   |  
|Loss Per Share                                      |  |                   |           |   |                   |  
|Basic & Diluted                                     |  |                   | (0.14     | ) |                   |  
|                                                    |  |                   |           |   |                   |  
|Consolidated Statements of Cash Flow                |  |                   |           |   |                   |  
|Consolidated net loss                               |  | $                 | (7,487    | ) |                   | $
|Net cash (used in) provided by operating activities |  |                   | (165,089  | ) |                   |  
|Net cash used in investing activities               |  |                   | (88,764   | ) |                   |  
|Net cash provided by financing activities           |  |                   | 234,280   |   |                   |  





See report of independent registered public accounting firm.







60









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Note 3 – Summary of significant
accounting policies



Basis of presentation



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



|Subsidiary                                                              |                        | Percentage
        of Ownership | 
|----------------------------------------------------------------------- | ---------------------- | ------------------------------- | 
|General Steel Investment Co., Ltd.                                      | British Virgin Islands |                                 | 
|General Steel (China) Co., Ltd. (“General Steel (China)”)               | PRC                    |                                 | 
|Baotou Steel – General Steel Special Steel Pipe Joint Venture Co., Ltd. | PRC                    |                                 | 
|Yangpu Shengtong Investment Co., Ltd.                                   | PRC                    |                                 | 
|Qiu Steel Investment Co., Ltd. (“Qiu Steel”)                            | PRC                    |                                 | 
|                                                                        |                        |                                 | 
|Shaanxi Longmen Iron and Steel Co. Ltd. (“Longmen Joint Venture”) (1)   | PRC                    |                                 | 
|Maoming Hengda Steel Company, Ltd. (“Maoming Hengda”)                   | PRC                    |                                 | 
|Tianwu General Steel Material Trading Co., Ltd                          | PRC                    |                                 | 



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.



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



Hualong



Longmen Joint Venture, the single
largest shareholder, holds a 36.0% equity interest in Hualong. The other two shareholders, who own 34.67% and 29.33% respectively,
have assigned their voting rights to Longmen Joint Venture in writing at the time of the acquisition of Hualong. The voting rights
have been assigned through the date Hualong ceases its business operation or the other two shareholders sell their interest in
Hualong. Hualong’s main business is to supply refractory. For the years ended December 31, 2008, 2009 and 2010, 97.4%, 99.7%
and 92.1% sales of Hualong were generated through sales to Longmen Joint Venture, respectively.



Tongxing



Longmen Joint Venture holds a
22.76% equity interest in Tongxing and hundreds of employees of Longmen Joint Venture own the remaining 77.24%. Each individual
employee shareholder comprising the remaining 77.24% has assigned its voting rights to Longmen Joint Venture in writing at the
time of the acquisition of Tongxing. The voting rights have been assigned through the date Tongxing ceases its business operation
or the employees sell their interest in Tongxing. Tongxing’s business highly relies on Longmen Joint Venture. Tongxing’s
rebar processing is fully and solely engaged by Longmen Joint Venture. The metallurgical coke produced has been primarily sold
to Longmen Joint Venture until August 2010 when the coke ovens were dismantled. Tongxing’s sales to Longmen Joint Venture
has accounted for 98.3%, 98.4% and 98.4% of the total revenue for the year ended December 31, 2008, 2009 and 2010, respectively.





See report of independent registered public accounting firm.







61









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Huatianyulong



Longmen Joint Venture holds a
50.0% equity interest in Huatianyulong and the other unrelated shareholder holds the remaining 50.0%. The other shareholder has
assigned its voting rights to Longmen Joint Venture in writing at the time of acquisition of Huatianyulong. The voting rights have
been assigned through the date Huatianyulong ceases its business operation or the other unrelated shareholder sells its interest
in Huatianyulong. Huatianyulong mainly sells imported iron ore. For the consecutive three years from 2008 to 2010, more than 90%
of its sales were generated through selling iron ore to Longmen Joint Venture, directly and indirectly.



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



Principles of consolidation – subsidiaries



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



Use of estimates



The preparation of financial statements
in conformity with 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 the PRC, Hong Kong and the United States. Total cash (including restricted cash balances) in these
banks on December 31, 2010 and 2009 amounted to $263.1 million and $274.2 million, respectively. As of December 31, 2010,
$1.1 million cash in the bank was covered by insurance. The Company has not experienced any losses in other bank accounts and believes
it is not exposed to any risks on its cash in bank accounts.



The Company’s five major customers
are all distributors and collectively represented approximately 28%, 29% and 34% of the Company’s total sales for the years
ended December 31, 2010, 2009 and 2008 respectively. These five major customers accounted for 0%, 1% and 0% of total accounts receivable
as of December 31, 2010, 2009 and 2008, respectively.



For years ended December 31, 2010, 2009
and 2008, the Company purchased approximately 48%, 42% and 30% of its raw materials from five major suppliers, respectively. These five
vendors accounted for 28%, 10% and 7% of total accounts payable as of December 31, 2010, 2009 and 2008, respectively, none of the
five major suppliers individually accounted for more than 10% of total accounts payable.





See report of independent registered public accounting firm.







62









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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, the Company
has no other significant obligations and collectability is reasonably assured. Payments received before all of the relevant criteria
for revenue recognition are recorded as customer deposits. Sales 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% or 17%
of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the
cost of producing the finished product.



Foreign currency translation and other
comprehensive income (as restated)



The reporting currency of the Company is
the US dollar. The Company’s subsidiaries in China use the local currency, Renminbi (RMB), as their functional currency.
Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of
the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement
of 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 $11.0 million and $8.1 million as of December 31, 2010 and 2009, respectively. The balance
sheet amounts, with the exception of equity at December 31, 2010 and 2009 were translated at 6.59 RMB and 6.82 RMB to $1.00, respectively.
The equity accounts were stated at their historical rate. The average translation rates applied to statement of operations accounts
for the years ended December 31, 2010, 2009 and 2008 were 6.76 RMB, 6.82 RMB and 7.07 RMB, respectively. Cash flows are also translated
at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated balance sheet.



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



Financial instruments



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



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



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



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



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



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





See report of independent registered public accounting firm.







63









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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 recorded at fair value on 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 December 31, 2010 |       |  | Fair Value Measurements at December 31, 2010 Using Fair Value Hierarchy | 
|---------------------- |  | -------------------------------------- | ----- |  | ----------------------------------------------------------------------- | 
|                       |  |                                        |       |  | Level 1                                                                 | 
|Derivative liabilities |  | $                                      | 5,573 |  |                                                                         | 



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                                     |  | $                 | 1,050 
|Current period effective interest charges on notes             |  |                   | 389   
|Current period payments made for principal and stated interest |  |                   | (217  
|Current period note converted carrying value                   |  |                   | (1,222
|Balance, December 31, 2010                                     |  | $                 | -     



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 maturity period of six months or less, 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.



Notes receivable



Notes receivable represents trade accounts
receivable due from various customers where the customers’ banks have guaranteed the payment. 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 $49.1 million
and $29.2 million outstanding as of December 31, 2010 and 2009, respectively.



Restricted notes receivable represents
notes receivable pledged as collateral for short-term loans and short-term notes payable issued by banks. As of December 31, 2010
and 2009, restricted notes receivable amounted to $240.3 million and $0, respectively.





See report of independent registered public accounting firm.







64









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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 $30.8 million and $31.4 million as of December 31, 2010 and 2009, respectively.



Inventories



Inventories are comprised of raw materials,
work in progress and finished goods and 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. The Company had written-off
$1.1 million inventory cost as of December 31, 2010.



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 for the years ended December 31, 2010, 2009 and 2008 amounted
to $9.5 million, $6.8 million and $4.9 million, respectively.



Plant and equipment, net



Plant and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets
with a 3%-5% residual value.



The estimated useful lives are as follows:



|Buildings and Improvements |  | 10-40 Years | 
|-------------------------- |  | ----------- | 
|Machinery                  |  | 10-30 Years | 
|Other equipment            |  | 5 Years     | 
|Transportation Equipment   |  | 5 Years     | 



Construction in progress represents the costs incurred in connection
with the construction of buildings or new additions to the Company’s plant facilities. No depreciation is provided for construction
in progress until such time as the assets are completed and are placed into service, maintenance, repairs and minor renewals are
charged directly to expense as incurred. Major additions and betterment to buildings and equipment are capitalized. Interest incurred
during construction is capitalized into construction in progress. All other interest is expensed as incurred.



Long lived assets, including buildings
and improvements, equipment and intangible assets are reviewed if events and changes in circumstances indicate that its carrying
amount may not be recoverable, to determine whether their carrying value has become impaired. The Company considers assets to be
impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the
periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of
useful lives. As of December 31, 2010, the Company impaired long lived assets in the amount of $1.7 million.



Intangible assets



All land in the PRC is owned by the government.
However, the government grants “land use rights.”  General Steel (China) acquired land use rights in 2001
for a total of $3.6 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 General
Steel (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.





