GENERAL STEEL HOLDINGS INC - FORM 10-Q/A

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EX-31.1 - EXHIBIT 31.1 - GENERAL STEEL HOLDINGS INC	v322535_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - GENERAL STEEL HOLDINGS INC	v322535_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - GENERAL STEEL HOLDINGS INC	v322535_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

	For the quarterly period ended June 30, 2010

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

	For the transition period from __________ to __________

Commission File Number 001-33717

General Steel Holdings, Inc.

(Exact name of registrant as specified in its charter)

Nevada

(State or other Jurisdiction of

Incorporation or Organization)

41-2079252

(I.R.S. Employer Identification No.)

Level 21, Tower B, Jia Ming Center

No. 27 Dong San Huan North Road

Chaoyang District, Beijing 100020

(Address of Principal Executive Office, Including Zip Code)

+86(10)57757691

(Registrant's Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ¨ No x

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer¨

(Do not check if a smaller reporting company)

Smaller reporting company x

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

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

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

EXPLANATORY NOTE

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

- Part I, Item 1- Financial Statements;

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

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

- Part II, Item 6- Exhibits.

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

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

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

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

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

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

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

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

Table of Contents

		Page
Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009.	3

	Consolidated Statements of Operation and Other Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2010 and 2009 (Unaudited).	4

	Consolidated Statements of Changes In Equity (Unaudited).	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited).	6

	Notes to Consolidated Financial Statements (Unaudited).	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	61

Item 4.	Controls and Procedures.	62

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings.	63

Item 6.	Exhibits.	63

Signatures		64

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2010 AND DECEMBER 31, 2009

(In thousands, except per share data)

(As restated)

	June 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	50,772		$	82,118
Restricted cash		269,670			192,041
Notes receivable		56,355			29,185
Restricted notes receivable		24,324			-
Accounts receivable, net		21,374			9,140
Accounts receivable - related party		734			18,225
Other receivables, net		8,887			5,357
Other receivables - related parties		59,652			43,620
Dividend receivable		5,940			3,926
Inventories		250,558			177,369
Advances on inventory purchase		40,085			28,407
Advances on inventory purchase - related parties		8,798			2,995
Prepaid expense		5,407			692
Prepaid value added tax		17,075			19,488
Deferred tax assets		10,411			5,044
Total current assets		830,042			617,607

PLANT AND EQUIPMENT, net		562,733			552,114

OTHER ASSETS:
Advances on equipment purchase		18,618			8,419
Investment in unconsolidated subsidiaries		12,751			20,022
Long-term deferred expense		-			2,069
Intangible assets, net of accumulated amortization		23,400			23,733
Note issuance cost		392			406
Total other assets		55,161			54,649

TOTAL ASSETS	$	1,447,936		$	1,224,370

LIABILITIES AND EQUITY

CURRENT LIABILITIES:
Short term notes payable	$	388,080		$	254,608
Accounts payable		194,478			158,126
Accounts payable - related parties		85,128			48,151
Short term loans - bank		177,404			148,968
Short term loans - others		177,434			183,578
Short term loans - related parties		-			11,751
Other payables and accrued liabilities		32,621			30,596
Other payables - related parties		26,247			5,760
Customer deposits		93,814			118,900
Customer deposits - related parties		9,539			3,041
Deposit due to sales representatives		64,482			49,544
Taxes payable		11,285			12,186
Deferred lease income		31,826			16,487
Total current liabilities		1,292,338			1,041,696

CONVERTIBLE NOTES PAYABLE, net of debt discount of $2,019 and $2,250 as of June 30, 2010 and December 31, 2009, respectively		1,281			1,050

DERIVATIVE LIABILITIES		8,672			23,340

Total liabilities		1,302,291			1,066,086

COMMITMENT AND CONTINGENCIES

EQUITY:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively		3			3
Common Stock, $0.001 par value, 200,000,000 shares authorized, 52,952,508 and 51,618,595 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively		53			52
Paid-in-capital		99,498			95,588
Statutory reserves		6,541			6,162
Accumulated deficits		(29,403	)		(21,787	)
Accumulated other comprehensive income		8,152			8,118
Total shareholders' equity		84,844			88,136

NONCONTROLLING INTERESTS		60,801			70,148

Total equity		145,645			158,284

TOTAL LIABILITIES AND EQUITY	$	1,447,936		$	1,224,370

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands, except per share data)

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
	As restated						As restated
REVENUES	$	383,173		$	324,461		$	700,801		$	586,875

REVENUES - RELATED PARTIES		118,506			84,486			253,901			144,866

TOTAL REVENUES		501,679			408,947			954,702			731,741

COST OF REVENUES		369,433			301,849			686,996			553,851

COST OF REVENUES - RELATED PARTIES		124,882			84,599			254,596			142,469

TOTAL COST OF REVENUES		494,315			386,448			941,592			696,320

GROSS PROFIT		7,364			22,499			13,110			35,421

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		13,677			9,564			25,813			18,732

(LOSS) INCOME FROM OPERATIONS		(6,313	)		12,935			(12,703	)		16,689

OTHER INCOME(EXPENSE)
Interest income		617			764			1,737			1,642
Finance/interest expense		(16,464	)		(11,309	)		(27,427	)		(14,247	)
Change in fair value of derivative liabilities		10,729			(26,726	)		14,668			(22,611	)
Gain from debt extinguishment		-			-			-			2,930
Government grant		-			-			-			3,520
Income from equity investments		3,074			2,753			3,229			2,698
Lease income		184			-			320			-
Other non-operating income, net		628			142			671			652
Total other expense, net		(1,232	)		(34,376	)		(6,802	)		(25,416	)

LOSS BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST		(7,545	)		(21,441	)		(19,505	)		(8,727	)

PROVISION FOR INCOME TAXES
Current		(5,093	)		3,230			(4,472	)		3,395
Deferred		2,290			(1,222	)		(268	)		-
Total (benefit) provision for income taxes		(2,803	)		2,008			(4,740	)		3,395

NET LOSS BEFORE NONCONTROLLING INTEREST		(4,742	)		(23,449	)		(14,765	)		(12,122	)

Less: Net (Loss) income attributable to noncontrolling interest		(2,738	)		8,340			(7,149	)		12,333

NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST		(2,004	)		(31,789	)		(7,616	)		(24,455	)

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments		314			163			34			(14	)
Comprehensive income (loss) attributable to noncontrolling interest		(2	)		(1,031	)		117			(1,106	)

COMPREHENSIVE LOSS	$	(1,692	)	$	(32,657	)	$	(7,465	)	$	(25,575	)

WEIGHTED AVERAGE NUMBER OF SHARES
Basic & Diluted		52,111,605			39,533,099			51,883,491			37,918,177

