UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2009

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) 412079252 (I.R.S. Employer Identification No.)

Room 2315, Kuntai International Mansion Building,

Yi No. 12, Chaoyangmenwai Ave.

Chaoyang District, Beijing, China 100020

(Address of Principal Executive Office, Including Zip Code)

+86(10)58797346

(Registrant's Telephone Number, Including Area Code)

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

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check one).

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

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

As of November 6, 2009, 45,959,439 shares of common stock, par value $0.001 per share, were issued and outstanding.

Table of Contents

		Page
Part I: FINANCIAL INFORMATION:
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008	3
	Consolidated Statements of Operation and Other Comprehensive Income for the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited)	4
	Consolidated Statements of  Changes In Equity (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)	6
	Notes  to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	66
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	67
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 6.	Exhibits	77
Signatures		78

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEMPTEMBER 30, 2009 AND DECEMBER 31, 2008

(In thousands, except per share data)

	September 30,			December 31,
	2009			2008
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	54,289		$	14,895
Restricted cash		197,584			130,700
Notes receivable		27,373			38,207
Accounts receivable, net of allowance for doubtful accounts of $612 and $401 as of September 30, 2009 and December 31, 2008, respectively		12,151			8,329
Accounts receivable - related party		2,784			-
Other receivables, net of allowance for doubtful accounts of $566 and $564 as of September 30, 2009 and December 31, 2008, respectively		6,855			5,100
Other receivables - related parties		420			523
Dividend receivable		4,957			631
Inventories		221,502			59,549
Advances on inventory purchase		39,230			47,154
Advances on inventory purchase - related parties		17,853			2,375
Prepaid expense - current		926			494
Deferred tax assets		2,191			7,487
Total current assets		588,115			315,444
PLANT AND EQUIPMENT, net		558,407			491,705
OTHER ASSETS:
Advances on equipment purchase		7,069			8,965
Investment in unconsolidated subsidiaries		17,640			13,959
Prepaid expense - non current		500			1,195
Prepaid expense related party - non current		172			211
Long term other receivable		2,674			4,873
Intangible assets, net of accumulated amortization		24,020			24,556
Note issuance cost		964			4,218
Plant and equipment to be disposed		6,455			587
Total other assets		59,494			58,564
Total assets	$	1,206,016		$	865,713
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short term notes payable	$	280,134		$	206,040
Accounts payable		175,309			149,239
Accounts payable - related parties		19,324			15,327
Short term loans - bank		151,050			67,840
Short term loans - others		110,171			87,834
Short term loans - related parties		8,362			7,350
Other payables		8,655			3,183
Other payable - related parties		2,074			677
Accrued liabilities		14,716			7,779
Customer deposit		199,909			141,102
Customer deposit - related parties		-			7,216
Deposit due to sales representatives		39,286			8,149
Taxes payable		13,317			13,917
Distribution payable to former shareholders		15,934			18,765
Deferred tax liability		103			-
Total current liabilities		1,038,344			734,418
CONVERTIBLE NOTES PAYABLE, net of debt discount of $2,388 and $26,095 as of September 30, 2009 and December 31, 2008, respectively		912			7,155
DERIVATIVE LIABILITIES		4,933			9,903
Total liabilities		1,044,189			751,476
COMMITMENT AND CONTINGENCIES
EQUITY:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		3			3
Common Stock, $0.001 par value, 200,000,000 shares authorized, 45,789,439 and 36,128,833 shares  issued and outstanding as of September 30, 2009 and
December 31, 2008, respectively		46			36
Paid-in-capital		79,923			37,128
Statutory reserves		6,827			4,902
Retained (deficits) earnings		(5,991	)		10,093
Contribution receivable		-			(960	)
Accumulated other comprehensive income		8,531			8,705
Total shareholders' equity		89,339			59,907
NONCONTROLLING INTERESTS		72,488			54,330
Total equity		161,827			114,237
Total liabilities and equity	$	1,206,016		$	865,713

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

3

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands, except per share data)

	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008
REVENUES	$	361,652		$	325,911		$	875,374		$	781,918
REVENUES - RELATED PARTIES		123,100			85,610			341,119			308,198
TOTAL REVENUES		484,752			411,521			1,216,493			1,090,116
COST OF SALES		340,483			335,945			822,392			762,395
COST OF SALES - RELATED PARTIES		104,534			81,923			318,946			298,218
TOTAL COST OF SALES		445,017			417,868			1,141,338			1,060,613
GROSS PROFIT		39,735			(6,348	)		75,155			29,503
SELLING, GENERAL AND  ADMINISTRATIVE EXPENSES		10,487			12,328			29,219			28,364
INCOME(LOSS) FROM OPERATIONS		29,248			(18,676	)		45,936			1,139
OTHER INCOME(EXPENSE), NET
Interest income		826			646			2,468			2,104
Finance/interest expense		(4,174	)		(6,872	)		(18,422	)		(19,149	)
Change in fair value of derivative liabilities		(616	)		29,885			(23,228	)		4,769
Gain from debt extinguishment		-			7,169			2,932			7,169
Government grant		-			-			3,433			-
Income from equity investments		963			-			3,661			-
Other non-operating (expense) income, net		(2,985	)		899			(2,332	)		1,919
Total other (expense) income, net		(5,986	)		31,727			(31,488	)		(3,188	)
INCOME(LOSS) BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST		23,262			13,051			14,448			(2,049	)
PROVISION FOR INCOME TAXES
Current		6,717			(813	)		12,451			1,147
Deferred		(2,925	)		(1,271	)		(5,265	)		(1,694	)
Total provision for income taxes		3,792			(2,084	)		7,186			(547	)
NET INCOME(LOSS) BEFORE NONCONTROLLING INTEREST		19,470			15,135			7,262			(1,502	)
Less: Net income (Loss) attributable to noncontrolling interest		9,088			(5,329	)		21,421			116
NET INCOME(LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST		10,382			20,464			(14,159	)		(1,618	)
OTHER COMPREHENSIVE INCOME (LOSS) :
Foreign currency translation adjustments		(246	)		95			(174	)		6,552
Comprehensive income (loss) attributable to noncontrolling interest		1,440			(293	)		334			3,912
COMPREHENSIVE INCOME(LOSS)	$	11,576		$	20,265		$	(13,999	)	$	8,846
WEIGHTED AVERAGE NUMBER OF SHARES
Basic		44,973,882			35,687,891			40,295,924			35,157,579
Diluted		45,750,152			35,687,891			40,295,924			35,157,579
EARNINGS (LOSS) PER SHARE
Basic	$	0.23		$	0.57		$	(0.35	)	$	(0.05	)
Diluted	$	0.22		$	0.57		$	(0.35	)	$	(0.05	)

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

4

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)

											Retained earnings								Accumulated other
	Preferred stock				Common stock				Paid-in		Statutory					Contribution			comprehensive			Noncontrolling
	Shares		Par value		Shares		Par value		capital		reserves		Unrestricted			receivable			income			interest			Totals
BALANCE, January 1, 2008		3,092,899	$	3		34,634,765	$	35	$	23,429	$	3,632	$	22,687		$	(960	)	$	3,285		$	43,322		$	95,433
																										-
Net loss														(1,618	)								116			(1,502	)
Adjustment to statutory reserve												648		(648	)											-
Common stock issued for compensation, $7.16						76,600		0.08		548																548
Common stock issued for compensation, $10.43						150,000		0.15		1,564																1,564
Common stock issued for compensation, $6.66						87,400		0.09		582																582
Common stock issued for compensation, $10.29						90,254		0.09		929																929
Common stock transferred by CEO for compensation, $6.91										138																138
Common stock issued at $5/share						140,000		0.14		700																700
Notes converted to common stock						541,299		0.54		6,103																6,104
Acquired noncontrolling interest																							15,768			15,768
Make whole shares issued on notes conversion						195,965		0.20		2,310																2,310
Foreign currency translation adjustments																				6,552			3,912			10,464
																										-
BALANCE,September 30, 2008, unaudited		3,092,899	$	3		35,916,283	$	36	$	36,303	$	4,280	$	20,421		$	(960	)	$	9,837		$	63,118		$	133,038
Net loss														(9,706	)								(8,658	)		(18,364	)
Acquired noncontrolling interest																							128			128
Adjustment to statutory reserve												622		(622	)											-
Common stock issued for consulting fee, $3.6						100,000		0.10		360																360
Common stock issued for public relations, $3.6						25,000		0.03		90																90
Common stock issued for compensation, $3.5						87,550		0.09		306																306
Common stock transferred by CEO for compensation, $6.91										69																69
Foreign currency translation adjustments																				(1,132	)		(258	)		(1,390	)
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)/income														(14,159	)								21,421			7,262
Disposal of subsidiaries																							(293	)		(293	)
Distribution of dividend to noncontrolling shareholders																							(3,305	)		(3,305	)
Adjustment to statutory reserve												1,925		(1,925	)											-
Common stock issued for compensation, $1.85						109,250		0.11		202																202
Common stock issued for compensation, $2.77						106,750		0.11		296																296
Common stock issued for interest payments						196,306		0.20		745																745
Common stock issued for repayment of debt, $6.00						300,000		0.30		1,800																1,801
Notes converted to common stock						7,045,274		7.05		32,073																32,080
Make whole shares issued on notes conversion						1,795,976		1.80		7,085																7,087
Common stock transferred by CEO for compensation, $6.91										207																207
Common stock issued for compensation, $3.62						107,050		0.11		387																387
Reduction of registered capital																	960									960
Foreign currency translation adjustments																				(174	)		334			160
BALANCE, September 30, 2009, unaudited		3,092,899	$	3		45,789,439	$	46	$	79,923	$	6,827	$	(5,991	)	$	-		$	8,531		$	72,488		$	161,827