See report of independent registered public accounting firm.







65









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Long Steel Group contributed land use rights
for a total amount of $22.5 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 $2.3 million for 50 years that expire in 2054.



|Entity                |  | Original Cost  |        |  | Expires on
|--------------------- |  | -------------- | ------ |  | ----------
|                      |  | (in thousands) |        |  |           
|General Steel (China) |  | $              | 3,599  |  |           
|Longmen Joint Venture |  | $              | 22,546 |  |           
|Maoming Hengda        |  | $              | 2,317  |  |           



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 December 31, 2010, the Company expects these assets to be fully recoverable.



Investments in unconsolidated subsidiaries



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



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



|Unconsolidated subsidiary                          |  | Year acquired |  | Amount invested (In thousands) |        |  | % owned | 
|-------------------------------------------------- |  | ------------- |  | ------------------------------ | ------ |  | ------- | 
|Shaanxi Daxigou Mining Co., Ltd                    |  | 2004          |  | $                              | 4,779  |  |         | 
|Shaanxi Xinglong Thermoelectric Co., Ltd           |  | 2004 - 2007   |  |                                | 8,534  |  |         | 
|Huashan Metallurgical Equipment Co.,  Ltd.         |  | 2003          |  |                                | 2,907  |  |         | 
|Shaanxi Longgang Group Xian Steel Co., Ltd         |  | 2005          |  |                                | -      |  |         | 
|Xian Delong Powder Engineering Materials Co., Ltd. |  | 2006          |  |                                | 1,236  |  |         | 
|Total                                              |  |               |  | $                              | 17,456 |  |         | 



Total investment income in unconsolidated
subsidiaries amounted to $6.4 million and $6.3 million for the years ended December 31, 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 year ended December 31, 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.





See report of independent registered public accounting firm.







66









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Customer deposits (as restated)



Customer deposits represent amounts advanced
by customers on product orders. The product normally is shipped within one month after receipt of the advance payment, and the
related sale is recognized in accordance with the Company’s revenue recognition policy. As of December 31, 2010 and 2009,
customer deposits amounted to $188.4 million and $121.9 million, including deposits paid to relate parties, which amounted to $54.9
million and $3.0 million, respectively.



Deferred lease income (as restated)



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



Deferred lease income represents the remaining
balance of compensation being deferred. As of December 31, 2010 and December 31, 2009, the balance of $57.6 million and $16.5 million
represented the balance of remaining deferred lease income respectively.



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 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.





See report of independent registered public accounting firm.







67









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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.



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, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“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 April 2010, the FASB issued ASU 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 2010-13 to have a significant
impact on its consolidated financial statements.





See report of independent registered public accounting firm.







68









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





In July 2010, the FASB issued ASU 2010-20,
“Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This update amends
codification topic 310 on receivables to improve the disclosures that an entity provides about the credit quality of its financing
receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate
by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables
and related allowance for credit losses. This guidance is being phased in, with the new disclosure requirements for period end
balances effective as of December 31, 2010, and the new disclosure requirements for activity during the reporting period are
effective March 31, 2011. The troubled debt restructuring disclosures in this ASU have been delayed by ASU 2011-01 “Deferral
of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20,” which was issued in
January 2011.



In December 2010, the FASB issued ASU 2010-28
which amend “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill impairment test
for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to perform Step 2 of
the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether
there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the
existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests
if an event occurs or circumstances changes that would more likely than not reduce the faire value of a reporting unit below its
carrying amount. ASU 2010-28 is effective for fiscal years, and interim periods within those years beginning after December 15,
2010. Early adoption is not permitted. The Company is currently evaluating the impact of this ASU; however, the Company does not
expect the adoption of this ASU will have a material impact on its consolidated financial statements.



In December 2010, the FASB issued ASU 2010-29
which address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for
business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements, the entity
should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current
year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental
pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective
prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact of
this ASU and expected the adoption of this ASU will have an impact on its future business combinations.



Reclassifications



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



Note 4 – Accounts receivable,
net (as restated)



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



|                                      |  | December 31, 2010 As restated |        |   | December 31,2009 As restated |  
|------------------------------------- |  | ----------------------------- | ------ | - | ---------------------------- | -
|                                      |  | (in thousands)                |        |   | (in thousands)               |  
|Accounts receivable                   |  | $                             | 18,796 |   |                              | $
|Less: allowance for doubtful accounts |  |                               | (296   | ) |                              |  
|Net accounts receivable               |  | $                             | 18,500 |   |                              | $





See report of independent registered public accounting firm.







69









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Movement of allowance for doubtful accounts is as follows:



|                     |  | December 31, 2010 |       |  | December 31, 2009 |  
|-------------------- |  | ----------------- | ----- |  | ----------------- | -
|                     |  | (in thousands)    |       |  | (in thousands)    |  
|Beginning balance    |  | $                 | 490   |  |                   | $
|Charge to expense    |  |                   | 174   |  |                   |  
|Less Write-off       |  |                   | (386) |  |                   |  
|Exchange rate effect |  |                   | 18    |  |                   |  
|Ending balance       |  | $                 | 296   |  |                   | $



Note 5 – Inventories (as restated)



Inventories consist of the following:



|                  |  | December 31, 2010 |         |  | December 31,
    2009 |  
|----------------- |  | ----------------- | ------- |  | --------------------- | -
|                  |  | As restated       |         |  | As restated           |  
|                  |  | (in thousands)    |         |  | (in thousands)        |  
|Supplies          |  | $                 | 13,733  |  |                       | $
|Raw materials     |  |                   | 381,178 |  |                       |  
|Finished goods    |  |                   | 58,725  |  |                       |  
|Total inventories |  | $                 | 453,636 |  |                       | $



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.



Note 6 – Plant and equipment,
net (as restated)



Plant and equipment consist of the following:



|                                   |  | December 31, 2010 |         |   | December 31, 2009 |  
|---------------------------------- |  | ----------------- | ------- | - | ----------------- | -
|                                   |  | As restated       |         |   | As restated       |  
|                                   |  | (in thousands)    |         |   | (in thousands)    |  
|Buildings and improvements         |  | $                 | 116,294 |   |                   | $
|Machinery                          |  |                   | 502,958 |   |                   |  
|Transportation and other equipment |  |                   | 13,253  |   |                   |  
|Construction in progress           |  |                   | 65,749  |   |                   |  
|Subtotal                           |  |                   | 698,254 |   |                   |  
|Less accumulated depreciation      |  |                   | (95,642 | ) |                   |  
|Total                              |  | $                 | 602,612 |   |                   | $



Construction in progress consisted of the
following as of December 31, 2010:



|Construction in progress             |  | Value        |        |  | Estimated completion |                     | Estimated additional cost |  
|------------------------------------ |  | ------------ | ------ |  | -------------------- | ------------------- | ------------------------- | -
|description                          |  | In thousands |        |  | date                 |                     | In thousands              |  
|Employee cafeteria                   |  | $            | 4,527  |  |                      | July 2011           |                           | $
|3# lime stone grinding machine       |  |              | 2,572  |  |                      | In trial production |                           |  
|Rebar production line                |  |              | 51,969 |  |                      | June 2011           |                           |  
|Transformation of slag processing    |  |              | 1,392  |  |                      | September, 2011     |                           |  
|Grand handling for new material yard |  |              | 1,088  |  |                      | May 2011            |                           |  
|Other                                |  |              | 4,201  |  |                      | By the end of 2011  |                           |  
|Total                                |  | $            | 65,749 |  |                      |                     |                           | $





See report of independent registered public accounting firm.







70









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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 year ended December 31, 2010, $1.7 million construction-in-progress has been written off
and included in operating expense.



Depreciation, including amounts in cost
of goods sold, for the years ended December 31, 2010, 2009 and 2008 amounted to $40.1 million, $32.1 and $21.5 million, respectively.



Note 7 – Intangible assets, net



Intangible assets consist of the following:



|                                          |  | December 31, 2010 |         |  | December 31, 2009 |  
|----------------------------------------- |  | ----------------- | ------- |  | ----------------- | -
|                                          |  | (in thousands)    |         |  | (in thousands)    |  
|Land use rights                           |  | $                 | 28,462  |  |                   | $
|Software                                  |  |                   | 660     |  |                   |  
|Subtotal                                  |  |                   | 29,122  |  |                   |  
|                                          |  |                   |         |  |                   |  
|Accumulated amortization – land use right |  |                   | (5,316) |  |                   |  
|Accumulated amortization – software       |  |                   | (134)   |  |                   |  
|Subtotal                                  |  |                   | (5,450) |  |                   |  
|Intangible assets, net                    |  | $                 | 23,672  |  |                   | $





The gross amount of the intangible assets
amounted to $29.1 million and $27.9 million as of December 31, 2010 and 2009, respectively. The remaining weighted average amortization
period is 32.0 years.