LOSS PER SHARE
Basic & Diluted	$	(0.04	)	$	(0.80	)	$	(0.15	)	$	(0.64	)

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)

																			Accumulated
	Preferred stock				Common stock						Retained earnings / Accumulated deficits								other
									Paid-in		Statutory					Contribution			comprehensive			Noncontrolling
	Shares		Par value		Shares		Par value		capital		reserves		Unrestricted			receivable			income			interest			Totals
BALANCE, December 31, 2008		3,092,899	$	3		36,128,833	$	36	$	37,128	$	4,902	$	10,093		$	(960	)	$	8,705		$	54,330		$	114,237

Net loss attributable to controlling interest														(24,455	)											(24,455	)
Net income attributable to noncontrolling interest																							12,333			12,333
Disposal of subsidiaries																							(293	)		(293	)
Distribution of dividend to noncontrolling shareholders																							(556	)		(556	)
Adjustment to statutory reserve												260		(260	)											-
Common stocks issued for compensation						216,000		0.22		498																498
Common stock issued for interest payment						152,240		0.15		558																558
Common stock issued for repayment of debt						300,000		0.30		1,800																1,800
Common stock transferred by CEO for compensation										138																138
Notes converted to common stock						5,104,596		5.11		24,125																24,130
Make whole shares issued on notes conversion						1,399,759		1.40		5,565																5,567
Reduction of Registered Capital																	960									960
Foreign currency translation adjustments																				(14	)		(1,106	)		(1,120	)

BALANCE, June 30, 2009, unaudited		3,092,899	$	3		43,301,428	$	43	$	69,812	$	5,162	$	(14,622	)	$	-		$	8,691		$	64,708		$	133,797

Net loss attributable to controlling interest ,as restated														(6,165	)											(6,165	)
Net income attributable to noncontrolling interest ,as restated																							6,734			6,734
Distribution of dividend to noncontrolling shareholders																							(2,749	)		(2,749	)
Adjustment to statutory reserve												1,000		(1,000	)											-
Common stock issued for compensation						380,650		0.55		1,377																1,378
Common stock issued for interest payments						44,065		0.05		187																187
Common stock transferred by CEO for compensation										138																138
Notes converted to common stock						1,940,678		1.95		7,947																7,949
Make whole shares issued on notes conversion						396,218		0.40		1,520																1,520
Common stock issued for private placement						5,555,556		5.56		14,607																14,613
Foreign currency translation adjustments ,as restated																				(573	)		1,455			882

BALANCE, December 31, 2009, as restated		3,092,899	$	3		51,618,595	$	52	$	95,588	$	6,162	$	(21,787	)	$	-		$	8,118		$	70,148		$	158,284

Net loss attributable to controlling interest, as restated														(7,616	)											(7,616	)
Net loss attributable to noncontrolling interest, as restated																							(7,149	)		(7,149	)
Distribution of dividend to noncontrolling shareholders																							(1,045	)		(1,045	)
Noncontrolling interest acquired																							(1,270	)		(1,270	)
Adjustment to special reserve												379														379
Common stock issued for compensation						405,750		0.41		1,369																1,369
Common stock issued for repayment of debt						928,163		0.93		2,403																2,404
Common stock transferred by CEO for compensation										138																138
Foreign currency translation adjustments, as restated																				34			117			151

BALANCE, June 30, 2010, unaudited, as restated		3,092,899	$	3		52,952,508	$	53	$	99,498	$	6,541	$	(29,403	)	$	-		$	8,152		$	60,801		$	145,645

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30,

(UNAUDITED)

(In thousands, except per share data)

	Six months ended June 30,
	2010			2009
	As restated			As restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net loss	$	(14,765	)	$	(12,121	)
Adjustments to reconcile net loss to cash (used in) provided by operating activities:
Depreciation and amortization		19,334			13,478
Debt extinguishment		-			(2,930	)
Impairment of long-lived assets		1,733			-
(Gain) Loss on disposal of equipment		343			(3,431	)
Stock issued for services and compensation		1,507			636
Make whole shares interest expense on notes conversion		-			6,455
Income from investment		(3,229	)		(2,699	)
Amortization of deferred note issuance cost and discount on convertible notes		13			43
Change in fair value of derivative instrument		(14,668	)		22,612
Deferred tax assets		(5,434	)		2,166
Changes in operating assets and liabilities
Notes receivable		(26,939	)		4,915
Accounts receivable		(12,161	)		(7,924	)
Accounts receivable - related parties		(1,015	)		-
Other receivables		(1,570	)		(362	)
Other receivables - related parties		(15,846	)		(14,993	)
Inventories		(79,299	)		(84,204	)
Advances on inventory purchase		(11,512	)		11,271
Advances on inventory purchase - related parties		(5,431	)		(13,021	)
Accounts payable		35,734			59,067
Accounts payable - related parties		37,605			15,283
Other payables and accrued liabilities		2,426			19,183
Other payables - related parties		22,656			15,749
Customer deposits		(20,270	)		16,160
Customer deposits - related parties		25,081			(3,574	)
Taxes payable		4,966			(12,769	)
Deferred lease income		15,338			-
Net cash (used in) provided by operating activities		(45,403	)		28,990

CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash		(76,526	)		-
Acquired long term investment		(1,273	)		(6,593	)
Cash proceeds from disposal of long-term investment		3,667			-
Dividend receivable		(1,554	)		-
Long term other receivables		-			1,215
Cash proceeds from sales of equipment		60			4,414
Advance on equipment purchases		(10,268	)		3,065
Equipments purchase and intangible assets		(29,240	)		(60,388	)
Payments to original shareholders		(2,460	)		-
Net cash used in investing activities		(117,594	)		(58,287	)

CASH FLOWS FINANCING ACTIVITIES:
Notes receivable - restricted		(24,223	)		(69,727	)
Borrowings on short term loans - bank		133,196			72,816
Payments on short term loans - bank		(105,485	)		(43,353	)
Borrowings on short term loan - others		72,083			79,354
Payments on short term loans - others		(89,878	)		(63,899	)
Payments on short term loans - others-related parties		(4,401	)		2,931
Borrowings on short term notes payable		408,476			371,614
Payments on short term notes payable		(276,594	)		(303,327	)
Deposits due to sales representatives		18,663			31,933
Net cash provided by financing activities		131,837			78,342

EFFECTS OF EXCHANGE RATE CHANGE IN CASH		(186	)		(9	)

(DECREASE) INCREASE IN CASH		(31,346	)		49,036

CASH, beginning of period		82,118			14,895

CASH, end of period	$	50,772		$	63,931

Non-cash transactions of investing and financing activities:
Share issuance for debt settlement	$	2,410		$	-

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Note 1 – Background

General Steel Holdings, Inc. (the “Company”) was incorporated on August 5, 2002 in the state of Nevada. The Company through its 100% owned subsidiary, General Steel Investment, operates a portfolio of steel companies serving various industries in the People’s Republic of China (“PRC”). The Company’s main operation is manufacturing and sales of steel products such as steel rebar, hot-rolled carbon and silicon sheets and spiral-weld pipes.