The accompanying notes are an integral part of these statements.

5

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30

(UNAUDITED)

(In thousands, except per share data)

	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to controlling interest	$	(14,159	)	$	(1,618	)
Net income attributable to noncontrolling interest		21,421			116
Consolidated net income (loss)		7,262			(1,502	)
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation		22,760			14,746
Amortization		714			696
Debt extinguishment		(2,932	)		(7,169	)
Bad debt allowance		212			19
(Gain) Loss on disposal of equipment		(3,312	)		13
Stock issued for services and compensation		1,092			2,197
Interest expense accrued on mandatory redeemable stock		-			2,630
Make whole shares interest expense on notes conversion		2,754			2,310
Income from investment		(3,661	)		-
Amortization of deferred note issuance cost		56			34
Change in fair value of derivative instrument		23,228			(4,769	)
Deferred tax assets		5,265			(1,694	)
Changes in operating assets and liabilities
Notes receivable		10,826			(22,858	)
Accounts receivable		(4,150	)		41,525
Accounts receivable - related parties		(2,709	)		25,765
Other receivables		319			(7,297	)
Other receivables - related parties		15,766			1,207
Dividend receivable		1,775			-
Inventories		(161,833	)		(31,223	)
Advances on inventory purchases		7,918			22,843
Advances on inventory purchases - related parties		(15,199	)		2,442
Prepaid expense - current		(442	)		(1,373	)
Prepaid expense - current - related parties		-			(17	)
Prepaid expense - non current		144			46
Prepaid expense - non current - related parties		57			(102	)
Accounts payable		26,053			43,609
Accounts payable - related parties		8,772			(55,828	)
Other payables		5,257			(3,038	)
Other payable - related parties		(2,594	)		2,642
Accrued liabilities		5,308			1,079
Customer deposits		12,995			77,729
Customer deposits - related parties		38,245			(7,819	)
Taxes payable		(930	)		(12,922	)
Distribution payable to former shareholders		(4,398	)		(464	)
Net cash (used in) provided by operating activities		(5,382	)		83,459
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired long term investment		(6,593	)		-
Cash acquired from subsidiary		-			2,767
Deposits due to sales representatives		31,113			(743	)
Advance on equipment purchases		1,895			717
Cash proceeds from sale of equipment		6,253			127
Equipment purchases		(103,394	)		(145,800	)
Intangible assets purchases		(178	)		(233	)
Payment to original shareholders		-			(7,092	)
Net cash used in investing activities		(70,904	)		(150,257	)
CASH FLOWS FINANCING ACTIVITIES:
Restricted cash		(66,830	)		(76,828	)
Notes receivable - restricted		-			13,087
Borrowings on short term loans - bank		161,806			58,486
Payments on short term loans - bank		(77,074	)		(76,145	)
Borrowings on short term loans - related parties		-			3,326
Payments on short term loans - related parties		-			(7,652	)
Borrowings on short term loan - others		104,495			59,268
Payments on short term loans - others		(83,759	)		(50,134	)
Borrowings on short term loans - others-related parties		-			-
Payments on short term loans - others-related parties		2,932
Borrowings on short term notes payable		545,164			193,374
Payments on short term notes payable		(471,126	)		(78,079	)
Cash received from warrants conversion		-			700
		-			-
Net cash provided by financing activities		115,608			39,402
EFFECTS OF EXCHANGE RATE CHANGE IN CASH		72			1,670
INCREASE (DECREASE) IN CASH		39,394			(25,726	)
CASH, beginning of period		14,895			43,713
CASH, end of period	$	54,289		$	17,987

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

6

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(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 Chinese steel companies serving various industries. The Company presently has four production subsidiaries: General Steel (China) Co. Ltd. (f/k/a Tianjin Daqiuzhuang Metal Co. Ltd.) (“Daqiuzhuang Metal”), Baotou Steel – General Steel Special Steel Pipe Joint Venture Co., Ltd., (“Baotou Steel Pipe Joint Venture”), Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”), and Maoming Hengda Steel Group Co., Ltd. (“Maoming”). The Company’s main products include rebar, hot-rolled carbon and silicon sheets and spiral-weld pipes.

Note 2 – Summary of significant accounting policies

Basis of presentation

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

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

The accompanying 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.

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 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.

Management has included all adjustments, consisting only of normal recurring adjustments, considered necessary to give a fair presentation of operating results for the periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2008 annual report filed on Form 10-K.

7

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Concentration of risks

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

Cash includes cash on hand and demand deposits in accounts maintained with state owned banks within the People’s Republic of China, Hong Kong and the United States. Total cash (including restricted cash balances) in these banks on September 30, 2009 and December 31, 2008 amounted to $251.9million and $145.6 million, respectively, none of which are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

The Company had five major customers, which represented approximately 27% and 41% of the Company’s total sales for the three months ended September 30, 2009 and 2008, respectively, and approximately 20% and 36% of the Company’s total sales for the nine months ended September 30, 2009 and 2008, respectively. Five customers accounted for 20% and 0.5% of total accounts receivable as of September 30, 2009 and 2008, respectively.

The purchase of raw materials from five major suppliers represent approximately 29% and 34% of Company’s total purchase for the three months ended September 30, 2009 and 2008, respectively, and 48% and 32% of the Company’s total purchase for the nine months ended September 30, 2009 and 2008. Five vendors accounted for 20% and 4.6% of total accounts payable as of September 30, 2009 and 2008, respectively.

Revenue recognition

The Company follows 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 the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 13% to 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product.

Foreign currency translation and other comprehensive income

The reporting currency of the Company is the US dollar. The Company uses the local currency, Renminbi (RMB), as its 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 shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

8

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Translation adjustments resulting included in accumulated other comprehensive income amounted to $8.5 million and $8.7 million as of September 30, 2009 and December 31, 2008, respectively. The balance sheet amounts, with the exception of equity at September 30, 2009 and December 31, 2008 were translated at 6.82 RMB and 6.82 RMB to $1.00, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the nine months ended September 30, 2009 and 2008 were 6.82 RMB, 6.94 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 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.

In December 2007, the Company issued convertible notes totaling $40 million (“Notes”) and 1,154,958 warrants. Both the 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 accounting standards defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. The three levels are defined as follow:

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

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

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

The Company’s investment in unconsolidated subsidiaries amounted to $ 17.64 million as of September 30, 2009. Since there is no quoted or observable market price for the fair value of similar long term investment, the Company then used the level 3 inputs for its valuation methodology. The determination of the fair value was based on the capital investment that the Company contributed and income from investment. The carrying value of the long term investments approximated the fair value as of September 30, 2009.

9

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

In 2007, the conversion option on the $40 million Notes, as well as the 1,154,958 warrants issued in conjunction with the Notes are 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 September 30, 2009, the outstanding principal amounted to $3.3 million, and the carrying value of the convertible note amounted to $0.9 million. 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. The embedded warrants and conversion feature are valued by using level two inputs to the Binomial Model and determined that the fair value amounted to approximately $4.9 million due to the increase in the Company’s common stock price.