Total amortization expense for the years
ended December 31, 2010, 2009 and 2008 amounted to $1.1 million, $1.0 million and $0.9 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)        |  
|December 31, 2011 |  | $                              | 1,070  |  |                       | $
|December 31, 2012 |  |                                | 976    |  |                       |  
|December 31, 2013 |  |                                | 950    |  |                       |  
|December 31, 2014 |  |                                | 946    |  |                       |  
|December 31, 2015 |  |                                | 946    |  |                       |  
|Thereafter        |  |                                | 18,784 |  |                       |  
|Total             |  | $                              | 23,672 |  |                       |  



Note 8 – Debt (as restated)



Short-term notes payable



Short-term notes payable are lines of credit
extended by the banks. The banks in turn issue the Company a bank acceptance note, which can be endorsed and assigned to vendors
as payments for purchases. The notes payable are generally payable at a determinable period, generally three to six months. This
short-term note payable is guaranteed by the bank for its complete face value. The banks usually do not charge interest on these
notes but require the Company to deposit a certain amount of cash at the bank as a guarantee deposit, which is classified on the
balance sheet as restricted cash. Restricted cash as a guarantee for the notes payable amounted to $167.7 million and $192.0 million
as of December 31, 2010 and 2009, respectively. Restricted notes receivable as a guarantee for the notes payable amounted to $159.3
million as of December 31, 2010.





See report of independent registered public accounting firm.







71









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





The Company had the following short-term
notes payable:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | December 31, 2010 |         |  | December 31, 2009 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- |  | ----------------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | (in thousands)    |         |  | (in thousands)    |  
|General Steel (China): Notes payable from banks in China, due various dates from January to May 2011. Restricted cash required of $11.7 million and $4.0 million as of December 31, 2010 and 2009, respectively; guaranteed by third parties.                                                                                                                                                                                                   |  | $                 | 21,541  |  |                   | $
|Longmen Joint Venture: Notes payable from banks in China, due various dates from January to June 2011. $150.7 million restricted cash and $159.3 million notes receivable are secured for notes payable as of December 31, 2010, and comparatively $162.3 million restricted cash secured as of December 31, 2009, respectively; some notes are further guaranteed by third parties while others are secured by equipments and land use rights. |  |                   | 447,992 |  |                   |  
|Bao Tou: Notes payable from banks in China, due date in April 2011, restricted cash of $5.3 million and $5.1 million as of December 31, 2010 and 2009, respectively; pledged by buildings.                                                                                                                                                                                                                                                      |  |                   | 10,619  |  |                   |  
|Maoming Hengda: Notes payable from banks in China, restricted cash of $0 and $20.6 million as of December 31, 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                      |  |                   | -       |  |                   |  
|Total short-term notes payable                                                                                                                                                                                                                                                                                                                                                                                                                  |  | $                 | 480,152 |  |                   | $



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.



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



|                                                                                                                                                                                                                                                                                                             |  | December 31, 2010 |         |  | December 31, 2009 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- |  | ----------------- | -
|                                                                                                                                                                                                                                                                                                             |  | (in thousands)    |         |  | (in thousands)    |  
|General Steel (China): Loan from banks in China, due various dates from March 2011 to October 2011. Weighted average interest rate 6.0% per annum; some are guaranteed by third parties while others are secured by equipment and inventory.                                                                 |  | $                 | 24,220  |  |                   | $
|Longmen Joint Venture: Loan from banks in China, due various dates from February to November 2011. Weighted average interest rate 6.0% per annum; some are guaranteed by third parties, restricted cash or notes receivables while others are secured by equipment, buildings, land use right and inventory. |  |                   | 260,978 |  |                   |  
|Total short-term loans - bank                                                                                                                                                                                                                                                                                |  | $                 | 285,198 |  |                   | $



|                                                                                                                                                                                |  | December 31, 2010 As restated |         |  | December 31, 2009 As restated |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- |  | ----------------------------- | -
|                                                                                                                                                                                |  | (in thousands)                |         |  | (in thousands)                |  
|Longmen Joint Venture: Loans from various unrelated companies and individuals, due various dates from January to June 2011, and weighted average interest rates 6.0% per annum. |  | $                             | 75,380  |  |                               | $
|Longmen Joint Venture: due on demand, average interest rates ranging between 0.6% and 3.2% per annum.                                                                           |  |                               | 37,947  |  |                               |  
|Maoming Hengda: Loans from one unrelated parties and one related party, due on demand, none interest bearing.                                                                   |  |                               | 14,385  |  |                               |  
|Total short-term loans – others                                                                                                                                                 |  | $                             | 127,712 |  |                               | $





See report of independent registered public accounting firm.







72









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





|                                                                                                                          |  | December 31, 2010 As restated |        |  | December 31, 2009 |  
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------ |  | ----------------- | -
|                                                                                                                          |  | (in thousands)                |        |  | (in thousands)    |  
|Longmen Joint Venture: Loans from Shaanxi Steel, due July 2011, and interest rates 5.6% per annum.                        |  | $                             | 14,548 |  |                   | $
|Longmen Joint Venture: Loans from one subsidiary of Long Steel Group, due in May 2010, and interest rates 8.4% per annum. |  |                               | -      |  |                   |  
|Qiu Steel: Related party loans from Tianjin Heng Ying and Tianjin Da Zhan, due in 2010. Annual interest rate of 5.0%.     |  |                               | -      |  |                   |  
|Total short-term loans - related parties                                                                                  |  | $                             | 14,548 |  |                   | $



|                                                                                                       |  | December 31, 2010 As restated |        |  | December 31, 2009 As restated |  
|------------------------------------------------------------------------------------------------------ |  | ----------------------------- | ------ |  | ----------------------------- | -
|                                                                                                       |  | (in thousands)                |        |  | (in thousands)                |  
|Longmen Joint Venture: Loans from Shaanxi Steel, due November 2015, and interest rates 5.6% per annum. |  | $                             | 91,020 |  |                               | $
|Total long-term loans - related parties                                                                |  | $                             | 91,020 |  |                               | $



The Company had various loans from unrelated
companies. The balances amounted to $127.7 million and $183.6 million as of December 31, 2010 and 2009, respectively. Of the $127.7
million, $14.4 million loans carry no interest, $37.9 million are subject to interest rates ranging between 0.6% and 3.2% and the
remaining $75.4 million are subject to interest rates ranging from 5.6% to 6.0%. All short term loans from unrelated companies
are due on demand and unsecured.



Total interest expenses, excluding capitalized
interest, amounted to $51.3 million, $27.8 million and $23.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.



Capitalized interest amounted to $2.1 million,
$13.1 million and $10.6 million for the years ended December 31, 2010, 2009 and 2008, respectively.



Note 9 – 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 geographic 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 in 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 $52.1 million
and $49.5 million in deposits due to sales representatives as of December 31, 2010 and 2009, respectively.



Note 10 – 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.





See report of independent registered public accounting firm.







73









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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



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



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



Expected volatility adjusted to 125%

Expected dividend yield of 0%

Risk-free interest rate of 1.27%



Expected lives of five years

Market price at issuance date of $10.43

Strike price of $12.47 and $13.51, for the conversion
option and the warrants



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 year ended December 31, 2010. All accrued interest and make-whole
interest were settled with 350,884 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 December 31, 2010 and 2009, respectively. The effective interest charges on the Notes totaled $0.4
million, $2.3 million and $3.6 million for the years ended December 31, 2010, 2009 and 2008, respectively.



Note issuance cost was amortized to interest expense for the
years ended December 31, 2010, 2009 and 2008 amounted to $0.02 million, $0.06 million and $0.05 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).





See report of independent registered public accounting firm.







74









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Reset of warrants exercise price



On December 24, 2009, the holders of the
existing warrants to purchase 1,154,958 shares of the Company’s common stock 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 December 31, 2010, the balance of derivative liabilities was $5.6 million.



Note 11 – Supplemental disclosure
of cash flow information (as restated)



Interest paid amounted to $20.9 million,
$14.5 million and $12.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.



The Company paid income tax amounted to $1.8 million,
$3.0 million and $6.6 million for the years ended December 31, 2010, 2009 and 2008, respectively.



Effective interest charge on the Notes
of $0.4 million was capitalized into construction in progress for the year ended December 31, 2010.



Other receivables – related parties
from Shaanxi Steel in the amount of $43.3 million was offset with short-term loans due to the same related party for the year ended
December 31, 2010.