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

Note 2- Restatement

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

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.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

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

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

(in thousands)	June 30,			June 30,			June 30,			December 31,			December 31,			December 31,
	2010									2009
Balance Sheet and Equity Items	Original			Restatement			Restated			Original			Restatement			Restated
Current Assets		829,415			627			830,042			615,278			2,329			617,607
Plant and Equipments, net		566,202			(3,469	)		562,733			555,111			(2,997	)		552,114
Total Assets		1,453,578			(5,642	)		1,447,936			1,228,064			(3,694	)		1,224,370
Total Liabilities		1,298,668			3,623			1,302,291			1,061,735			4,351			1,066,086
Accumulated deficits		(24,047	)		(5,356	)		(29,403	)		(16,411	)		(5,376	)		(21,787	)
Total Shareholder's equity		90,446			(5,602	)		84,844			93,731			(5,595	)		88,136

	Three months ended June 30,								Six months ended June 30,
	2010			2010		2010			2010			2010			2010
Income Statement Items	Original			Restatement		Restated			Original			Restatement			Restated
Gross profit		7,360			4		7,364			13,093			17			13,110
Other expense, net		(1,473	)		241		(1,232	)		(5,699	)		(1,103	)		(6,802	)
Net loss attributable to controlling interest		(2,128	)		124		(2,004	)		(7,635	)		19			(7,616	)

Loss per share
Basic		(0.04	)		-		(0.04	)		(0.15	)		-			(0.15	)
Diluted		(0.04	)		-		(0.04	)		(0.15	)		-			(0.15	)

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

	June 30,			June 30,			June 30,			June 30,			June 30,			June 30,
	2010									2009
Statement of Cash Flow	Original			Restatement			Restated			Original			Restatement			Restated
Consolidated net loss		(13,617	)		(1,148	)		(14,765	)		(12,121	)		-			(12,121	)
Net cash (used in) provided by operating activities		(45,421	)		18			(45,403	)		28,990			-			28,990
Net cash (used in) investing activities		(22,405	)		(95,189	)		(117,594	)		(26,354	)		(31,933	)		(58,287	)
Net cash provided by financing activities		36,648			95,189			131,837			46,409			31,933			78,342

Note 3 – Summary of significant accounting policies

Basis of presentation

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

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

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

(1)

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

Hualong

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

Tongxing

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

Huatianyulong

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Principles of consolidation – subsidiaries

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

Use of estimates

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

Concentration of risks

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Cash includes demand deposits in accounts maintained with banks within PRC, Hong Kong and the United States. Total cash (including restricted cash balances) in these banks on June 30, 2010 and December 31, 2009 amounted to $320.4 million and $274.2 million, respectively. As of June 30, 2010, $1.2 million cash in the bank was covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Revenue recognition

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

Foreign currency translation and other comprehensive income (as restated)

The reporting currency of the Company is the US dollar. The Company’s subsidiaries in China use the local currency, Renminbi (RMB), as their functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of changes in equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

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

Financial instruments

The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. For short term loans and notes payable, the 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.

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

(in thousands)	Carrying Value as of June 30, 2010		Fair Value Measurements at June 30, 2010 Using Fair Value Hierarchy
	(Unaudited)		Level 1	Level 2		Level 3
Derivative liabilities	$	8,672		$	8,672
Convertible notes payable	$	1,281				$	768

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

Level 3 Valuation Reconciliation:

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

Cash

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

Restricted cash

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

Accounts receivable and allowance for doubtful accounts

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Notes receivable

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

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

Inventories

Inventories are stated at the lower of cost or market using the weighted average cost method. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory and additional cost of goods sold when the carrying value exceeds net realizable value.

Shipping and handling

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

Intangible assets

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

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

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

	Original Cost		Expires on
Entity	(in thousands)
GS (China)	$	3,481		2050 & 2053
Longmen Joint Venture	$	21,803		2048 & 2052
Maoming Hengda	$	2,235		2054

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Intangible assets of the Company are reviewed at least annually, more often when circumstances require, determining whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of June 30, 2010, the Company expects these assets to be fully recoverable.

Plant and equipment, net

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

The estimated useful lives are as follows:

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

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

Long lived assets, including buildings and improvements, equipment and intangible assets are reviewed if events and changes in circumstances indicate that its carrying amount may not be recoverable, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. For the three and six months ended June 30, 2010, the Company impaired long lived assets in the amount of $1.7 million.

Investments in unconsolidated subsidiaries

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Unconsolidated subsidiary	Year acquired		Amount invested (In thousands)		% owned
Shaanxi Daxigou Mining Co., Ltd		2004	$	3,567		22.0
Shaanxi Xinglong Thermoelectric Co., Ltd		2004-2007		6,270		20.7
Shaanxi Longgang Group Xian steel Co., Ltd		2005		147		10.0
Huashan Metallurgical Equipment Co. Ltd.		2003		1,775		25.0
Xian Delong Powder Engineering Materials Co., Ltd.		2006		992		27.0
Total (Unaudited)			$	12,751

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

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

Short-term notes payable

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

Customer deposits (as restated)

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

Deferred lease income (as restated)

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Earnings per share

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

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

Income taxes

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

The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Share-based compensation

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

Noncontrolling interests

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

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

Recently issued accounting pronouncements

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

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

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

Reclassifications

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Note 4 – Accounts receivable and allowance for doubtful accounts

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

	June 30, 2010			December 31, 2009
	(Unaudited)
	(As restated)			(As restated)
	(in thousands)			(in thousands)
Accounts receivable	$	21,756		$	9,630
Less: allowance for doubtful accounts		(382	)		(490	)
Net accounts receivable	$	21,374		$	9,140

Movement of allowance for doubtful accounts is as follows:

	June 30, 2010			December 31, 2009
	(Unaudited)
	(in thousands)			(in thousands)
Beginning balance	$	490		$	401
Charge to expense		-			246
Less Write-off		(110	)		(157	)
Exchange rate effect		2			-
Ending balance	$	382		$	490

Note 5 – Inventories (as restated)

Inventories consist of the following:

	June 30, 2010		December 31, 2009
	(Unaudited) (As restated)		(As restated)
	(in thousands)		(in thousands)
Supplies	$	1,721	$	12,235
Raw materials		219,886		134,874
Finished goods		28,951		30,260
Total inventories	$	250,558	$	177,369

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Note 6– Advances on inventory purchase

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

This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which required the deposit to be returned to the Company when the contract ends. The inventory is normally delivered within one month after the monies have been advanced. The total outstanding amount, including advances to related parties, was $48.9 million and $31.4 million as of June 30, 2010 and December 31, 2009, respectively.