(inthousands)	CarryingValueasof September30,2009		FairValueMeasurementsatSeptember30, 2009UsingFairValueHierarchy
			Level1	Level2		Level3
Long term investments	$	17,640				$	17,640
Derivative liabilities	$	4,933		$	4,933
Convertible notes payable	$	912				$	868

Except for the investments 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, 2008	$	7,155
Current period effective interest charges on notes		2,135
Current period cash payments made for principal and stated interest		(745	)
Current period note converted carrying value		(7,633	)
Balance, September 30, 2009 (Unaudited)	$	912

	Long term Investment
	(in thousands)
Balance, December 31, 2008	$	13,959
Current period investment		4,702
Distribution of previous year dividend		(2,541	)
Current period investment gain		1,591
Foreign currency exchange loss		(71	)
Balance, September 30, 2009 (Unaudited)	$	17,640

Cash and cash equivalents

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

10

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Restricted cash

The Company has notes payable outstanding with various banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions.

Receivables and allowance for doubtful accounts

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

Notes receivable

Notes receivable represent 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 $27.4 million and $38.2 million of notes receivable outstanding as of September 30, 2009 and December 31, 2008, respectively.

Inventories

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

Shipping and handling

Shipping and handling for raw materials purchased are included in cost of goods sold. Shipping and handling cost incurred to ship finished products to customers are included in selling expenses. Shipping and handling expenses for finished goods for the three months ended September 30, 2009 and 2008 amounted to $2.3 million and $2.2 million respectively. Shipping and handling for the nine months ended September 30, 2009 and 2008 amounted to $4.2 million and $3.8 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”.  Daqiuzhuang Metal acquired land use rights during the years ended 2000 and 2003 for a total of $3.2 million. These land use rights are for 50 years and expire in 2050 and 2053. However, Daqiuzhuang Metal's initial business license had a ten-year term. Therefore, management elected to amortize the land use rights over the ten-year business term. Daqiuzhuang Metal became a Sino-Foreign Joint Venture in 2004, and obtained a new business license for twenty years; however, the Company decided to continue amortizing the land use rights over the original ten-year business term.

11

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Longmen Group contributed land use rights for a total amount of $19.8 million to the Longmen Joint Venture. The land use rights are for 50 years and expire in 2048 to 2052.

Maoming has land use rights amounting to $2.0 million for 50 years expiring in 2054.

Entity	Original Cost		Years of Expiration
	(in thousands)
Daqiuzhuang Metal	$	3,167	2050&2053
Longmen Joint Venture	$	19,824	2048&2052
Maoming Hengda Steel Group Co., Ltd	$	2,038	2054

Intangible assets of the Company are reviewed at least annually, more often when circumstances require, 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 amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.  As of September 30, 2009, 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 3%-5% residual value.

The estimated useful lives are as follows:

Property and plant	10-40Years
Machinery & Equipment	10-30Years
Office equipment and furniture	5Years
Motor vehicles	5Years

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 plant, equipment and intangible assets are reviewed annually, more often if necessary, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of September 30, 2009, the Company expects these assets to be fully recoverable.

Investments in unconsolidated subsidiaries

Subsidiaries in which the Company has the ability to exercise significant influence, but does not have a controlling interest is 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 cost method.

12

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

The Company’s subsidiary, Hancheng Tongxing Metallurgy Co., Ltd. and EPID invested in several companies from 2004 to 2009.

Unconsolidated subsidiary	Year acquired	Amount invested (In thousands)		% owned
Shaanxi Daxigou Mining Co., Ltd	2004	$	734		11
Shaanxi Xinglong Thermoelectric Co., Ltd	2004-2007		7,404		20.7
Shaanxi Longgang Group Xian steel Co., Ltd	2005		60		10
Huashan Metallurgical Equipment Co. Ltd.	2003		1,712		25
Hejin Liyuan Washing Coal Co., Ltd.	2006		135		38
Shanxi Longmen Coal Chemical Industry Co., Ltd	2009		6,602		15
Xian Delong Powder Engineering Materials Co., Ltd.	2006		993		27
Total		$	17,640

Total investment in unconsolidated subsidiaries amounted to $17.6 million and $14.0 million as of September 31, 2009 and 2008, respectively.

Short-term notes payable

Short-term notes payable are lines of credit extended by banks. When purchasing raw materials, the Company often issues a short-term note payable to the vendor. This short-term note payable bears no interest and is guaranteed by the bank for its complete face value and usually mature within three to six months period. The banks usually require the Company to deposit a certain amount of cash at the bank as a guarantee deposit, which is classified on the balance sheet as restricted cash.

Earnings per share

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

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

13

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Income taxes

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

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

Share-based compensation

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

14

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Non controlling interests

Effective January 1, 2009, the Company adopted generally accepted accounting principles regarding non-controlling 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 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.

Subsequent event

In May 2009, the Company adopted generally accepted accounting principles which provide guidance to for disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. The standard is effective for interim and annual periods ending after June 15, 2009, and accordingly, the Company adopted this Standard during the second quarter of 2009.

Recently issued accounting pronouncements

In January 2009, the Financial Accounting Standards Board issued an accounting standard which amended the impairment model by removing its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether another-than-temporary impairment has occurred. The adoption of this accounting standard did not have a material impact on the Company’s consolidated financial statements because all of the investments in debt securities are classified as trading securities.

In April 2009, the Financial Accounting Standards Board issued an accounting standard that makes the other-than-temporary impairments guidance more operational and improves the presentation of other-than-temporary impairments in the financial statements. This standard replaced the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This standard provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this standard does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. The Company adopted this accounting standard, but it did not have a material impact on its consolidated financial statements.

15

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

In April 2009, the Financial Accounting Standards Board issued an accounting standard that requires disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this accounting standard, fair values for these assets and liabilities were only disclosed annually. This standard applies to all financial instruments within its scope and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This standard does not require disclosures for earlier periods presented for comparative purposes at initial adoption, but in periods after the initial adoption, this standard requires comparative disclosures only for periods ending after initial adoption. The Company adopted this accounting standard, but it did not have a material impact on the disclosures related to its consolidated financial statements.

In June 2009, the Financial Accounting Standards Board issued an accounting standard amending the accounting and disclosure requirements for transfers of financial assets. This accounting standard requires greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them and changes the requirements for derecognizing financial assets. In addition, it eliminates the concept of a qualifying special-purpose entity (“QSPE”). This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009, and the Company does not expect this standard to have a material effect on its consolidated financial statements.

In June 2009, the Financial Accounting Standards Board also issued an accounting standard amending the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a QSPE, as discussed above, removes the exception from applying the consolidation guidance within this accounting standard. Further, this accounting standard requires a company to perform a qualitative analysis when determining whether or not it must consolidate a VIE. It also requires a company to continuously reassess whether it must consolidate a VIE. Additionally, it requires enhanced disclosures about a company’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the company’s financial statements. Finally, a company will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009, and the Company does not expect this standard to have a material effect on its consolidated financial statements.

In June 2009, the Financial Accounting Standards Board issued an accounting standard which establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Codification is effective for the Company in the third quarter of 2009, and accordingly, the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all current and subsequent public filings will reference the Codification as the sole source of authoritative literature.

In August 2009, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) regarding measuring liabilities at fair value. This ASU provides additional guidance clarifying the measurement of liabilities at fair value in circumstances in which a quoted price in an active market for the identical liability is not available; under those circumstances, a reporting entity is required to measure fair value using one or more of valuation techniques, as defined. This ASU is effective for the first reporting period, including interim periods, beginning after the issuance of this ASU. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

16

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

In October 2009, the Financial Accounting Standards Board issued an ASU regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing.  This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation.  This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

Note 3 – Accounts receivable and allowance for doubtful accounts

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

	September 30, 2009			December 31, 2008
	Unaudited
	(inthousands)			(inthousands)
Accounts receivable	$	12,763		$	8,730
Less: allowance for doubtful accounts		(612	)		(401	)
Net accounts receivable	$	12,151		$	8,329

Movement of allowance for doubtful accounts is as follows:

	September30, 2009			December31, 2008
	Unaudited
		(in thousands)		(in thousands)
Beginning balance	$	401		$	148
Charge to expense		212			124
Addition from acquisition		-			238
Less Written-off		-			(119	)
Exchange rate effect		(1	)		10
Ending balance	$	612		$	401

17

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Note 4 – Inventories

Inventory consists of the following:

	September 30, 2009		December 31, 2008
	Unaudited
	(inthousands)		(inthousands)
Supplies	$	1,708	$	1,884
Raw materials		135,822		41,084
Work in process		318		334
Finished goods		83,654		16,247
Totals	$	221,502	$	59,549

Raw materials consist primarily of iron ore and coke at Longmen Joint Venture, steel strip at Daqiuzhuang Metal and billet at Maoming. Work in process primarily consists of pig iron and other semi-finished products. The cost of finished goods includes direct costs of raw materials as well as direct labor used in production. Indirect production costs such as utilities and indirect labor related to production such as assembling, shipping and handling costs are also included in the cost of inventory.