Note 12 – Deferred lease income
(as restated)



As discussed in Note 2, in connection to
construction of two new blast furnaces systems, to compensate the Company, in the fourth quarter of 2010, Shaanxi Steel reimbursed
Longmen JV USD 16.4 million (RMB 108 million) related to the value of assets dismantled, various site preparation costs incurred
by Longmen JV and rent under a 40-year property sub-lease that was entered into by the parties in June 2009 (the "Longmen
Sub-lease"), and USD 27.8 million (RMB 183 million) for the reduced production efficiency caused by the construction. In addition,
in 2010 and 2011, Shaanxi Steel reimbursed Longmen JV USD 13.5 million (RMB 89 million) each year for trial production costs related
to the two new blast furnaces, two new converters and one new sintering machine constructed and owned by Shaanxi Steel. The compensations
totaled USD 57.7 million (RMB 380 million), among which USD 52.0 million (RMB 343 million) as of December 31, 2010, was recorded
as a deferred sub-lease income from the land which was sub-leased by Longmen Joint Venture to Shaanxi Steel on the new furnaces
constructed as of December 31, 2010. The deferred lease income is amortized to income over the remaining term of the 40-year sub-lease.
For the year ended December 31, 2010 and 2009, the Company recognized deferred lease income of $942,619 and $118,900, respectively.
As of December 31, 2010 and 2009, the balance of deferred lease income amounted to $57.6 million and $16.5 million.





|                                                        |  | December 31, 2010 As restated |        |   | December 31, 2009 As restated |  
|------------------------------------------------------- |  | ----------------------------- | ------ | - | ----------------------------- | -
|                                                        |  | (in thousands)                |        |   | (in thousands)                |  
|Beginning balance                                       |  | $                             | 16,487 |   |                               | $
|Add: Compensation for dismantled assets                 |  |                               | 568    |   |                               |  
|Add: Compensation for loss of efficiency                |  |                               | 20,676 |   |                               |  
|Add: Compensation for trial production cost             |  |                               | 13,584 |   |                               |  
|Add: Deferred depreciation cost during trial production |  |                               | 6,656  |   |                               |  
|Less: Lease income realized                             |  |                               | (943   | ) |                               |  
|Exchange rate effect                                    |  |                               | 563    |   |                               |  
|Ending balance                                          |  | $                             | 57,591 |   |                               | $





See report of independent registered public accounting firm.







75









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Note 13 - Other income (expense)



Debt extinguishment



For the year ended December 31, 2009, the
Company recorded gain from debt extinguishment totaling $7.3 million. In 2009, Maoming Hengda, a subsidiary, entered into a Debt
Waiver Agreement with Guangzhou Hengda, pursuant to which Guangzhou Hengda agreed to waive $7.3 million (RMB 50.0 million) of debt
that Maoming Hengda owes to Guangzhou Hengda. The Company determined that the subsequent debt settlement does not constitute a
contingency at the date of purchase as defined in the accounting standard - business Combinations and thus should not result in
a reallocation of the purchase price. The waiver is irrevocable.



Government grant



Due to an increasing emphasis the government
puts on energy savings and pollution emission controls, the Shaanxi Province Development and Reform Commission provided incentives
for local companies to eliminate outdated iron and steel production machineries and equipment. Longmen Joint Venture, received
$4.3 million (RMB 29.2 million) in government grants as compensation for the loss of dismantling two blast furnaces in 2009. The
Company wrote off the residual book value of the furnaces dismantled totaling $0.9 million (RMB 5.8 million), and recorded gain
on compensation of $3.4 million for the year ended December 31, 2009.



Realized income from future contracts



On May 2010, the Company entered a future
brokerage contract with one unrelated party and engaged speculative investment to hedge price fluctuations of steel rebar. For
the year ended December 31, 2010, the Company realized $1.4 million gain on investment of future contracts. There was no cash deposit
held in the brokerage account and no trading financial assets held as of December 31, 2010.



Lease income (as restated)



The deferred lease income from the reimbursement
from Shaanxi Steel for the net book value of the fixed assets that were demolished and for the inefficiency costs caused by the
construction and loss incurred in the beginning stages of the system production is amortized to income over the remaining sub-lease
term. For the year ended December 31, 2010 and 2009, the Company recognized deferred lease income of $942,619 and $118,900,
respectively.



Note 14 – Taxes (as restated)



Income tax



Significant components of the provision
for income taxes on earnings and deferred taxes on net operating losses from operation for the years ended December 31, 2010, 2009
and 2008 are as follows:



|(In thousands)                             |  | December 31,2010 As restated |         |   | December 31,2009 As restated |   |       | December 31,2008 | 
|------------------------------------------ |  | ---------------------------- | ------- | - | ---------------------------- | - | ----- | ---------------- | 
|Current                                    |  | $                            | 1,267   |   |                              | $ | 2,154 |                  | 
|Deferred                                   |  |                              | (10,049 | ) |                              |   | 2,295 |                  | 
|Total provision (benefit) for income taxes |  | $                            | (8,782  | ) |                              | $ | 4,449 |                  | 



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.





See report of independent registered public accounting firm.







76









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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



|                                                                             |  | December 31, 2010 As restated |        |   | December 31, 2009 As restated |  
|---------------------------------------------------------------------------- |  | ----------------------------- | ------ | - | ----------------------------- | -
|                                                                             |  | (in thousands)                |        |   | (in thousands)                |  
|Beginning balance                                                            |  | $                             | 5,044  |   |                               | $
|Net operating loss carry forward (tax assets realized) for subsidiaries      |  |                               | 2,343  |   |                               |  
|Effective tax rate                                                           |  |                               | 25     | % |                               |  
|Deferred tax asset                                                           |  | $                             | 586    |   |                               | $
|Long Gang Headquarter, net operating loss carry-forward (tax asset realized) |  |                               | 65,019 |   |                               |  
|Effective tax rate                                                           |  |                               | 15     | % |                               |  
|Deferred tax asset                                                           |  | $                             | 9,753  |   |                               | $
|Exchange difference                                                          |  |                               | (82    | ) |                               |  
|Totals                                                                       |  | $                             | 15,301 |   |                               | $



The estimated tax savings due to the reduced tax rate for the
years ended December 31, 2010, 2009 and 2008 are $(6.1) million, $2.0 million and $(3.3) million, respectively. The net effect
on income per share if the income tax had been applied would increase loss per share by $0.11 and $0.09 for the year ended December
31, 2010 and 2008, and decrease loss per share by $0.05 for the years ended December 31, 2009.



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



The following table reconciles the U.S. statutory rates to the
Company’s effective tax rate for the years ended December 31, 2010, 2009 and 2008 are as follows:



|                                                                              |  | December 31,2010 As restated |       |    | December 31,2009 As restated |  |       | December 31,2008 | 
|----------------------------------------------------------------------------- |  | ---------------------------- | ----- | -- | ---------------------------- |  | ----- | ---------------- | 
|                                                                              |  |                              |       |    |                              |  |       |                  | 
|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)                         |  |                              | 2.3   | %  |                              |  | 1.1   | %                | 
|Effect of different tax rate of subsidiaries operating in other jurisdictions |  |                              | (12.3 | )% |                              |  | 7.3   | %                | 
|Total provision for income taxes                                              |  |                              | 15.0  | %  |                              |  | 33.4  | %                | 



|(1) | This represents derivative expenses (income) and stock compensation expenses incurred by the Company that are not deductible/taxable in the PRC for the years ended December 31, 2010, 2009 and 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company has cumulative undistributed deficit of foreign
subsidiaries of approximately $21.3 million as of December 31, 2010. 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.





See report of independent registered public accounting firm.







77









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





General Steel Holdings, Inc. was incorporated
in the United States and has incurred net operating losses for income tax purposes for the years ended December 31, 2010, 2009
and 2008. The net operating loss carry forwards for United States income taxes amounted to $1.8 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 December 31, 2010 was $0.6 million. The net
change in the valuation allowance for the year ended December 31, 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. As of December 31, 2010 and 2009, the Company had $37.3 million and $19.5
million value added tax credit which were available to offset the future VAT payable, respectively.



VAT on sales and VAT on purchases amounted
to $519.0 million and $482.44 million, respectively, for the year ended December 31, 2010, $440.4 million and $409.8 million, respectively,
for the year ended December 31, 2009, $341.5 million and $308.5 million, respectively, for the year ended December 31, 2008. 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:



|                     |  | December 31, 2010 As restated |       |  | December 31, 2009
 As restated |  
|-------------------- |  | ----------------------------- | ----- |  | ------------------------------ | -
|                     |  | (in thousands)                |       |  | (in thousands)                 |  
|VAT taxes payable    |  | $                             | 3,921 |  |                                | $
|Income taxes payable |  |                               | 840   |  |                                |  
|Misc taxes           |  |                               | 1,476 |  |                                |  
|Totals               |  | $                             | 6,237 |  |                                | $



Note 15 – Earnings per share (as
restated)



The calculation of earnings per share is
as follows:



|(in thousands except per share data)                                   |  | 2010 As restated |            |   | 2009 As restated |   |            | 2008 | 
|---------------------------------------------------------------------- |  | ---------------- | ---------- | - | ---------------- | - | ---------- | ---- | 
|Loss attributable to holders of common shares                          |  | $                | (30,006    | ) |                  | $ | (30,620    | )    | 
|Basic and diluted weighted average number of common shares outstanding |  |                  | 53,113,177 |   |                  |   | 41,860,238 |      | 
|Loss per share                                                         |  |                  |            |   |                  |   |            |      | 
|Basic & diluted                                                        |  | $                | (0.56      | ) |                  | $ | (0.73      | )    | 



There is no dilutive effect for its earnings
per share as the Company incurred net loss for the years ended December 31, 2010, and 2009.