Note 7 – Plant and equipment, net

Plant and equipment consist of the following:

	June 30, 2010			December 31, 2009
	(Unaudited) (As restated) (in thousands)			(As restated) (in thousands)
Buildings and improvements	$	120,469		$	121,837
Machinery		484,161			464,070
Transportation and other equipment		11,088			8,660
Construction in progress		40,185			31,715
Subtotal		655,903			626,282
Less accumulated depreciation		(93,170	)		(74,168	)
Total	$	562,733		$	552,114

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

Construction in progress	Value		Estimated completion		Estimated additional cost
description	In thousands		date		In thousands
	(Unaudited)				(Unaudited)

Longmen employees cafeteria	$	1,777		August, 2010		2,200

3# lime stone grinding machine		2,248		July, 2010		109
4# continuous casting		4,571		July, 2010		879
Rebar production line		21,422		September, 2010		98,038
Steel scrap cross		1,696		July, 2010		-
#3 Gangue		922		2012		2,024

Others		7,549		By the end of 2012		6,924
Total	$	40,185			$	110,174

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

Note 8 – Intangible assets, net

Intangible assets consist of the following:

	June 30, 2010			December 31, 2009
	(Unaudited)
	(in thousands)			(in thousands)
Land use rights	$	27,685		$	27,519
Software		476			424
Subtotal		28,161			27,943

Accumulated Amortization – Land use right		(4,649	)		(4,143	)
Accumulated Amortization – software		(112	)		(67	)
Subtotal		(4,761	)		(4,210	)
Intangible assets, net	$	23,400		$	23,733

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

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

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

Years ended	Estimated Amortization Expense		Gross carrying Amount
	(in thousands)		(in thousands)
June 30, 2011	$	1,157	$	22,243
June 30, 2012		1,157		21,086
June 30, 2013		817		20,269
June 30, 2014		721		19,548
June 30, 2015		721		18,827
Thereafter		18,827		-
Total	$	23,400

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Note 9 – Debt (as restated)

Short-term notes payable

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

The Company had the following short-term notes payable:

	June 30, 2010		December 31, 2009
	(Unaudited)
	(in thousands)		(in thousands)
GS (China): Notes payable from banks in China, due various dates from July 2010 to September 2010. Restricted cash required of $9.6 million and $4.0 million as of June 30, 2010 and December 31, 2009, respectively; guaranteed by third parties.	$	13,276	$	7,628
Longmen Joint Venture: Notes payable from banks in China, due various dates from July 2010 to December 2010. Restricted cash of $258.2 million and $162.3 million as of June 30, 2010 and December 31, 2009, respectively; some notes are guaranteed by third parties while others are secured by equipments and land use rights.		373,847		216,173
Bao Tou: Notes payable from banks in China, due various dates on September 2010.Restricted cash of $1.0 million and $5.1 million as of June 30, 2010 and December 31, 2009, respectively; pledged by buildings.		957		10,269
Maoming Hengda: Notes payable from banks in China, Restricted cash of $0 and $20.6 million as of June 30, 2010 and December 31, 2009, respectively		-		20,538
Total short-term notes payable	$	388,080	$	254,608

Short-term loans

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

	June 30,		December 31,
	2010		2009
	(Unaudited)
	(in thousands)		(in thousands)

GS (China): Loan from banks in China, due various dates from August 2010 to June 2011. Weighted average interest rate 4.85% per annum; some are guaranteed by third parties while others are secured by equipment / inventory.	$	24,107	$	25,476

Longmen Joint Venture: Loan from banks in China, due various dates from July 2010 to June 2011. Weighted average interest rate 5.46% per annum; some are guaranteed by third parties or notes receivables while others are secured by equipment / buildings / land use right / inventory.		153,297		123,492
Total – short-term loans - bank	$	177,404	$	148,968

	June 30, 2010		December 31, 2009
	(Unaudited) (As restated)		(As restated)
	(in thousands)		(in thousands)
Longmen Joint Venture: Loans from various unrelated companies and individuals, due various dates from July to December 2010, and interest rates up to 12.0% per annum.	$	83,935	$	91,106
Longmen Joint Venture: Loan from others, due on demand, average interest rates ranging between 0.6% and 3.2% per annum.		79,532		73,220
Maoming Hengda: Loans from one unrelated parties and one related party, due on demand, none interest bearing.		13,967		19,252
Total – short-term loans - others	$	177,434	$	183,578

	June 30,		December 31,
	2010		2009
	(Unaudited)
	(in thousands)		(in thousands)
Longmen Joint Venture: Loans from Sheng An Da, due on 2010, and interest rates 12.0% per annum.	$	-	$	4,401
Qiu Steel: Related party loans from Tianjin Heng Ying and Tianjin Da Zhan, due on 2010. Annual interest rate of 5.0%.		-		7,350
Total – short-term loans - related parties	$	-	$	11,751

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

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

Note 10– Customer deposits (as restated)

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

Note 11 – Deposit due to sales representatives

Longmen Joint Venture entered into agreements with various entities to act as the Company’s exclusive sales agent in a specified area. These exclusive sales agents must meet certain criteria and are required to deposit a certain amount of money with the Company. In return the sales agents receive exclusive sales rights to a specified area and discounted prices on products they order. These deposits bear no interest and are required to be returned to the sales agent once the agreement has been terminated. The Company had $64.5 million and $49.5 million in deposits due to sales representatives as of June 30, 2010 and December 31, 2009, respectively. For the six months ended June 30, 2010, the Company received deposits amounted to $18.4 million from sales representatives to secure the sales quantity.