The Company values its inventory at the lower of cost or market, determined on a weighted average method, or net realizable value. As of September 30, 2009 and December 31, 2008, management determined the carrying amount of inventory exceeded net realizable value, therefore $0.3 million and $2.2 million had been written down, respectively, and included in cost of goods sold.

Note 5 – Advances on inventory purchase

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

This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which required the deposit to be returned to the Company when the contract ends. The inventory is normally delivered within one month after the monies have been advanced. The total outstanding amount, including advances to related parties, was $57.1 million and $49.5 million as of September 30, 2009 and December 31, 2008, respectively.

Note 6 – Plant and equipment, net

Plant and equipment consist of the following:

	September30 2009			December31, 2008
(in thousands)	Unaudited
Buildings and improvements	$	117,242		$	118,144
Machinery		476,082			226,594
Transportation equipment		8,007			7,299
Other equipment		9,965			2,756
Construction in process		25,714			199,818
Totals		637,010			554,611
Less accumulated depreciation		(78,603	)		(62,906	)
Totals	$	558,407		$	491,705

18

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Longmen Joint Venture constructed two blast furnaces and a sintering system.  All costs related to construction have been capitalized as construction in progress and amounted to $180.5 million as of December 31, 2008. The two blast furnaces and its facilities amounting $242.4 million had been transferred to fixed assets as of September 30 2009.

Depreciation, including amounts in cost of sales, for the three months ended September 30, 2009 and 2008 amounted to $10.9 million and $5.9 million, respectively, and for the nine months ended September 30, 2009 and 2008, amount to $22.8 million and $14.7 million, respectively.

The rebar production line from our Maoming subsidiary was sold and transferred to our Longmen Joint Venture for a value of $16.5 million (RMB112.5 million). There is no change in fixed asset accounts because it is an intercompany transaction.

The Company has fixed assets to be disposed amounting to $6.5 million and $0.6 million as of September 30, and December 31, 2008, respectively.

Note 7 – Intangible assets

Intangible assets consist of the following:

	September 30, 2009			December 31, 2008
(in thousands)	Unaudited
Land use right	$	27,515		$	27,467
Software		424			293
Subtotal		27,939			27,760
Accumulated Amortization – Land use right		(3,884	)		(3,204	)
Accumulated Amortization – software		(35	)		-
Accumulated Amortization subtotal		(3,919	)		(3,204	)
Totals	$	24,020		$	24,556

Total amortization expense for the three months ended September 30, 2009 and 2008, amounted to $0.3 million and $0.3 million, respectively, and for nine months ended September 30, 2009 and 2008, amounted to $0.7 million and $0.7 million, respectively.

19

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

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

Years	Estimated Amortization Expense		Gross carrying Amount
	(in thousands)
2009	$	1,000	$	24,020
2010		1,000		23,020
2011		1,000		22,020
2012		1,000		21,020
2013		1,000		20,020

Note 8 – Debt

Short term loans

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

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

	September 30, 2009		December 31, 2008
	Unaudited (in thousands)		(in thousands)
Daqiuzhuang Metal: Loan from banks in China, due various dates on 2010. Weighted average interest rate 6.1% per annum, either guaranteed by another company or secured by equipment/inventory.	$	25,476	$	27,383
Longmen Joint Venture: Loan from banks in China, due various dates from October 2009 to September 2010. Weighted average interest rate 6.2% per annum, either guaranteed by another company or secured by equipment/buildings/land use right.		125,574		38,876
Baotou Steel Pipe Joint Venture: Loan from banks in China, due March 2009. Annual interest rate of 12%, Guaranteed by another company and secured by equipment.		-		115
Maoming: Loan from banks in China, due January 2009. Annual interest rate of 7.47%, guaranteed by another company.		-		1,466
Total – bank loans	$	151,050	$	67,840

20

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

	September 30,  2009		December 31, 2008
	Unaudited (in thousands)		(in thousands)
Longmen Joint Venture: Loans from various unrelated companies and individuals, due various dates from November 2009 to January 2010, and interest rates up to 12% per annum	$	86,517	$	58,440
Maoming: Loans from two unrelated parties, no due date without interest bearing.		23,654		29,394
Total – other loans	$	110,171	$	87,834

	September 30,  2009		December 31, 2008
	Unaudited (in thousands)		(in thousands)
Qiu Steel: Related party loans from Tianjin Heng Ying and Tianjin Da Zhan, due June 2010. Annual interest rate of 5%.	$	7,350	$	7,350
Daqiuzhuang Metal: Related party loans from Wendlar, due January 2010. Annual interest rate of 10%.		1,012		-
Total – related party loans	$	8,362	$	7,350

The Company had various loans from unrelated companies and individuals. The balances amounted to $110.1 million and $87.8 million as of September 30, 2009 and December 31, 2008, respectively. Out of the $110.1 million, $23.7 million loans was prior year balance carries no interest and the remaining $86.5 million are subject to interest rates ranging from 6.1% to 12%. All short term loans from unrelated companies and individuals are due on demand and unsecured.

Short term notes payable

Short term notes payable are lines of credit extended by the banks. When purchasing raw materials, the Company often issues a short term note payable to the vendor funded with draws on the lines of credit. 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.

21

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

The Company had the following short term notes payable:

	September 30,  2009		December 31, 2008
	Unaudited (in thousands)		(in thousands)
Daqiuzhuang Metal: Notes payable from banks in China, due various dates from October 2009 to February 2010. Restricted cash required of $3,998 and $15,728 for September 30, 2009 and December 31, 2008, respectively and either guaranteed by another company.	$	7,628	$	18,631
Longmen Joint Venture: Notes payable from banks in China, due various dates from October 2009 to August 2010. Restricted cash of $173,487 and $98,073 for September 30, 2009 and December 31, 2008, respectively and either guaranteed by another company or secured by equipment, or no guarantee.		233,337		159,536
Bao Tou: Notes payable from banks in China. Restricted cash of $0 and $5,135 for September 30, 2009 and December 31, 2008, respectively and guaranteed by buildings.		-		7,335
Maoming: Notes payable from banks in China, due various dates from Octomber 2009 to March 2010. Restricted cash of $20,098 and $11,765 for September 30, 2009 and December 31, 2008 and guaranteed by buildings and equipments.		39,169		20,538
Grand totals	$	280,134	$	206,040

Total interest expense for the three months ended September 30, 2009 and 2008 on the debt listed above amounted to $8.3 million and $4.6 million, respectively, and for the nine months ended September 30 2009 and 2008, interest expense amounted to $16.1 million and $13.2 million, respectively.

Capitalized interest amounted to $6.7 million and $3.8 million for the three months ended September 30, 2009 and 2008, respectively and for the nine months ended September 30, 2009 and 2008, capitalized interest amounted to $12.8 million and $6.6 million.

Note 9 – Customer deposit

Customer deposits represent amounts advanced by customers on product orders. The product normally is shipped within one month after receipt of the advance payment, and the related sale is recognized in accordance with the Company’s revenue recognition policy. As of September 30, 2009 and December 31, 2008, customer deposits amounted to $199.9 million and $148.3 million, including related parties deposits $0 and $7.2 million, respectively.

22

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Note 10 – Deposit due to sales representatives

Daqiuzhuang Metal and two of Longmen Joint Venture’s subsidiaries, Yuxin Trading and Yuteng Trading, 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 $39.3 million and $8.1 million in deposits due to sales representatives as of September 30, 2009 and December 31, 2008. In 2009 the Company received deposit amounted $32 million from sales representatives to secure sales quantity. These deposits are refundable in one year based on volume fulfillment and bear interest at 3%-8% per annum.