Note 16 – Related party transactions and balances (as
restated)



Related party transactions



On March 31, 2010, General Steel (China),
a subsidiary in which the Company holds a controlling interest, entered into a lease agreement with Tianjin Daqiuzhuang Steel Plates
Co., Ltd. (the “Lessee”), whereby General Steel (China) will lease its facility located at No. 1, Tonga Street, Daqizhuang
Town, Junghai County, Tianjin City to the Lessee (the “Lease Agreement”). The Lease Agreement provides approximately
776,078 square feet of workshops, lands, equipments and other facilities to the Lessee and allows the Company to reduce overhead
costs while providing a recurring monthly revenue stream resulting from payments due thereunder. The term of the Lease Agreement
is from January 1, 2010 to December 31, 2011 and the monthly base rental rate due to General Steel (China) is approximately $0.2
million (RMB1.68 million). The lessee partially owned by a related party Beijing Wendlar Co., Ltd, and is managed by the former
general manager of General Steel (China). For the year ended December 31, 2010, General Steel (China) realized rental income in
the amount of $3.0 million from the Lessee.





See report of independent registered public accounting firm.







78









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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



|Year ended December 31, |  | Amount         |      
|----------------------- |  | -------------- | -----
|                        |  | (in thousands) |      
|2011                    |  | $              | 2,982
|Thereafter              |  |                | -    
|Total                   |  | $              | 2,982



The following chart summarized sales to the related party
transactions for the years ended December 31, 2010 and 2009.



|Name of related parties                                                   |  | Relationship                                                     |  | December 31,2010
 As restated |         |  | December 31,2009
 As restated |  
|------------------------------------------------------------------------- |  | ---------------------------------------------------------------- |  | ----------------------------- | ------- |  | ----------------------------- | -
|                                                                          |  |                                                                  |  | (in thousands)                |         |  | (in thousands)                |  
|Shaanxi Longmen (Group) Co, Ltd and its subsidiaries (“Long Steel Group”) |  | Noncontrolling shareholder of Longmen Joint Venture              |  | $                             | 344,556 |  |                               | $
|Tianjin Hengying Trading Co., Ltd                                         |  | Common control under CEO                                         |  |                               | 47,268  |  |                               |  
|Tianjin Dazhan Industry Co, Ltd                                           |  | Common control under CEO                                         |  |                               | 43,778  |  |                               |  
|Hancheng Haiyan Coking                                                    |  | Investee of Long Steel Group                                     |  |                               | 38,545  |  |                               |  
|Shaanxi Steel                                                             |  | Majority shareholder of Long Steel Group                         |  |                               | 1,152   |  |                               |  
|Beijing Daishang Trade Co., Ltd.                                          |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |                               | 5,503   |  |                               |  
|Tianjin Daqiuzhuang Steel Plates Co., Ltd.                                |  | Common control under CEO                                         |  |                               | 8,385   |  |                               |  
|Maoming Shengze Trade Co., Ltd.                                           |  |                                                                  |  |                               | -       |  |                               |  
|Others                                                                    |  |                                                                  |  |                               | 183     |  |                               |  
|Total                                                                     |  |                                                                  |  | $                             | 489,370 |  |                               | $



The following charts summarize purchases from the related
party transactions for the years ended December 31, 2010 and 2009.



|Name of related parties          |  | Relationship                                                     |  | December 31, 2010 |         |  | December 31, 2009 |  
|-------------------------------- |  | ---------------------------------------------------------------- |  | ----------------- | ------- |  | ----------------- | -
|                                 |  |                                                                  |  | (in thousands)    |         |  | (in thousands)    |  
|Long Steel Group                 |  | Noncontrolling shareholder of Longmen Joint Venture              |  |                   | 553,752 |  |                   |  
|Hengying and Dazhan              |  | Common control under CEO                                         |  |                   | -       |  |                   |  
|Jingma Jiaohua                   |  | Investee of Longmen Joint Venture’s subsidiary (unconsolidated)  |  |                   | 8,489   |  |                   |  
|Hancheng Haiyan Coking           |  | Investee of Long Steel Group                                     |  |                   | 234,479 |  |                   |  
|Beijing Daishang Trade Co., Ltd. |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |                   | 1,984   |  |                   |  
|Others                           |  |                                                                  |  |                   | 1,019   |  |                   |  
|Total                            |  |                                                                  |  | $                 | 799,723 |  |                   | $





See report of independent registered public accounting firm.







79









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Related party balances



| | a. | Accounts receivables – related parties:
| | -- | ---------------------------------------

|Name of related parties            |              |                                                     |             | December 31,2010 |             | December 31,2009
|---------------------------------- | ------------ | --------------------------------------------------- | ----------- | ---------------- | ----------- | ----------------
|                                   | Relationship |                                                     | As restated |                  | As restated
|                                   |              |                                                     |             | (in thousands)   |             | (in thousands)  
|Long Steel Group                   |              | Noncontrolling shareholder of Longmen Joint Venture |             | $                | 3,023       |                 
|Tianjin Hengying Trading Co., Ltd. |              | Common control under CEO                            |             |                  | 1,054       |                 
|Shaanxi Steel                      |              | Majority shareholder of Long Steel Group            |             |                  | 83          |                 
|Total                              |              |                                                     |             | $                | 4,160       |                 





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



|Name of related parties                    |  | Relationship                                        |  | December 31,2010
        As restated |        |  | December 31,2009
        As restated
|------------------------------------------ |  | --------------------------------------------------- |  | ------------------------------------ | ------ |  | ------------------------------------
|                                           |  |                                                     |  | (in thousands)                       |        |  | (in thousands)                      
|Long Steel Group                           |  | Noncontrolling shareholder of Longmen Joint Venture |  | $                                    | 993    |  |                                     
|Shaanxi Steel                              |  | Majority shareholder of Long Steel Group            |  |                                      | -      |  |                                     
|Mao Ming Sheng Zhe                         |  | Common control under CEO                            |  |                                      | 8,095  |  |                                     
|Tianjin Daqiuzhuang Steel Plates Co., Ltd. |  | Common control under CEO                            |  |                                      | 1,078  |  |                                     
|Tianjin Dazhan Industry Co, Ltd            |  | Common control under CEO                            |  |                                      | 455    |  |                                     
|Others                                     |  |                                                     |  |                                      | 317    |  |                                     
|Total                                      |  |                                                     |  | $                                    | 10,938 |  |                                     





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



|Name of related parties      |  | Relationship             |  | December 31,
        2010 |       |  | December 31,
        2009
|---------------------------- |  | ------------------------ |  | ------------------------- | ----- |  | -------------------------
|                             |  |                          |  | (in thousands)            |       |  | (in thousands)           
|Tianjin General Qiugang Pipe |  | Common control under CEO |  | $                         | 6,187 |  |                          
|Others                       |  |                          |  |                           | -     |  |                          
|Total                        |  |                          |  | $                         | 6,187 |  |                          



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



|Name of related parties           |  | Relationship                                                     |  | December 31,2010
        As restated |        |  | December 31,2009
|--------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------ | ------ |  | ----------------
|                                  |  |                                                                  |  | (in thousands)                       |        |  | (in thousands)  
|Tianjin Hengying Trading Co., Ltd |  | Common control under CEO                                         |  | $                                    | 17,264 |  |                 
|Tianjin Dazhan Industry Co., Ltd  |  | Common control under CEO                                         |  |                                      | 2,764  |  |                 
|Tianjin General Qiugang Pipe      |  | Common control under CEO                                         |  |                                      | -      |  |                 
|Hancheng Haiyan Coking            |  | Investee of Long Steel Group                                     |  |                                      | 25,708 |  |                 
|Henan Xinmi Kanghua               |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |                                      | 880    |  |                 
|Jingma Jiaohua                    |  | Investee of Longmen Joint Venture’s subsidiary (unconsolidated)  |  |                                      | 1,579  |  |                 
|Long Steel Group                  |  | Noncontrolling shareholder of Longmen Joint Venture              |  |                                      | 28,329 |  |                 
|Beijing Daishang Trading Co., Ltd |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |                                      | 1,101  |  |                 
|Mao Ming Sheng Zhe                |  | Common control under CEO                                         |  |                                      | 1,954  |  |                 
|Others                            |  |                                                                  |  |                                      | 115    |  |                 
|Total                             |  |                                                                  |  | $                                    | 79,694 |  |                 





See report of independent registered public accounting firm.