Note 12 – Convertible notes and derivative liabilities

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

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

Expected volatility adjusted to 125%

Expected dividend yield of 0%

Risk-free interest rate of 1.27%

Expected lives of five years

Market price at issuance date of $10.43

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

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

Reset of Conversion Price

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

Note Conversion

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

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

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

Reset of Warrants Exercise Price

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

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

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

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

Note 14 - Gain from debt extinguishment and Government grant

Debt extinguishment

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

Government grant

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

Note 15 – Deferred Lease Income (as restated)

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

	June 30,
	2010			December 31, 2009
	(unaudited)
	(in thousands)			(in thousands)
Beginning balance	$	16,487		$	-
Add: Compensation for dismantled assets		552			9,735
Add: Compensation for loss of efficiency		13,736			6,871
Add: Compensation for trial production cost		939			-
Add: Deferred depreciation cost during trial production		365			-
Less: Lease income realized		(320	)		(119	)
Exchange rate effect		67			-
Ending balance	$	31,826		$	16,487

Note 16 – Taxes (as restated)

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

	Three months ended						Six months ended
In thousands	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
	(As restated)						(As restated)
Current	$	(5,093	)	$	3,230		$	(4,472	)	$	3,395
Deferred		2,290			(1,222	)		(268	)		-
Total (benefit) provision for income taxes	$	(2,803	)	$	(2,008	)	$	(4,740	)	$	3,395

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

	June 30, 2010			December 31, 2009
	(Unaudited) (As restated)			(As restated)
	(in thousands)			(in thousands)
Beginning balance	$	5,044		$	7,487
Net operating loss carry-forward (tax assets realized) for subsidiaries		3,973			(864	)
Effective tax rate		25	%		25	%
Deferred tax asset	$	993		$	(216	)
Long Gang Headquarter, net operating loss carry-forward (tax asset realized)		29,073			(14,840	)
Effective tax rate		15	%		15	%
Deferred tax asset	$	4,361		$	(2,226	)
Exchange difference		13			(1	)
Totals	$	10,411		$	5,044

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

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

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

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

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

	June 30, 2010			June 30, 2009
	(Unaudited) (As restated)			(Unaudited)
U.S. Statutory rates		34.0	%		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)		9.4	%		(1.5	)%
Effect of different tax rate of subsidiaries operating in other jurisdictions		(10.1	)%		(3.1	)%
Total provision for income taxes		24.3	%		20.4	%

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

(1)

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

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

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

Value added tax

Enterprises or individuals who sell commodities, engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on sales of the finished product.

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

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

Taxes payable consisted of the following:

	June 30, 2010		December 31, 2009
	(Unaudited) (As restated)		(As restated)
	(in thousands)		(in thousands)
VAT taxes payable	$	8,345	$	9,126
Income taxes payable		700		1,633
Misc taxes		2,240		1,427
Totals	$	11,285	$	12,186

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Note 17 – Earnings per share (as restated)

The calculation of earnings per share is as follows:

(In thousands except earnings per share data)	Three-month ended June 30,						Six-month ended June 30,
	2010			2009			2010			2009
	(Unaudited) (As restated)			(Unaudited)			(Unaudited) (As restated)			(Unaudited)
Loss attributable to holders of common shares	$	(2,004	)	$	(31,789	)	$	(7,616	)	$	(24,455	)
Basic and diluted weighted average number of common shares outstanding		52,112			39,533			51,883			37,918
Loss per share
Basic & diluted	$	(0.04	)	$	(0.80	)	$	(0.15	)	$	(0.64	)

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

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

Related party transactions

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

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

Name of related parties	Relationship	June 30, 2010		June 30 2009
		(Unaudited)		(Unaudited)
		(in thousands)		(in thousands)
Shaanxi Longmen (Group) Co, Ltd and its subsidiaries (“Long Steel Group”)	Noncontrolling shareholder of Longmen Joint Venture	$	183,668	$	94,067
Hengying	Common control under CEO		19,268		14,408
Dazhan	Common control under CEO		15,903		12,537
Hancheng Haiyan Coking	Investee of Long Steel Group		19,368		23,854
Shaanxi Steel	Majority shareholder of Longmen Group		933		-
Beijing Daishang Trade Co., Ltd.	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		5,456		-
Tianjin Daqiuzhuang Steel Plates Co., Ltd.	Common control under CEO		8,314		-
Others			991		-
Total		$	253,901	$	144,866

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

Name of related parties	Relationship	June 30, 2010		June 30, 2009
		(Unaudited)		(Unaudited)
		(in thousands)		(in thousands)
Long Steel Group	Noncontrolling shareholder of Longmen Joint Venture	$	253,840	$	146,116
Hengying and Dazhan	Common control under CEO		-		15,863
Jingma Jiaohua	Investee of Longmen Joint Venture’s subsidiary (unconsolidated)		6,978		9,274
Hancheng Haiyan Coking	Investee of Long Steel Group		117,835		52,902
Beijing Daishang Trade Co., Ltd.	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		1,011		12,376
Others			315		85
Total		$	379,979	$	236,616

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Related party balances

Account receivables - related parties:

Name of related parties	Relationship	June 30, 2010		December 31, 2009
		(Unaudited)		(As restated)
		(in thousands)		(in thousands)
Tianjin Daqiuzhuang Steel Plates Co., Ltd.	Common control under CEO	$	734	$	-
Long Steel Group	Noncontrolling shareholder of Longmen Joint Venture		-		18,225
Total		$	734	$	18,225

Other receivables - related parties:

Name of related parties	Relationship	June 30, 2010		December 31, 2009
		(Unaudited) (As restated)		(As restated)
		(in thousands)		(in thousands)
Beijing Wendlar Co., Ltd	Common control under CEO	$	326	$	-
Long Steel Group	Noncontrolling shareholder of Longmen Joint Venture		-		13,258
Shaanxi Steel	Majority shareholder of Longmen Group		41,991		16,918
Mao Ming Sheng Zhe	Common control under CEO		2,141		3,021
Tianjin Dazhan Industry Co, Ltd	Common control under CEO		15,140		10,268
Baotou Shengda Steel Pipe Co., Ltd	Common control under CEO		54		-
Tianjin Jin Qiu Steel Market	Common control under CEO		-		147
Tianjing General Steel Management Service Co., Ltd	Common control under CEO		-		8
Total		$	59,652	$	43,620

Advances on inventory purchase – related parties:

Name of related parties	Relationship	June 30, 2010		December 31, 2009
		(Unaudited)
		(in thousands)		(in thousands)
Mao Ming Sheng Ze	Common control under CEO	$	8,798	$	-
Tianjin Jin Qiu Steel Market	Common control under CEO		-		2,995
Total		$	8,798	$	2,995

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Accounts payable - related parties:

Name of related parties	Relationship	June 30, 2010		December 31,2009
		(Unaudited) (in thousands)
Tianjin Hengying Trading Co., Ltd	Common control under CEO	$	8,770	$	17,256
Tianjin Dazhan Industry Co., Ltd	Common control under CEO		12,193		6,047
Henan Xinmi Kanghua	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		898		960
Zhengzhou Shenglong	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		91		91
ShanXi Fangxin	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		-		373
Baogang Jianan	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		170		38
Jingma Jiaohua	Investee of Longmen Joint Venture’s subsidiary (unconsolidated)		1,210		1,360
Huashan metallurgy	Investee of Longmen Joint Venture’s subsidiary (unconsolidated)		-		601
Beijing Daishang Trading Co., Ltd	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		122		1,315
Long Steel Group	Noncontrolling shareholder of Longmen Joint Venture		13,795		15,310
Tianjin General Qiugang Pipe	Common control under CEO		10,012		4,800
Hancheng Haiyan Coking	Investee of Long Steel Group		37,867		-
Total		$	85,128	$	48,151