Note 11 – Convertible notes

On December 13, 2007, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”) issuing $40.0 million (“Notes”) and 1,154,958 warrants (the “Warrants”). The warrants can be converted to common stock through May 13, 2013 at $13.51 per share, subject to customary anti-dilution adjustment.

The Notes bear initial interest at 3% per annum, which will be increased each year as specified in the Notes, 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 common stock, subject to customary anti-dilution adjustments. The initial conversion price is $12.47. 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.

The Notes are secured by a first priority, perfected security interest in certain shares of common stock of Zuosheng Yu, as evidenced by the pledge agreement. The Notes are subject to events of default customary for convertible securities and for a secured financing.

The Warrants grant the Buyers the right to acquire shares of common stock at $13.51 per share, subject to customary anti-dilution adjustments.  The Warrants may be exercised at any time on or after May 13, 2008, but not after May 13, 2013, the expiration date of the Warrants.

Pursuant APB’s accounting standard -,accounting for convertible debt and debt issued with stock purchase warrants, the Company discounted the Notes equal to the fair value of the warrants. The Notes were further discounted for the fair value of the conversion option. The combined discount is being amortized to interest expense over the life of the Notes using the effective interest method.

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

· Expected volatility of 125%

· Expected dividend yield of 0%

· Risk-free interest rate of 1.70%

· 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, 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.

23

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

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.

In July 2008, $6.8 million of notes was converted to 541,299 shares of common stock at a conversion price of $12.47. Pursuant to generally accepted accounting principles, the Company valued the conversion option on note conversion date. A total of $6.1 million of carrying value and derivative liability had been reclassified into equity. In addition, 195,965 shares of common stock were issued as make whole interest expense of $2.3 million.

Reset of Conversion Price:

Paragraph 7(f) of the Convertible Notes (which were issued on December 13, 2007) provides for adjustment of the conversion price of the Notes, as follows: Adjustment. If on the earlier of the (i) one (1) year anniversary of the Initial Effective Date (as defined in the Registration Rights Agreement) and (ii) two (2) year anniversary of the Closing Date (the "Adjustment Date"), the Conversion Price in effect exceeds the Market Price as of the Adjustment Date (the "Adjusted Conversion Price"), the Conversion Price hereunder shall be reset to the Adjusted Conversion Price as of the Adjustment Date. For the avoidance of doubt, the Adjusted Conversion Price, if any, shall not apply to any Conversion Amount converted into Common Stock prior to the Adjustment Date.

The “Market Price” is defined in paragraph 30(v) of the Senior Convertible Notes as: “Market Price” means, for any given date, the lower of (x) the arithmetic average of the Weighted Average Price of the Common Stock for the thirty (30) consecutive Trading Day period ending on the Trading Day immediately preceding such date and (y) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such date.

The Initial Registration Statement became effective on May 7, 2008 and thus the Adjustment Date was May 7, 2009. The Weighted Average Price of the Common Stock for the 30 consecutive Trading Day period ended on May 6, 2009 was $4.2511 and, accordingly, in accordance with the existing terms of the Convertible Notes, the conversion price was adjusted on May 7, 2009 to $4.2511.

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 Income Statement.

From May 7 to September 30 2009, $30.0 million of notes was converted to 7,045,274 shares of common stock at a conversion price of $4.2511. Pursuant to generally accepted accounting principles, the Company valued the conversion option on note conversion date. A total of $32.1 million of 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.

As of September 30 2009, in accordance with generally accepted accounting principles, the fair value of derivative liabilities was recalculated and decreased by $5.0 million during the period, including $0.4 million for the decrease in fair value of the warrants and $4.6 million for the decrease in fair value of the conversion option.

24

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

As of September 30 2009, the balance of derivative liabilities was $4.9 million, which consisted of $2.7 million for the warrants and $2.2 million for the conversion option, and the carrying value of the notes was $0.9 million effective interest charges on notes totaled $0.3 million and $0.9 million  for the three months ended September 30, 2009 and 2008, respectively, and for the nine months ended September 30, 2009 and 2008, the effective interest amounted to $2.1 million and $2.6 million, respectively.

Note issuance cost was amortized to interest expense for the three months ended September 30, 2009 and 2008 amounted to $0.012 million and $0.013 million, respectively. Note issuance cost was amortized to interest expense for the nine months ended September 30, 2009 and 2008 amounted to $0.056 million and $0.034 million, respectively.

Note 12 – Supplemental disclosure of cash flow information

Interest paid amounted to $4.7 million and $1.9 million for the three months ended September 30 2009 and 2008, respectively, and for the nine months ended September 30 2009 and 2008, amounted to $9.3 million and $10.6 million, respectively.

Income tax payments amounted to $0.6 million and $0.8 million for the three months ended September 30 2009 and 2008, respectively, and for the nine months ended September 30 2009 and 2008, amounted to $2.4 million and $ 6.5 million, respectively.

Make whole Interest of $6.04 million has been capitalized into construction in progress and subsequently transferred to fixed assets for the nine month ended September 30, 2009.

Note 13 - Gain from debt extinguishment and Government grant

Debt extinguishment

For the nine months ended September 30, 2009, the Company recorded gain from debt extinguishment totaling $2.9 million. On February 20, 2009, Maoming Hengda, a subsidiary entered into a Debt Waive Agreement with Guangzhou Hengda, pursuant to which Guangzhou Hengda agreed to waive $2.9 million (RMB 20.0 million) of the total $24.0 million (RMB 163.5 million) debt that Maoming Hengda owes to Guangzhou Hengda. The Company determined that the subsequent debt settlement does not constitute a contingency at date of purchase as defined in SFAS’s accounting standard - business Combinations and thus should not result in a reallocation of the purchase price. The waiver is irrevocable.

Government grant

Based on national industrial policies and environmental protection laws and regulations, in order to reduce energy consumption, emissions Shaanxi Province Development and Reform Commission worked with local industries to eliminate of outdated iron and steel production capacity in form of government grant. Longmen Joint Venture received $4.3 million (RMB 29.2 million) in government grant for compliance in dismantling two blast furnaces. The Company wrote off the residual book value of the furnaces dismantled totaling $0.7 million (RMB 5.8 million), and recorded other income of $3.5 million for the nine months ended September 30, 2009.

25

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Note 14 – Taxes

Income tax

On January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate currently applicable to both DES and FIEs. The two-year tax exemption and three-year 50% tax reduction tax holiday for production-oriented FIEs will not be eliminated for certain entities incorporated on or before March 16, 2007.

Significant components of the provision for income taxes on earnings and deferred taxes on net operating losses from operation for the three months ended September 30, 2009 and 2008 are as follows:

	September 30, 2009			September 30, 2008
	Unaudited (in thousands)			Unaudited (in thousands)
Current	$	6,717			(813	)
Deferred		(2,925	)		(1,271	)
Total income taxes	$	3,792			(2,084	)

Significant components of the provision for income taxes on earnings and deferred taxes on net operating losses from operation for the nine months ended September 30, 2009 and 2008 are as follows:

	September 30, 2009			September 30, 2008
	Unaudited (in thousands)			Unaudited (in thousands)
Current	$	12,451			1,147
Deferred		(5,265	)		(1,694	)
Total income taxes	$	7,186			(547	)

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.

26

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

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

	September 30,  2009			December 31, 2008
	Unaudited (in thousands)			(in thousands)
Beginning balance	$	7,487		$	400
Xi’an Rolling Mill’s ,YuXin,  YuTeng, HuaLong and TongXing Net operating loss carry-forward		(19	)		4,946
Effective tax rate		25	%		25	%
Deferred tax asset	$	(5	)	$	1,236
Long Gang Headquarter’s Net operating loss carry-forward		(35,096	)		36,809
Effective tax rate		15	%		15.2	%
Deferred tax asset	$	(5,264	)	$	5,595
Exchange difference		(27	)		256
Totals	$	2,191		$	7,487

Under the Income Tax Laws of PRC, the Company’s subsidiary, Daqiuzhuang Metal, 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. Daqiuzhuang Metal, 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. Daqiuzhuang Metal is located in Tianjin Costal Economic Development Zone and under the Income Tax Laws of Tianjin City of PRC, it is eligible for an income tax rate of 24%. Therefore, Daqiuzhuang Metal is exempt from income taxes for the years ended December 31, 2005 and 2006 and is entitled to 50% income tax reduction of the special income tax rate of 24%, which is a rate of 12% for the years ended December 31, 2007, 2008 and 2009.