80









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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



|Name of related parties            |  | Relationship                             |  | December 31,2010
        As restated |        |  | December 31,2009 |  
|---------------------------------- |  | ---------------------------------------- |  | ------------------------------------ | ------ |  | ---------------- | -
|                                   |  |                                          |  | (in thousands)                       |        |  | (in thousands)   |  
|Shaanxi Steel                      |  | Majority shareholder of Long Steel Group |  | $                                    | 14,548 |  |                  | $
|Tianjin Dazhan Industry Co., Ltd   |  | Common control under CEO                 |  |                                      | -      |  |                  |  
|Tianjin Hengying Trading Co., Ltd  |  | Common control under CEO                 |  |                                      | -      |  |                  |  
|Shaanxi Shenganda Trading Co., Ltd |  | Common control under Long Steel Group    |  |                                      | -      |  |                  |  
|Total                              |  |                                          |  | $                                    | 14,548 |  |                  | $



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



|Name of related parties          |  | Relationship                      |  | December 31,
        2010 |        |  | December 31,
        2009 |  
|-------------------------------- |  | --------------------------------- |  | ------------------------- | ------ |  | ------------------------- | -
|                                 |  |                                   |  | (in thousands)            |        |  | (in thousands)            |  
|Tianjin Hengying Trading Co, Ltd |  | Common control under CEO          |  | $                         | 10,168 |  |                           | $
|Beijing Wendlar Co., Ltd         |  | Common control under CEO          |  |                           | -      |  |                           |  
|Yangpu Capital Automobile        |  | Common control under CEO          |  |                           | 1,350  |  |                           |  
|Tianjin General Qiugang Pipe     |  | Common control under CEO          |  |                           | 4,547  |  |                           |  
|Wenchun Han                      |  | Director of General Steel (China) |  |                           | 2,124  |  |                           |  
|Others                           |  |                                   |  |                           | 25     |  |                           |  
|Total                            |  |                                   |  | $                         | 18,214 |  |                           | $



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



|Name of related parties           |  | Relationship                                                     |  | December 31,2010
        As restated |        |  | December 31,2009
        As restated |  
|--------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------ | ------ |  | ------------------------------------ | -
|                                  |  |                                                                  |  | (in thousands)                       |        |  | (in thousands)                       |  
|Tianjin Dazhan Industry Co., Ltd  |  | Common control under CEO                                         |  | $                                    | -      |  |                                      | $
|Hancheng Haiyan Coking            |  | Investee of Long Steel Group                                     |  |                                      | 5,081  |  |                                      |  
|Long Steel Group                  |  | Noncontrolling shareholder of Longmen Joint Venture              |  |                                      | 48,161 |  |                                      |  
|Beijing Shenhua Xinyuan           |  | Common control under CEO                                         |  |                                      | 1,299  |  |                                      |  
|Beijing Daishang Trading Co., Ltd |  | Noncontrolling shareholder of Longmen Joint Venture’s subsidiary |  |                                      | -      |  |                                      |  
|Others                            |  |                                                                  |  |                                      | 381    |  |                                      |  
|Total                             |  |                                                                  |  | $                                    | 54,922 |  |                                      | $





See report of independent registered public accounting firm.







81









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





| | h. | Long-term loans – related parties:
| | -- | ----------------------------------

|Name of related parties |  | Relationship                             |  | December 31,2010
        As restated |        |  | December 31,2009 |  
|----------------------- |  | ---------------------------------------- |  | ------------------------------------ | ------ |  | ---------------- | -
|                        |  |                                          |  | (in thousands)                       |        |  | (in thousands)   |  
|Shaanxi Steel           |  | Majority shareholder of Long Steel Group |  | $                                    | 91,020 |  |                  | $
|Total                   |  |                                          |  | $                                    | 91,020 |  |                  | $



The Company also guaranteed bank loans
of related parties amounting to $3.0 million as of December 31, 2010.



i. Deferred lease income

|                                                        |  | December 31, 2010 |        |   | December 31, 2009 |  
|------------------------------------------------------- |  | ----------------- | ------ | - | ----------------- | -
|                                                        |  | As restated       |        |   | As restated       |  
|                                                        |  | (in thousands)    |        |   | (in thousands)    |  
|Beginning balance                                       |  | $                 | 16,487 |   |                   | $
|Add: Compensation for dismantled assets                 |  |                   | 568    |   |                   |  
|Add: Compensation for loss of efficiency                |  |                   | 20,676 |   |                   |  
|Add: Compensation for trial production cost             |  |                   | 13,584 |   |                   |  
|Add: Deferred depreciation cost during trial production |  |                   | 6,656  |   |                   |  
|Less: Lease income realized                             |  |                   | (943   | ) |                   |  
|Exchange rate effect                                    |  |                   | 563    |   |                   |  
|Ending balance                                          |  | $                 | 57,591 |   |                   | $



For the year ended December 31, 2010 and
2009, the Company realized deferred lease income from Shaanxi Steel, a related party, amounting $942,619 and $118,900, respectively.



Note 17 - Equity



2009 Equity Transactions



The Company granted senior management and
directors 596,650 shares of common as compensation in 2009. The shares were valued at the quoted market price on the date granted.
The Company recorded compensation expense of $1.9 million for the year ended December 31, 2009.



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.



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.





See report of independent registered public accounting firm.







82









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





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                  | 
| |   |                                        | 



The 2009 Warrants were valued at $8.5 million
when they were issued on December 24, 2009. At December 31, 2010 and 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



The Company granted senior management and
directors 733,300 shares of common stock as compensation in 2010. The shares were valued at the quoted market price on the
date granted. The Company recorded compensation expense of $2.2 million for the year ended December 31, 2010.



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 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 December 21, 2010, the Company’s
Board of Directors has authorized to repurchase up to an aggregate of one million (1,000,000) shares of its common stock as part
of a share repurchase program (the “Share Repurchase Program”).  The Share Repurchase Program does not have
an expiration date and these repurchases may be made from time to time in the open market or in privately negotiated transactions
in accordance with applicable laws. As of December 31, 2010, the Company has repurchased 316,760 shares with $ 0.9 million
cost.



The Company has the following warrants
outstanding:



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





See report of independent registered public accounting firm.







83









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





|Outstanding Warrants |      |  | Exercisable Warrants | 
|-------------------- | ---- |  | -------------------- | 
|Exercise Price       |      |  | Number               | 
|$                    | 5.00 |  |                      | 



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 or 12% of the minimum social average salary of the city
where the factory located, which is higher. Employees are required to contribute 8% of their base salary to the plan. The minimum
social average salary is announced by local Social Security bureau and renewed annually. Total pension expense incurred by the
Company amounted to $5.1million, $3.8 million and $3.0 million for the years ended December 31, 2010, 2009 and 2008, 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.



As of December 31, 2010, total future minimum
lease payments for the unpaid portion under an operating lease were as follows:



|Year ended,       |  | Amount         |    
|----------------- |  | -------------- | ---
|                  |  | (in thousands) |    
|December 31, 2011 |  | $              | 273
|December 31, 2012 |  |                | 137
|Total             |  | $              | 410





See report of independent registered public accounting firm.







84









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010





Total rental expense amounted to $0.4 million,
$0.3 million and $0.3 million for the years ended December 31, 2010, 2009 and 2008, respectively,



Longmen Joint Venture has $13.9 million
contractual obligations in its construction project as of December 31 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:



|Years ended,      |  | Amount         |      
|----------------- |  | -------------- | -----
|                  |  | (in thousands) |      
|December 31, 2011 |  | $              | 1,428
|Thereafter        |  |                | -    
|Total             |  | $              | 1,428



Contingencies



As of December 31, 2010, Longmen Joint
Venture guaranteed bank loans for related parties and third parties bank loans, including line of credit and others, amounting
to $60.5 million.



|Nature of guarantee                                 |  | Guarantee
        amount |        | Guaranty period
|--------------------------------------------------- |  | ------------------------ | ------ | ---------------
|                                                    |  | (In thousands)           |        |                
|Line of credit                                      |  | $                        | 11,608 |                
|Bank loans                                          |  |                          | 7,585  |                
|Notes payable                                       |  |                          | 18,238 |                
|Confirming storage                                  |  |                          | 19,089 |                
|Financing by the rights of goods delivery in future |  |                          | 3,946  |                
|Total                                               |  | $                        | 60,466 |                



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 (as restated)



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 sales from external customers by main product lines are as follows:



|                         |  | For the years ended |          
|------------------------ |  | ------------------- | ---------
|Products (in thousands)  |  | 2010 As restated    |          
|Re-bar                   |  | $                   | 1,854,991
|Hot-Rolled Sheets        |  |                     | 8,385    
|High Speed Wire          |  |                     | 1,100    
|Spiral-Welded Steel Pipe |  |                     | 12,315   
|Iron Powder              |  |                     | 5,349    
|Total sales revenue      |  | $                   | 1,882,140



See report of independent registered public accounting firm.