Short-term loans - related parties:

Name of related parties	Relationship	June 30, 2010		December 31, 2009
		(Unaudited)
		(in thousands)		(in thousands)
Tianjin Dazhan Industry Co., Ltd	Common control under CEO	$	-	$	3,946
Tianjin Hengying Trading Co., Ltd	Common control under CEO		-		3,404
Shaanxi Shenganda Trading Co., Ltd	Common control under Long Steel Group		-		4,401
Total		$	-	$	11,751

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

Other payables - related parties:

Name of related parties	Relationship	June 30, 2010		December 31, 2009
		(Unaudited) (As restated)		(As restated)
		(in thousands)		(in thousands)
Tianjin Hengying Trading Co, Ltd	Common control under CEO	$	2,510	$	2,415
Beijing Wendlar Co., Ltd	Common control under CEO		-		704
Yangpu Capital Automobile	Common control under CEO		1,311		587
Tianjin General Qiugang Pipe	Common control under CEO		18,924		-
Tianjin Jin Qiu Steel Market	Common control under CEO		1,340		-
Long Steel Group	Noncontrolling shareholder of Longmen Joint Venture		2,162		-
Wenchun Han	Director of General Steel (china)		-		2,054
Total		$	26,247	$	5,760

Customer deposits – related parties:

Name of related parties	Relationship	June 30, 2010		December 31, 2009
		(Unaudited) (As restated)		(As restated)
		(in thousands)		(in thousands)
Tianjin Dazhan Industry Co., Ltd	Common control under CEO	$	1,567	$	1,544
Hancheng Haiyan Coking	Investee of Long Steel Group		1,245		566
Long Steel Group	Noncontrolling shareholder of Longmen Joint Venture		6,727		-
Beijing Daishang Trading Co., Ltd	Noncontrolling shareholder of Longmen Joint Venture’s subsidiary		-		728
Other			-		203
Total		$	9,539	$	3,041

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

Deferred lease income

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

	June 30, 2010			December 31, 2009
	(unaudited)
	(in thousands)			(in thousands)
Beginning balance	$	16,487		$	-
Add: Compensation for dismantled assets		552			9,735
Add: Compensation for loss of efficiency		13,736			6,871
Add: Compensation for trial production cost		939			-
Add: Deferred depreciation cost during trial production		365			-
Less: Lease income realized		(320	)		(119	)
Exchange rate effect		67			-
Ending balance	$	31,826		$	16,487

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

Note 19 - Equity

2009 Equity Transactions

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

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

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

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

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

Expected volatility of 125%

Expected dividend yield of 0%

Risk-free interest rate of 1.28%

Expected lives of two and a half years

Market price at issuance date of $4.57

Strike price of $5.00

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

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

2010 Equity Transactions

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

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

The Company has the following warrants outstanding:

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

Outstanding Warrants				Exercisable Warrants
	Exercise Price	Number	Average Remaining Contractual Life		Average Exercise Price	Number	Average Remaining Contractual Life
$	5	6,678,649	2.5	$	5	6,678,649	2.5

Note 20 – Retirement plan

Regulations in the PRC require the Company to contribute to a defined contribution retirement plan for all employees. All Joint Venture employees are entitled to a retirement pension amount calculated based upon their salary at their date of retirement and their length of service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to the retired staff. The Company is required to contribute 20% of the employees’ monthly base salary. Employees are required to contribute 8% of their base salary to the plan. Total pension expense incurred by the Company amounted to $1.1 million and $0.8 million for the three months ended June 30, 2010 and 2009, respectively, $2.2 million and $1.6 million for the six months ended June 30, 2010 and 2009, respectively.

Note 21 – Statutory reserves

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

Surplus reserve fund

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

Note 22 – Commitment and contingencies

Commitments

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

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

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

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

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

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

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

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

Contingencies

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

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

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

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

Nature of	Guarantee
guarantee	amount		Guaranty period
	(In thousands)

Bank loan	$	5,892	Various from June 2009 to October 2010

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

Note 23 – Segments

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

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

(Unaudited)

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

	For the three months ended				For the six months ended
(in thousands)	2010				2009
Products	(Unaudited) (As restated)		(Unaudited)		(Unaudited) (As restated)		(Unaudited)
Re-bar	$	494,530	$	364,767	$	934,188	$	657,481
Hot-Rolled Sheets		-		13,878		8,314		26,577
High Speed Wire		2,006		26,487		5,880		43,737
Spiral-Welded Steel Pipe		5,143		3,815		6,320		3,946
Total sales revenue	$	501,679	$	408,947	$	954,702	$	731,741

Note 24 – Subsequent event

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

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

Note Regarding Forward-Looking Statements

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

Recent Developments and Second Quarter Highlights

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

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

•

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

Our continuing growth demonstrates the following strengths:

•

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

•

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

Overview

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

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

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

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

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

Steel Related Subsidiaries

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

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

General Steel (China) Co., Ltd.

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

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

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

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

Shaanxi Longmen Iron and Steel Co., Ltd.

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

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

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

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

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

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

Maoming Hengda Steel Group Limited

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

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

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

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

Production Capacity Information Summary by Subsidiaries

	GS (China)	Baotou Steel Pipe Joint Venture	Longmen Joint Venture	Maoming

Annual Production Capacity (metric tons)	400,000	100,000	4.8 million	1 million

Main Products	Hot-rolled sheet	Spiral-weld pipe	Rebar/High-speed wire	High-speed wire

Main Application	Light industrial applications	Energy transport	Infrastructure and construction	Infrastructure and construction

Marketing and Customers

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

Demand for our products

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

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

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

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

Supply of raw materials

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

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

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

Coke

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

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

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

Longmen Joint Venture

Name of the Major Supplier

Raw Material
Purchased

% of Total Raw
Material
Purchased

Relationship
with
General Steel

Shaanxi Longmen Iron & Steel Group Co., Ltd.

Iron Ore

22.7

Related party

Shaanxi Haiyan Coal Chemical Industry Co., Ltd.

Coke

11.9

Related party

Shaanxi Huanghe Material Co., Ltd.

Coke

6.5

None

Baotou Bangli Industry Co., Ltd

Iron Ore

3.1

None

Hejing Xinbo Commercial Trade Co., Ltd.