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 calculated at 15%.

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

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

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the nine months ended September 30 2009 and 2008 as follows:

	September 30, 2009			September 30, 2008
	Unaudited
U.S. Statutory rates		34.0	%		34.0	%
Foreign income not recognized in USA		(34.0	)%		(34.0	)%
China income taxes		25.0	%		25.0	%
Tax effect of expenses not taxable for tax purpose (1)		(1.51	%		(4.3	)%
Effect of different tax rate of subsidiaries operating in other jurisdictions		(3.95	)%		(12.0	)%
Total provision for income taxes		19.54	%		8.7	%

(1)This represents derivative expenses (income) and stock compensation expenses incurred by GSI that are not deductible/taxable in PRC for the nine months ended September 30, 2009 and 2008.

27

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

The Company has cumulative undistributed earnings of foreign subsidiaries of approximately $23.2 million as of September 30, 2009, is included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations.  Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.

General Steel Holdings Inc. was incorporated in the United States and has incurred net operating losses for income tax purposes for the nine months ended September 30, 2009 and 2008, respectively. The net operating loss carry forwards for United States income taxes amounted to $4.9 million which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2029. 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 at September 30, 2009 was $1.7 million. The net change in the valuation allowance for the nine months ended September 30, 2009 and year ended December 31, 2008 was an increase of $0.7 million and $0.6 million, respectively. 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 Chinese 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 $123.1 million and $106.6 million for the three months ended September 30, 2009, VAT on sales and VAT on purchases amounted to $85.9 million and $85.5 million for the three months ended September 30, 2008, respectively. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not impacted by the income tax holiday.

VAT on sales and VAT on purchases amounted to $302.3 million and $272.5 million for the nine months ended September 30, 2009, VAT on sales and VAT on purchases amounted to $259.1 million and $221.4 million for the nine months ended September 30, 2008, respectively. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not impacted by the income tax holiday.

Taxes payable consisted of the following:

	September 30, 2009		December 31, 2008
(in thousands)	Unaudited
VAT taxes payable	$	8,938	$	8,985
Income taxes payable		1,999		2,510
Misc taxes		2,380		2,422
Totals	$	13,317	$	13,917

28

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Note 15 – Earnings per share

The calculation of earnings per share is as follows:

	Three months ended September 30,					Nine months ended September 30,
	Unaudited					Unaudited
	2009			2008		2009			2008
	(in thousands except per share data)
Income (loss) attributable to holders of common shares	$	10,382		$	20,464	$	(14,159	)	$	(1,618	)
Add: Derivative expense		812
Subtract: Unamortized note issuance cost		(963	)
Subtract: Make whole interest		(330	)
Income (loss) used in diluted computation	$	9,901		$	20,464	$	(14,159	)	$	(1,618	)
Basic weighted average number of common shares outstanding		44,973,882			35,687,891		40,295,924			35,157,579
Diluted weighted average number of common shares outstanding		45,750,152			35,687,891		40,295,924			35,157,579
Earnings per share
Basic	$	0.23		$	0.57	$	(0.35	)	$	(0.05	)
Diluted	$	0.22		$	0.57	$	(0.35	)	$	(0.05	)

For the three months ended September 30, 2009, 1,154,958 warrants with exercise price of $13.51 is excluded from EPS as they are anti-dilutive.  The $3.3 million convertible notes with conversion price of $4.2511 were included in the diluted earnings per share.

For the nine months ended September 30, 2009 and 2008, the Company incurred net loss; therefore there is no dilutive effect for its earnings per share.

Note 16 – Related party balances and transactions

The Company subleased a portion of its land use rights to Tianjin Jing Qiu Steel Market Company, a related party under common control. The Company’s Chairman, CEO and majority shareholder, Zuosheng Yu (aka Henry Yu), is the chairman and the largest shareholder of Jing Qiu Steel Market Company. The lease term is one year and is renewed annually.

29

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

	Forthethreemonthsended September30,2009		Forthethreemonthsended September30,2008
	Unaudited (inthousands)		Unaudited (inthousands)
Rental Income	$	381	$	439

	For the nine months ended September 30, 2009		For the nine months ended September 30, 2008
	Unaudited (in thousands)		Unaudited (in thousands)
Rental Income	$	1,260	$	1,290

The Company’s short term loan of $1.5 million from Shenzhen Development Bank is personally guaranteed by the Company’s Chairman, CEO, and majority shareholder Zuosheng Yu (aka Henry Yu).

Tianjin Dazhan Industry Co., Ltd. (“Dazhan”) and Tianjin Hengying Trading Co., Ltd. (“Hengying”) are steel trading companies controlled by the Company’s Chairman, CEO and majority shareholder, Zuosheng Yu. Dazhan and Hengying acted as trading agents of the Company to make purchases and sales for the Company.

	For the three months ended September 30, 2009		For the three months ended September 30, 2008
	Unaudited (in thousands)		Unaudited (in thousands)
Purchase from Hengying and Dazhan	$	11,751	$	14,871
Sales to Hengying and Dazhan	$	39,733	$	9,814

	For the nine months ended September 30, 2009		For the nine months ended September 30, 2008
	Unaudited (in thousands)		Unaudited (in thousands)
Purchase from Hengying and Dazhan	$	27,615	$	69,221
Sales to Hengying and Dazhan	$	40,758	$	15,786

All transactions with related parties are short term in nature. Settlements for the balances are usually in cash. The following charts summarize the related party transactions as of September 30, 2009 and December 31, 2008.

30

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

a. Accounts receivable – related party

Name of related parties	Relationship	September 30, 2009		December 31,  2008
		Unaudited (in thousands)		(in thousands)
Tianjin Tongyong Qiugang Company	Chairman of General Steel Holdings, Inc. owns more than 5% in this company	$	2,784	$	-

b. Other receivables - related parties

Name of related parties	Relationship	September 30 2009		December 31, 2008
		Unaudited (in thousands)		(in thousands)
Beijing Wendlar	Chairman of General Steel Holdings, Inc. owns more than 5% in this company	$	273	$	376
Tianjin Jin Qiu Steel Market	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		147		147
Total		$	420	$	523

c. Advances on inventory purchase – related parties

Name of related parties	Relationship	September 30,  2009		December 31, 2008
		Unaudited (in thousands)		(in thousands)
Baogang Jiannan Company	Owned by noncontrolling shareholders of one subsidiary	$	35	$	1,873
Long Men Group	General Steel’s joint venture partner		12,573		502
Maoming Shengze Trading	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		5,245		-
Total		$	17,853	$	2,375

d. Accounts payable due to related parties

Name of related parties	Relationship	September 30, 2009		December 31, 2008
		Unaudited (in thousands)		(in thousands)
Dazhan	Controlled by the Company’s Chairman, CEO and majority shareholders	$	10,154	$	10,630
Henan Xinmi Kanghua	Longmen JV’s subsidiary’s joint venture partner		786		1,501
Zhengzhou Shenglong	Longmen JV’s subsidiary’s joint venture partner		164		-
Baotou Shengda Steel Pipe	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		57		1,558
ShanXi  Fangxin	Longmen JV’s subsidiary’s joint venture partner		203		1,451
Baogang Jianan Group	General Steel’s joint venture partner		-		187
Jingma Jiaohua	Longmen JV’s subsidiary (unconsolidated)		3,636		-
Beijing Daishang Trading Co	Owned by noncontrolling shareholder of one subsidiary of Longmen Joint Venture		4,324		-
Total		$	19,324	$	15,327

31

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

e. Short term loans due to related parties

Name of related parties	Relationship	September 30, 2009		December 31, 2008
		Unaudited (in thousands)		(in thousands)
Dazhan	Chairman of General Steel Holdings, Inc. owns more than 5% in this company	$	3,946	$	3,946
Hengying	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		3,404		3,404
Beijing Wendlar	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		1,012		-
De Long Fen Ti		$	8,362	$	7,350

f. Other payables due to related parties

Name of related parties	Relationship	September 30, 2009		December 31, 2008
		Unaudited (in thousands)		(in thousands)
Golden Glister	Chairman of General Steel Holdings, Inc. owns more than 5% in this company	$	600	$	600
Hengyin	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		1,474		-
Baotou Shengda Steel Pipe	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		-		77
Total		$	2,074	$	677

32

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

g. Customer deposit – related parties

Name of related parties	Relationship	September 30, 2009		December 31, 2008
		Unaudited (in thousands)		(in thousands)
Dazhan	Chairman of General Steel Holdings, Inc. owns more than 5% in this company	$	-	$	2,760
Haiyan	Longmen JV’s subsidiary (unconsolidated)		-	1,522
Maoming Heng Da Materials	Chairman of General Steel Holdings, Inc. owns more than 5% in this company		-		2,934
Total		$	-	$	7,216

Note 17 – Business combination

On January 14, 2008, the Company through Longmen Joint Venture, completed its acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”). Tongxing contributed its land use right of approximately 53 acres (217,487 square meters) with an appraised value of approximately $4.1 million (RMB 30 million). Pursuant to the agreement, the land will be converted into shares valued at approximately $3.1 million (RMB 23 million), providing the Joint Venture stake of 22.76% ownership in Tongxing and making it Tongxing’s largest and controlling shareholder. The parties agreed to make the effective date of the transaction January 1, 2008. The acquisition is accounted for as acquisition under common control.