85









GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010



Note 22 – Subsequent events



On January 31, 2011, General Steel Holdings, Inc. (the “Company”)
issued a press release announcing that it will test run two newly constructed 1,280 cubic meter blast furnaces, two 120 metric
ton converters and one 400 square meter sintering machine at its Shaanxi Longmen Iron and Steel Co., Ltd. facilities, a joint venture
with Shaanxi Longmen Iron & Steel Group Co., Ltd.  The Company will have the opportunity to sell and collect revenue
from the crude steel produced during the test run of the new equipment.



The construction of the new equipment
was funded by Shaanxi Steel. The Company is currently in negotiations with Shaanxi Steel to enter into an agreement to operate
the new equipment. During this test run period, the Company will be able to use the equipment to produce and deliver products to
its customers. It is anticipated that this test run period will continue until a lease agreement between Shaanxi Steel and the
Company is finalized.



See report of independent registered public accounting firm.









86







ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.



None.





ITEM 9A. CONTROLS AND PROCEDURES.



| | a) | Evaluation Disclosure Controls and Procedures
| | -- | ---------------------------------------------



Our Company, with the
participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the design and operation of
our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
‘Exchange Act”), as of December 31, 2010. Our Company’s disclosure controls and procedures are designed (i) to
ensure that information required to be disclosed by us in the reports that we file or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that
information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. Based on their original evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our Company’s disclosure controls and procedures were effective as of December 31, 2010.



In connection with
the preparation of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, the Company revisited the appropriate
treatment for certain reimbursements received related to the Company’s collaboration with Shaanxi Steel on the construction
of equipment by Shaanxi Steel during the period from June 2009 to March 2011. Based on the guidance received from the OCA, which
provided materially different accounting treatment for the reimbursements, management determined that restatement was necessary
and a material weakness existed with respect to the reporting of the complex, non-routine transactions.



Solely as
a result of the material weakness indentified with respect to our reporting of complex non-routine transactions, our Chief
Executive Officer and our Chief Financial Officer have re-evaluated our disclosure controls and procedures, and on June 8,
2012, concluded that our disclosure controls and procedures were not effective as of December 31, 2010.



Despite the existence of
the material weakness in reporting, we believe that the consolidated financials included in this Amendment No. 1 present, in all
material aspects, our financial position, results of operations, comprehensive income and cash flows for the periods presented
in conformity with U.S. GAAP.



| | b) | Management’s Annual Report on Internal Control
over Financial Reporting
| | -- | -----------------------------------------------------------------------



Our management is responsible
for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange
Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Our internal control over
financial reporting includes those policies and procedures that:



·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of our assets;



·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles of the United States, and that our receipts and expenditures are being made only
in accordance with authorizations of our management and members of our board of directors; and



87







·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets
that could have a material effect on our financial statements.



Internal control over
financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion
or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected
on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial
reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.



In connection with
this Amendment No.1, management conducted the above-referenced assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2010 using the framework set forth in the report entitled, “Internal Control—Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Report. Based on
such evaluation, management revised its assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2010, originally included in Management’s Report on Internal Control Over Financial Reporting
in the Company’s Original 10-K. In the Original 10-K, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2010. Subsequent to the Original 10-K, we have
restated our 2010 and 2009 financial statements under specific guidance of the OCA. Management has concluded that the restatements
resulted from control deficiencies that represent material weaknesses in internal control over financial reporting. As a result,
management has revised its assessment of the effectiveness of our internal control over financial reporting due to a material weakness
in our reporting of complex, non-routine transactions.



Based on this assessment
and the determination that a material weakness exists with our reporting of non-routine, complex transactions, our management concluded
that, as of December 31, 2010, our internal control over financial reporting was not effective based on those criteria due to the
material weakness described above.



The Company’s
independent registered public accounting firm, Frazer Frost, LLP, has audited and issued an audit report on management’s
revised assessment of the Company’s internal control over financial reporting and their report is included herein.





Remediation



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



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



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

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



88







| | · | We have established an enhanced staff training program to update our employees on current accounting
pronouncements.
| | - | --------------------------------------------------------------------------------------------------------------------



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



| | c) | Changes in Internal Control over Financial Reporting
| | -- | ----------------------------------------------------



Except as otherwise
noted above, there has not been any changes in our internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Board of Directors and
Stockholders of General Steel Holdings, Inc.



We have audited General Steel Holdings, Inc.(“the Company”)’s
internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). General Steel Holdings, Inc.’s
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control
Over Financial Reporting (as revised)”. Our responsibility is to express an opinion on the company’s internal control
over financial reporting based on our audit.



We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.



A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.



In our report dated March 16, 2011, we expressed an unqualified
opinion on the effectiveness of internal control over financial reporting as of December 31, 2010. As described in the following
paragraph, the Company subsequently indentified material misstatements in its financial statements, which caused the annual financial
statements to be restated. Accordingly, our opinion on the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2010, expressed herein is different from that expressed in our previous report.



A material weakness is a control deficiency, or combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following
material weakness has been identified and included in management’s assessment.



In connection with the preparation of its quarterly report on
Form 10Q for the quarter ended June 30, 2011 the Company revisited the appropriate treatment for certain reimbursements received
related to the Company’s collaboration with Shaanxi Iron and Steel Group, Co. Ltd (“Shaanxi Steel”) on the construction
of equipment by Shaanxi Steel during the period from June 2009 to March 2011. Upon guidance received from the OCA, which provided
materially different accounting treatment for the reimbursements. Thus the management determined that restatement was necessary
and a material weakness exited with respect to the reporting of the complex, non-routine transactions.



This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2010 consolidated financial statements, and this report does not
affect our report dated March 16, 2011, except for the effects on the consolidated financial statements of the restatement described
in Note 2, as to which the date is August 29, 2012, on those financial statements.



In our opinion, because of the effect of the material weakness
described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal
control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2010 and 2009, and
the related consolidated statements of operations and other comprehensive income, changes in equity, and cash flows for each of
the years in the three-year period ended December 31, 2010 of General Steel Holdings, Inc. and Subsidiaries, and our report dated
March 16, 2011, except for the effects on the consolidated financial statements of the restatement described in Note 2, as to which
the date is August 29, 2012, expressed an unqualified opinion.



/s/ Frazer Frost, LLP





Brea, California

March 16, 2011, except for the effects of the material weakness
described in the ninth paragraph above, as to which the date is August 29, 2012





89







ITEM 9B. OTHER INFORMATION.



None.



PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.



In addition to the
information set forth under the caption “Executive Officers of the Registrant” in Part I, Item I of this Amendment
No. 1 and as set forth herein, the information that is required by this Item is incorporated by reference to the Company’s
definitive Proxy Statement filed pursuant to Regulation 14A, in connection with the Company’s 2011 Annual Meeting of Stockholders.



Code of Ethics



We have adopted a Code
of Ethics and Business Conduct and Corporate Governance Guidelines which provide information to guide employees so that their business
conduct is consistent with our ethical standards and improve the understanding of our ethical standards among customers, suppliers
and others outside the Company. Our Code of Ethics and Business Conduct and Corporate Governance Guidelines are available on our
website at www.gshi-steel.com. This website address is not intended to function as a hyperlink, and the information contained in
our website is not intended to be a part of this Amendment No. 1.



ITEM 11. EXECUTIVE COMPENSATION.



The information required
by this Item is incorporated by reference to the Company’s definitive Proxy Statement filed pursuant to Regulation 14A, in
connection with the Company’s 2011 Annual Meeting of Stockholders.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.



The information required
by this Item is incorporated by reference to the Company’s definitive Proxy Statement filed pursuant to Regulation 14A, in
connection with the Company’s 2011 Annual Meeting of Stockholders.



90







ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.



The information required
by this Item is incorporated by reference to the Company’s definitive Proxy Statement filed pursuant to Regulation 14A, in
connection with the Company’s 2011 Annual Meeting of Stockholders.



ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.



On December 31, 2010,
the Audit Committee of our Company’s Board of Directors approved the engagement of PricewaterhouseCoopers Zhong Tian CPAs
Limited Company (“PwC”) as our Company’s new independent registered public accounting firm for the fiscal year
ending December 31, 2011. During the two most recent fiscal years and the interim periods preceding the engagement, our Company
has not consulted PwC regarding either (i) the application of accounting principles to a specified transaction, either completed
or proposed, or the type of audit opinion that might be rendered on our Company’s financial statements, and either a written
report was provided to our Company or oral advice was provided that PwC concluded was an important factor considered by our Company
in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of
a disagreement or reportable event as defined in Regulation S-K, Item 304(a)(1)(iv) and Item 304(a)(1)(v).