Iron Block

3.0

None

Total

47.2

Baotou Steel Pipe Joint Venture

Name of the Major Supplier

Raw

Material

Purchased

% of Total Raw

Material

Purchased

Relationship
with
General Steel

Inner Monglia Chenggang Material Co., Ltd

Steel Coil

23.1

None

Tianjin Dazhan Industry Co., Ltd

Steel Coil

14.7

Related party

Baotou Shunye Material Co., Ltd

Steel Coil

12.2

None

Tianjin Shengze Industry & Trade Co., Ltd

Steel Coil

11.6

None

Tianjin Jinchang I&E Co., Ltd.

Steel Coil

6.0

None

Total

67.6

Maoming

Name of the Major Supplier

Raw Material

Purchased

% of Total Raw
Material
Purchased

Relationship
with
General Steel

Maoming Dazhongmao Petrochem Co., Ltd.

Heavy Oil

23.5

None

Maoming Zhenmao Development Co.,Ltd

Heavy Oil

23.5

None

Total

47.0

(1)

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

Industry consolidation

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

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

Results of Operations for the Three Months Period Ended

Sales Revenues

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

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

SALES REVENUE	Three months ended
	June 30, 2010							June 30, 2009							Change			Change
in thousands, except metric tons	Volume		Revenue		%			Volume		Revenue		%			Volume %			Revenue %
	Unaudited							Unaudited
Longmen Joint Venture		928,380	$	499,361		99.5.	%		843,291	$	364,767		89.2	%		10.1	%		36.9	%
Other		82,375	$	2,318		0.5	%		112,213	$	44,180		10.8	%		(26.6	)%		(94.8	)%
Total Revenue of General Steel		1,010,755		501,679		100	%		955,504		408,947		100	%		5.8	%		22.7	%

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

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

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

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

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

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

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

SALES REVENUE	Six months ended
	June 30, 2010							June 30, 2009							Change		Change
in thousands, except metric tons	Volume		Revenue		%			Volume		Revenue		%			Volume %		Revenue %
	Unaudited							Unaudited
Longmen Joint Venture		1,838,111	$	934,187		97.9	%		1,492,618	$	657,482		89.9	%		23. 2%		42.1	%
Other		208,014	$	20,515		2.1	%		181,022	$	74,259		10.1	%		14. 9%		(72.4	)%
Total Revenue of General Steel		2,046,125		954,702		100	%		1,673,640		731,741		100	%		22. 3%		30.5	%

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

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

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

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

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

Gross Profit

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

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

GROSS PROFIT	Three months ended
in thousands, except metric tons	June 30, 2010								June 30, 2009								Change %
	Unaudited								Unaudited
	Volume		Gross Profit			Margin %			Volume		Gross Profit			Margin %			Gross Profit
Longmen Joint Venture		928,380	$	8,116			1.6	%		843,291	$	24,659			6.8	%		(67.1	)%
Other		82,375		(752	)		(32.5	)%		112,213		(2,160	)		4.9	%		(65.2	)%
Total Gross Profit of General Steel		1,010,755		7,364			1.5	%		955,504		22,499			5.5	%		(67.3	)%

Longmen Joint Venture

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

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

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

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

Maoming

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

Baotou Steel

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

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

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

GROSS PROFIT	Six months ended
in thousands, except metric tons	June 30, 2010								June 30, 2009								Change %
	Unaudited								Unaudited
	Volume		Gross Profit			Margin %			Volume		Gross Profit			Margin %			Gross Profit
Longmen Joint Venture		1,838,111	$	14,969			1.6	%		1,492,618	$	39,395			6.0	%		(62.0	)%
Other		208,014		(1,859	)		(9.1	)%		181,022		(3,974	)		(5.4	)%		53.2	%
Total Gross Profit of General Steel		2,046,125		13,110			1.4	%		1,673,640		35,421			4.8	%		(63.0	)%

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

Selling, General and Administrative Expenses

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

(in thousands)	Three months ended
	June 30, 2010			June 30, 2009			Change %
	Unaudited			Unaudited
Selling, General And Administrative Expenses	$	13,677		$	9,564			43.0	%
SG&A Expenses As A Percentage Of Total Revenue		2.7	%		2.3	%

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

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

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

in thousands	Six months ended
	June 30, 2010			June 30, 2009			Change %
	Unaudited			Unaudited
Selling, General And Administrative Expenses	$	25,813		$	18,732			37.8	%
SG&A Expenses As A Percentage Of Total Revenue		2.7	%		2.6	%

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

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

(Loss) income from operations

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

(in thousands)	Three months ended
	June 30, 2010			June 30, 2009		Change %
	(Unaudited)			(Unaudited)
(Loss) Income From Operations	$	(6,313	)		12,935		(148.8	)%

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

(in thousands)	Six months ended
	June 30, 2010			June 30, 2009		Change %
	(Unaudited)			(Unaudited)
(Loss) Income From Operations	$	(12,703	)		16,689		(176.1	)%

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

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

Other income (expense)

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

(In thousands)	Three months ended
	June 30, 2010			June 30, 2009			Change %
	As restated Unaudited			Unaudited			As restated
Other Income (Expenses)
Interest income	$	617		$	764			(19.2	)%
Finance/Interest expense		(16,464	)		(11,309	)		45.6	%
Change in fair value of derivative liabilities		10,729			(26,726	)		(140.2	)%
Income from equity investment		3,074			2,753			11.7	%
Lease income		184			-
Other non-operating income, net		628			142			342.3	%
Total other expenses, net	$	(1,232	)	$	(34,376	)		(96.4	)%

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

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

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

(In thousands)	Six months ended
	June 30, 2010			June 30, 2009			Change %
	As restated Unaudited			Unaudited			As restated
Other Income (Expenses)
Interest income	$	1,737		$	1,642			5.8	%
Finance/Interest expense		(27,427	)		(14,247	)		92.5	%
Change in fair value of derivative liabilities		14,668			(22,611	)		(164.9	)%
Gain from debt extinguishment		-			2,930			(100.0	)%
Government grant		-			3,520			(100.0	)%
Income from equity investment		3,229			2,698			19.7	%
Lease income		320			-
Other non-operating income, net		671			652			2.9	%
Total other expenses, net	$	(6,802	)	$	(25,416	)		(73.2	)%

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

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

Change in fair value of derivative liabilities

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

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

Net loss before noncontrolling interest

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

(in thousands)	Three months ended
	June 30, 2010			June 30, 2009			Change %
	As restated (Unaudited)			(Unaudited)
Net Loss Before Noncontrolling Interest	$	(4,742	)		(23,449	)		(79.8	)%

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

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

(in thousands)	Six months ended
	June 30, 2010			June 30, 2009			Change %
	As restated (Unaudited)			(Unaudited)
Net Loss Before Noncontrolling Interest	$	(14,765	)		(12,122	)		21.8	%

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

Net Loss attributable to General Steel Holdings, Inc.