			Assumed by
Tongxing	Fair Value		Longmen Joint Venture (22.76%)
	(in thousands)		(in thousands)
Current assets	$	55,505	$	12,633
Non current assets		8,088		1,841
Total assets		63,593		14,474
Total liabilities		50,782		11,558
Net assets	$	12,811	$	2,916

On August 11, 2008, the Company through its subsidiary, Longmen Joint Venture, completed its acquisition of a controlling interest in Beijing Hua Tian Yu Long International Steel Trade Co., Ltd. The Longmen Joint Venture paid $0.1 million (RMB0.9 million) for 50% equity based on the appraisal value on September 30 2008.

33

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

 

On June 25, 2008, The Company through Qiu Steel Investment entered into equity purchase agreement with the shareholders of Maoming to acquire 99% equity of Maoming. The total purchase price for the acquisition is $7.3 million (RMB 50 million). The fair value of Maoming was $10.1 million (RMB 69 million) as of September 30 2008.  Pursuant to Generally accepted accounting principles, the excess of total fair value acquired over purchase price should be allocated as a pro rata reduction of non-current assets. Subsequently, the Company recorded the difference as a reduction of fixed assets acquired.

The joint venture’s name is Maoming Heng Da Steel Group Co. Ltd., a company formed under the laws of the PRC. It is located in Maoming city, Guangdong province in China. It produces and sells high speed wire.

			Assumed by
Maoming	Fair Value		The Company
	(in thousands)		(in thousands)
Current assets	$	45,314	$	44,861
Non-current assets		81,780		78,291
Total assets		127,094		123,152
Total liabilities		117,027		115,857
Net assets	$	10,067	$	7,295

Distribution payable to former shareholders for the above acquisitions amount to $15.9 million and $18.8 million as of September 30 2009 and December 31, 2008, respectively.

Note 18 - Equity

On January 8, 2008 the Company issued 150,000 shares of common stock at $10.43 per share as additional note issuance cost totaled $1.6 million. The shares price is determined as the quoted market price on the date granted.

On February 5, 2008, the Company issued senior management and directors 76,600 shares of common stock at $7.16 per share, as compensation. The shares were valued at the quoted market price on the date granted. The Company recorded compensation expense of $0.5 million.for the year ended December 31, 2008.

On April 14, 2008, the Company, Mr, Zuosheng Yu, (CEO of the Company) and Mr. Zhang Dan Li (BOD member of Long Men Joint Venture) entered into a compensation agreement in which Mr. ZuoSheng Yu agreed to transfer his own 600,000 shares to Mr. Zhang Dan Li in exchange for 15 years of service in the Company. Pursuant to Generally accepted accounting principles (Share-Based Payment) share-based payments awarded to an employee of the reporting entity by a related party or other holder of an economic interest in the entity is treated as compensation as if the shareholder has made a capital contribution. The shares are valued at $6.91 on grant date for a total of $4.1 million and will be amortized over the life agreement. A total of $0.2 million of compensation expense and additional paid in capital has been recorded in 2008.

34

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

 

On April 15, 2008, the Company granted senior management and directors 87,400 shares of common stock at $6.66 per share, as compensation. The shares were valued at the quoted market price on the date granted. The Company recorded compensation expense of $0.6 million  for the year ended December 31, 2008.

On July 3, 2008, the Company granted senior management and directors 90,254 shares of common stock at $10.29 per share, as compensation. The shares were valued at the market price on the date granted. The Company recorded compensation expense of $0.9 million for the year ended December 31, 2008.

541,299 shares of common stock were issued upon conversion of notes with a carrying value of $6.8 million at a conversion price of $12.48. In addition 195,965 shares of common stock were issued as make whole interest expense of $2.3 million.

In September 2008, 140,000 warrants, issued in connection with the redeemable preferred stock, were exercised at $5.00 per share.

On October 28, 2008, the company granted Teamlink Investment Limited, 100,000 shares of commons stock at $3.6 per share as consulting service expense $0.4 million. According to the period of service provided, $0.1 million was recorded as expense in 2008 and $0.3 million will be amortized within 10 months. $0.3 million of public relationship expense had been recorded for the nine months ended September 30, 2009.

On November 24, 2008, the Company granted senior management and directors 87,550 shares of common stock at $3.50 per share, as compensation. The shares were valued at the market price on the date granted. The Company recorded compensation expense of $0.3 million for the year ended December 31, 2008.

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

On 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 for the nine months ended September 30, 2009.

On April 7, 2009, the Company granted senior management and directors 106,750 shares of common stock at $2.77 per share, as compensation. The shares were valued at the quoted market price on the date granted. The Company recorded compensation expense of $0.3 million for the nine months ended September 30, 2009.

On May 8, 2009, the Company issued 300,000 shares of common stock to Maoming Hengda Steel’s debtor, Guangzhou Hengda at $6 per share, as cash payments made for settling other short term loan.

From May 7 to September 30, 2009, $30.0 million of notes was converted to 7,045,274 shares of common stock at Conversion Price, $4.2511. According to the convertible bond agreement, the Company incurred the make whole interest expense of $8.8 million. As of September 30, 2009, 1,795,977 shares of common stock had been issued. See note 11 for details.

35

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

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

On September 2, 2009, the Company granted senior management and directors 107,050 shares of common stock at $3.62 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, 2008	1,388,292
Granted	-
Forfeited	(93,334	)
Exercised	(140,000	)
Outstanding As of December 31, 2008	1,154,958
Granted	-
Forfeited	-
Exercised	-
Outstanding As of September 30, 2009	1,154,958

Outstanding Warrants						Exercisable Warrants
Exercise Price		Number		Average Remaining Contractual Life		Average Exercise Price		Number		Average Remaining Contractual Life
$	13.51		1,154,958		3.62	$	13.51		1,154,958		3.62

Note 19 – Retirement plan

Regulations in the People’s Republic of China 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 $0.6 million and $1.1 million for the three months ended September 30, 2009 and 2008, respectively, and $2.2 million and $2.4 million for the nine months ended September 30, 2009 and 2008, respectively.

Note 20 – 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.

36

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Surplus reserve fund

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

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

Note 21 – Commitment and contingencies

Hancheng Tongxing Metallurgy Co., Ltd., one subsidiary of Longmen Joint Venture, is obligated to contribute $33.0 million (RMB 225 million), as registered capital to Shaanxi Longmen Coal and Chemical Co., Ltd by the end of 2010. Tongxing had contributed $6.6 million as of September 30, 2009.

Daqiuzhuang Metal provides dormitory facilities for its employees under a 10 year rental contract. The agreement began January 2006 and required full prepayment for the 10 year period totaling $0.5 million.

Daqiuzhuang Metal rented land for 50 years starting September 2005. Total amount of the rent over the 50 years period is approximately $1.0 million (or RMB 8 million).

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

As of September 30, 2009, total future minimum lease payments for the unpaid portion under an operating lease were as follows:

Year ended December 31,	Amount
	(in thousands)
2009	$	790
2010		264
2011		264
2012		132
2013		-
Thereafter		-
Total	$	1,450

Total rental expense amounted to $0.1 million and $0.1 million for the three months ended September 30 2009 and 2008, respectively and rental expense for the nine months ended September 30, 2009 and 2008, amounted to $0.3 million and $0.3 million, respectively.