We were notified that,
effective January 1, 2010, certain partners of its previous independent accounting firm, Moore Stephens Wurth Frazer and Torbet,
LLP (“MSWFT”), and certain partners of Frost, PLLC (“Frost”) formed Frazer Frost, LLP (“Frazer Frost”),
a new partnership. Pursuant to the terms of a combination agreement by and among MSWFT, Frazer Frost and Frost (the “Combination
Agreement”), each of MSWFT and Frost contributed all of their assets and certain of their liabilities to Frazer Frost, resulting
in Frazer Frost assuming MSWFT’s engagement letter with us. On January 7, 2010, the Audit Committee of our Board of Directors
approved the engagement of Frazer Frost as MSWFT’s successor to continue as our independent accounting firm.



Other than as set forth
herein, the information required by this Item is incorporated by reference to the Company’s definitive Proxy Statement filed
pursuant to Regulation 14A, in connection with the Company’s 2011 Annual Meeting of Stockholders.



PART IV



ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES



| | (a) | (1) and (2) – LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
| | --- | ----------------------------------------------------------------------------

| | (b) | 
| | --- | 





The following financial
statements are included herein under Part II, Item 8, Financial Statements and Supplementary Data:



| | Ÿ | Report of Independent Registered Public Accounting Firm
| | - | -------------------------------------------------------

| | Ÿ | Consolidated Balance Sheets—December 31, 2010 and
2009
| | - | ------------------------------------------------------



| | Ÿ | Consolidated Statements of Operations and Other Comprehensive
(Loss) Income for the years ended December 31, 2010, 2009, and 2008
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                  
|

91





| |  | 
| |  | 

| | Ÿ | Consolidated Statements of Changes in Equity for the
years ended December 31, 2010, 2009, and 2008
| | - | --------------------------------------------------------------------------------------------------



| | Ÿ | Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009, and 2008
| | - | -------------------------------------------------------------------------------------------

| | Ÿ | Notes to Consolidated Financial Statements
| | - | ------------------------------------------



All other schedules
for which provision is made in the applicable accounting regulation of the SEC are not required
under the related instructions, are not applicable, or information required is included in the financial statements or notes thereto
and, therefore, have been omitted.



(3) – LIST
OF EXHIBITS



|Exhibit Number |  | Description                                                                                                                                                                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                          
|3.1            |  | Articles of Incorporation of General Steel Holdings, Inc. (included as Exhibit 3.1 to the Form SB-2 filed with the Commission on June 6, 2003 and incorporated herein by reference).                                                                                     
|               |  |                                                                                                                                                                                                                                                                          
|3.2            |  | Amendment to the Articles of Incorporation dated February 22, 2005 (included as Exhibit 3.2 to the Form 10-K filed March 16, 2010 and incorporated herein by reference).                                                                                                 
|               |  |                                                                                                                                                                                                                                                                          
|3.3            |  | Amendment to the Articles of Incorporation dated November 14, 2007 (included as Exhibit 3.3 to the Form 10-K filed March 16, 2010 and incorporated herein by reference).                                                                                                 
|               |  |                                                                                                                                                                                                                                                                          
|3.4            |  | Certificate of Designation of Series A Preferred Stock of the registrant (included as Exhibit 10.6 to the Form 10-K filed March 31, 2008 and incorporated herein by reference).                                                                                          
|               |  |                                                                                                                                                                                                                                                                          
|3.5            |  | Bylaws of General Steel Holdings, Inc. (included as Exhibit 3.5 to the Form 10-K filed March 16, 2010 and incorporated herein by reference).                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                          
|4.1            |  | Form of Common Stock Purchase Warrant (included as Exhibit 4.1 to the Form 8-K filed on December 24, 2009 and incorporated herein by reference).                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                          
|10.1           |  | Form of Warrant Reset Agreement by and between General Steel Holdings, Inc. and Hudson Bay Fund, LP (included as Exhibit 10.3 to the Form 8-K filed on December 24, 2009 and incorporated herein by reference).                                                          
|               |  |                                                                                                                                                                                                                                                                          
|10.2           |  | Form of Warrant Reset Agreement by and between General Steel Holdings, Inc. and the holders of the December 2007 Warrants (not including Hudson Bay Fund, LP) (included as Exhibit 10.4 to the Form 8-K filed on December 24, 2009 and incorporated herein by reference).
|               |  |                                                                                                                                                                                                                                                                          
|10.3           |  | General Steel Holdings, Inc. 2008 Equity Incentive Plan (included as Appendix A to the Schedule 14A filed June 20, 2008 and incorporated herein by reference).                                                                                                           
|               |  |                                                                                                                                                                                                                                                                          
|10.4           |  | Service Agreement, dated February 25, 2009, by and between General Steel Holdings, Inc. and James Hu thereto (included as Exhibit 10.1 to the Form 8-K filed with the Commission on February 27, 2009 and incorporated herein by reference).                             



92







|10.5  |  | Form of Securities Purchase Agreement, dated as of December 24, 2009, by and between General Steel Holdings, Inc. and each purchaser signatory thereto (included as Exhibit 10.1 to Form 8-K filed with the Commission on December 24, 2009 and incorporated herein by reference).                                                                      
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.6  |  | Form of Voting Agreement (included as Exhibit 10.2 to the Form 8-K filed on December 24, 2009 and incorporated herein by reference).                                                                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.7  |  | Amendment to the Securities Purchase Agreement dated October 5, 2009 to the Securities Purchase Agreement, December 13, 2007 by and among General Steel Holdings, Inc. and the Buyers set forth therein  (included as Exhibit 10.12 to the Annual Report on Form 10-K filed with the Commission on March 16, 2010 and incorporated herein by reference).
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.8  |  | Lease Agreement, dated March 31, 2010, by and between General Steel (China) Co., Ltd. and Tianjin Daqiuzhuang Steel Plates Co., Ltd. (included as Exhibit 10.1 to the Form 8-K filed with the Commission on April 6, 2010 and incorporated herein by reference).                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.9  |  | Joint Venture Framework Agreement, dated May 13, 2010, by and between General Steel Holdings, Inc. and Shanxi Meijin EnergeryEmerge Group Co., Ltd. (included as Exhibit 10.1 to the Form 8-K filed with the Commission on May 18, 2010 and incorporated herein by reference).                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.10 |  | Debt Repayment Agreement, dated June 7, 2010, by and between General Steel Holdings, Inc., Maoming Hengda Group Ltd., Guangzhou Hengda Industrial Group Ltd., and Ms. Ding Yumei (included as Exhibit 10.1 to the Form 8-K filed with the Commission on June 9, 2010 and incorporated herein by reference).                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|16.1  |  | Letter of Frazer Frost, LLP to the Commission dated January 4, 2011 (included as Exhibit 16.1 to the Form 8-K filed with the Commission on January 5, 2011 and incorporated herein by reference).                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|21    |  | Subsidiaries of the registrant (included as Exhibit 21 to the Annual Report on Form 10-K filed with the Commission on March 16, 2011 and incorporated herein by reference).                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|23    |  | Consent of Frazer Frost, LLP (filed herewith).                                                                                                                                                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|31.1  |  | Certification of Chief Executive Officer (filed herewith).                                                                                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|31.2  |  | Certification of Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|32.1  |  | Certification of Chief Executive Officer and Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                                  



93







SIGNATURES



Pursuant to the requirements of Section 13
or 15(d) 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
| | ---------------------------
| |                            
| | By:                        
| |                            
| |                            
| |                            
| |                            



Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.



|SIGNATURE         |  | TITLE                                             |  | DATE           
|----------------- |  | ------------------------------------------------- |  | ---------------
|                  |  |                                                   |  |                
|/s/ Zuosheng Yu   |  | Chairman and Chief Executive Officer and Director |  | August 29, 2012
|YU, Zuosheng      |  | (Principal Executive Officer)                     |  |                
|                  |  |                                                   |  |                
|/s/ John Chen     |  | Chief Financial Officer and Director              |  | August 29, 2012
|CHEN, John        |  | (Principal Accounting and Financial Officer)      |  |                
|                  |  |                                                   |  |                
|/s/ Xiao Zeng Xu  |  | Director                                          |  | August 29, 2012
|XU, Xiao Zeng     |  |                                                   |  |                
|                  |  |                                                   |  |                
|/s/ Si Yong Tao   |  | Independent Director                              |  | August 29, 2012
|TAO, Si Yong      |  |                                                   |  |                
|                  |  |                                                   |  |                
|/s/ Angela He     |  | Independent Director                              |  | August 29, 2012
|HE, Angela        |  |                                                   |  |                
|                  |  |                                                   |  |                
|/s/ Zhong Kui Cao |  | Independent Director                              |  | August 29, 2012
|CAO, Zhong Kui    |  |                                                   |  |                
|                  |  |                                                   |  |                
|/s/ Chris Wang    |  | Independent Director                              |  | August 29, 2012
|WANG, Chris       |  |                                                   |  |                
|                  |  |                                                   |  |                
|/s/ James Hu      |  | Independent Director                              |  | August 29, 2012
|HU, James         |  |                                                   |  |                
|                  |  |                                                   |  |                
|/s/ Quinghai Du   |  | Independent Director                              |  | August 29, 2012
|DU, Quinghai      |  |                                                   |  |                



94