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

(in thousands)	Three months ended
	June 30, 2010			June 30, 2009			Change %
	As restated (Unaudited)			(Unaudited)
Net Loss Before Noncontrolling Interest	$	(4,742	)	$	(23,449	)		(79.8	)%
LESS: Net Income (Loss) Attributable to the Noncontrolling Interest		(2,738	)		8.340			(132.8	)%
Net Loss Attributable To Controlling Interest	$	(2,004	)	$	(31,789	)		(93.7	)%

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

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

(in thousands)	Six months ended
	June 30, 2010			June 30, 2009			Change %
	As restated (Unaudited)			(Unaudited)
Net Loss Before Noncontrolling Interest	$	(14,765	)	$	(12,122	)		21.8	%
LESS: Net Income (Loss) Attributable to the Noncontrolling Interest		(7,149	)		12,333			(158.0	)%
Net Loss Attributable To Controlling Interest	$	(7,616	)	$	(24,455	)		(68.9	)%

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

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

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

Earnings per share

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

Earnings per Share	Three months ended
In thousands, except earnings per share	June 30, 2010			June 30, 2009			Change %
	As restated Unaudited			Unaudited
Net Loss Attributable To Controlling Interest	$	(2,004	)	$	(31,789	)		(93.7	)%

Weighted Average Number Of Shares
Basic		52,112			39,533			31.8	%
Diluted		52,112			39,533			31.8	%

Loss Per Share
Basic	$	(0.04	)	$	(0.80	)		(95.0	)%
Diluted	$	(0.04	)	$	(0.80	)		(95.0	)%

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

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

Earnings per Share	Six months ended
In thousands, except earnings per share	June 30, 2010			June 30, 2009			Change %
	As restated Unaudited			Unaudited
Net Loss Attributable To Controlling Interest	$	(7,616	)	$	(24,455	)		(68.9	)%

Weighted Average Number Of Shares
Basic		51,883			37,918			36.8	%
Diluted		51,883			37,918			36.8	%

Loss Per Share
Basic	$	(0.15	)	$	(0.64	)		(76.6	)%
Diluted	$	(0.15	)	$	(0.64	)		(76.6	)%

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

Income taxes

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

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

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

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

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

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

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

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

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

Noncontrolling Interest

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

Accounts Receivable

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

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

Inventory

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

Liquidity and capital resources

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

Short-term notes payable

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

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

Short-term loans – banks

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

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

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

Cash-flow

Operating activities

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

●

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

●

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

●

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

Investing activities

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

Financing activities

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

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

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

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

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

Shelf Registration SEC Form S-3

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

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

Impact of inflation

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

Compliance with environmental laws and regulations

Longmen Joint Venture:

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

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

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

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

Off-balance sheet arrangements

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

Critical Accounting Policies

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

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

Principles of consolidation – subsidiaries

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

Revenue recognition

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

Use of estimates

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

Derivative instruments

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

Financial instruments

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

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

Fair value measurements

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

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

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

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

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

Noncontrolling interest

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

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

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

Deferred lease income

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

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

New Accounting Pronouncements

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

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

Contractual obligations and commercial commitments

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

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

	Payment due by period
			Less than
Contractual obligations	Total		1 year		1-3 years		4- 5 years
	As restated		As restated
	Dollars amounts in thousands
Bank loans	$	177,404	$	177,404	$	-	$	-
Other loans		177,434		177,434		-		-
Notes payable		388,080		388,080		-		-
Deposits due to sales representatives		64,482		64,482		-		-
Lease with Bao Gang Group		528		264		264		-
Longmen Joint Venture construction obligations		12,302		12,302		-		-
Convertible notes (1)		4,171		4,171		-		-
Total	$	824,401	$	824,137	$	264		-

(1)

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Commodity Price Risk and Related Risks

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

Interest Rate Risk

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

Foreign Currency Exchange Rate Risk

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

ITEM 4. CONTROLS AND PROCEDURES.

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

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

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

Remediation

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

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

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

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

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

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

Changes in Internal Control Over Financial Reporting

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

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 6. EXHIBITS.

(a) Exhibits

3.1	Articles of Incorporation of General Steel Holdings, Inc. (included as Exhibit 3.1 to the Form SB-2 filed with the Commission on June 6, 2003 and incorporated herein by reference).

3.2	Amendment to the Articles of Incorporation dated February 22, 2005 (included as Exhibit 3.2 to the Form 10-K filed March 16, 2010 and incorporated herein by reference).

3.3	Amendment to the Articles of Incorporation dated November 14, 2007 (included as Exhibit 3.3 to the Form 10-K filed March 16, 2010 and incorporated herein by reference).

3.4	Certificate of Designation of Series A Preferred Stock of the registrant (included as Exhibit 10.6 to the Form 10-K filed March 31, 2008 and incorporated herein by reference).

3.5	Bylaws of General Steel Holdings, Inc. (included as Exhibit 3.5 to the Form 10-K filed March 16, 2010 and incorporated herein by reference).

10.1	Lease Agreement, dated March 31, 2010, by and between General Steel (China) Co., Ltd. and Tianjin Daqiuzhuang Steel Plates Co., Ltd. (included as Exhibit 10.1 to the Form 8-K filed on April 6, 2010 and incorporated herein by reference).

10.2	Joint Venture Framework Agreement, dated May 13, 2010, by and between General Steel Holdings, Inc. and Shanxi Meijin Energy Group Co., Ltd. (included as Exhibit 10.1 to the Form 8-K filed on May 18, 2010 and incorporated herein by reference).

10.3	Debt Repayment Agreement, dated June 7, 2010, by and between General Steel Holdings, Inc., Maoming Hengda Steel Group Ltd., Guangzhou Hengda Industrial Group Ltd. and Ms. Ding Yumei (included as Exhibit 10.1 to the Form 8-K filed on June 9, 2010 and incorporated herein by reference).

31.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.

31.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.

32.1	Certification of the CEO and CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	General Steel Holdings, Inc.

Date: August 29, 2012	By: /s/ Zuosheng Yu
	Zuosheng Yu
	Chief Executive Officer and Chairman

Date: August 29, 2012	By: /s/ John Chen
	John Chen
	Chief Financial Officer and Director

GENERAL STEEL HOLDINGS INC - FORM 10-Q/A - August 29, 2012

Attached files

GENERAL STEEL HOLDINGS INC Reports