37

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009

(Unaudited)

Long Men Joint Venture has $19.2 mil contractual obligation in its construction projects.as of September 30 2009.

Note 22 – Segments

The Company sells steel which are 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 SFAS, the Company considers itself to be operating within one reportable segment.

The Company does not have long-lived assets located in foreign countries. In accordance with the enterprise-wide disclosure requirements of SFAS 131, the Company's net revenue from external customers by main product lines is as follows:

	For the three months ended				For the nine months ended
	2009		2008		2009		2008
	(in thousands)
Products
Re-bar	$	455,054	$	355,938	$	1,112,536	$	948,171
Hot-Rolled Sheets		14,982		35,631		41,559		117,997
High Speed Wire		10,271		14,376		54,007		14,376
Spiral-Welded Steel Pipe		4,445		5,576		8,391		9,572
Total sales revenue	$	484,752	$	411,521	$	1,216,493	$	1,090,116

Note 23 – Subsequent Event

The Company has performed an evaluation of subsequent events through November 6, 2009, which is the date of financial statements issuance and concluded no event has occurred that required disclosure.

38

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

Note Regarding Forward-Looking Statements

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

Recent Developments

Continued Record Growth:

We have experienced continued record growth in revenue, shipment volume and income from operations.

For the three month period ended September 30, 2009 revenue was $484.75 million; shipment volume was 1.04 million metric tons and income from operations was $29.25 million. This is the highest revenue, shipment volume and operating profit in one quarter ever recorded by us.

Operating results for the three months and nine months ending September 30, 2009 are shown below:

	Three months ended									Nine months ended
	September 30,									September 30,
	unaudited			unaudited						unaudited			unaudited
In thousands	2009			2008			Increase			2009			2008			Increase
SHIPMENT VOLUME (metric tons)		1,036			619			67.4	%		2,710			1,733			56.4	%
TOTAL REVENUES	$	484,752		$	411,521			17.8	%	$	1,216,493		$	1,090,116			11.6	%
GROSS PROFIT		39,735			-6,347			726.0	%		75,155			29,503			154.7	%
GROSS PROFIT MARGIN		8.20	%		-1.54	%		632.5	%		6.18	%		2.71	%		128.0	%
INCOME FROM OPERATIONS	$	29,248		$	-18,675			256.6	%	$	45,936		$	1,139			3933.0	%

Our shipment volume for the nine months ended September 30, 2009, increased by 56.4% as compared to the same nine month period in 2008.  For the nine month period ended September 30, 2009 our gross profit increased 154.7%, our gross margin increased from 2.7% to 6.2% and our income from operations increased 3933.0% compared with the same period last year.

39

Our Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”), located in the developing region of Shaanxi province, comprises 94% of our total revenue. Shaanxi province, where we hold dominant market share for construction steel, has seen steady demand resulting from the central government’s “Go West” economic development initiative and economic stimulus package focused on infrastructure construction.

Our positive operating results during a period of global economic slowdown demonstrate the following strengths:

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

· We are a direct beneficiary of the China economic stimulus infrastructure spending program; and

· The developing regions of China are growing and have not been significantly impacted by the global economic slowdown.

Company Overview

Through our headquarters in Beijing, China, we operate a diverse portfolio of Chinese steel companies. Our companies serve various industries and produce a variety of steel products including: rebar, hot-rolled sheets, spiral-weld pipes and high-speed wire. Our aggregate production capacity of steel products is 6.3 million metric tons per year, of which the majority is rebar.  Individual industry segments have unique demand drivers, such as rural income, infrastructure construction and energy consumption. Domestic economic conditions are an overall driver for all our products.

We aim to become one of the largest and most profitable non-government owned steel companies in China through the acquisition of Chinese steel companies. We intend to increase the profitability and efficiencies of the steel companies we acquire through the infusion of applied western management practices, advanced production technologies and capital resources.

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

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

· Tianjin Daqiuzhuang Metal Sheet 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 Limited.

Steel Operating Companies

• Tianjin Daqiuzhuang Metal Sheet Co., Ltd.

Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”), started operations in 1988. Daqiuzhuang Metal’s core business is manufacturing high quality hot-rolled carbon and silicon steel sheets mainly used in the production of small agricultural vehicles and other specialty markets.

40

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

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

On May 14, 2009, Daqiuzhuang Metal changed its official name from “Tianjin Daqiuzhuang Metal Sheet Co. Ltd.” to “General Steel (China) Co., Ltd.” to better reflect its role as a merger and acquisition platform for steel company investments in China.

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

On April 27, 2007 Daqiuzhuang Metal and Baotou Iron and Steel Group Co., Ltd. (“Baotou Steel”) entered into an Amended and Restated Joint Venture Agreement (the “Baotou Steel Joint Venture Agreement”), amending the Joint Venture Agreement entered into by the parties on September 28, 2005.  The Baotou Steel Joint Venture Agreement increased Daqiuzhuang Metal's ownership interest in the Baotou Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd. (“Baotou Steel Pipe Joint Venture”) to 80%.

Baotou Steel 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 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 to12m. 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, Daqiuzhuang Metal 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 Daqiuzhuang Metal and Tianjin Qiu Steel Investment Co., Ltd., we invested approximately $39 million in cash and collectively hold approximately 60% of the Longmen Joint Venture.

Long Steel Group, located in Hancheng city, Shaanxi province, in China’s central region, was founded in 1958 and incorporated in 2002. Long Steel Group operates as a fully-integrated steel production facility.  Less than 10% of steel companies in China have fully-integrated steel production capacity.  Our Longmen Joint Venture, assumed existing operating units of the Long Steel Group. The Long Steel Group contributed most of its working assets to the Longmen Joint Venture.

Currently, the Longmen Joint Venture has four branch offices, seven subsidiaries under direct control and eight entities in which it has a non-controlling interest.  It employs approximately 6,250 full-time workers.  In addition to steel production, the Longmen Joint Venture operates transportation services through its Changlong Branch, located at Hancheng city, Shaanxi province. Changlong Branch owns 153 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 the fuel for our blast furnaces.  Its annualized coke production capacity is 150,000 metric tons.  Tongxing sells all of its output to Longmen Joint Venture.

41

Longmen Joint Venture does not own iron pelletizing facilities.

Longmen Joint Venture’s products are categorized within the steel industry as “longs” (referencing their shape). Rebar is generally considered a regional product because its weight and dimension make it ill-suited for cost-effective long-haul ground transportation. By our estimates, the provincial market demand for rebar is six to eight million metric tons per year. Slightly more than half of this demand radiates from Xi’an, the capital of Shaanxi province, located 180km from the Longmen Joint Venture’s main steel production site. We estimate we have approximately 72% share of the Xi’an market for rebar according to Xi’an Steel Market Statistics dated April 7, 2009

An established regional network of 40 agents and eight sales offices sell the Longmen Joint Venture’s products. All products sell under the registered brand name of “Yulong” which enjoys strong regional recognition and awareness. Rebar and billet products carry ISO 9001 and 9002 certification and many other products have won national quality awards. Products produced at the facility have been used in the construction of the Yangtze River Three Gorges Dam, Xi’an International Airport, the Xi Han, Xi Tong and Xi Da provincial expressways, and are currently being used in the construction of the Xi’an city subway system.

On September 24, 2007 Longmen Joint Venture acquired controlling interest in two subsidiaries of Long Steel Group: Longmen Iron and Steel Group Co., Ltd. Environmental Protection Industry Development Co., Ltd. (“Longmen EPID”) and Longmen Iron and Steel Group Co., Ltd. Hualong Fire Retardant Materials Co., Ltd. (“Hualong”).

The Longmen Joint Venture entered into an equity transfer agreement with Long Steel Group to acquire its 74.92% ownership interest in Longmen EPID. The Longmen Joint Venture paid $2.4 million (RMB18 million) in exchange for the ownership interest. The facility utilizes solid waste generated from the steel making process to produce landscape blocks, tiles, curb tops and ornamental tiles.

At the same time, the Longmen Joint Venture also entered into a second equity agreement with the Long Steel Group to acquire its 36% ownership interest in its subsidiary, Hualong. The Longmen Joint Venture paid $430 thousand (RMB3.3 million) in exchange for the ownership interest and is the largest shareholder in Hualong. The facility produces fire-retardant materials used in various processes in making steel.

On January 11, 2008, the Longmen Joint Venture completed its acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”). The Longmen Joint Venture contributed its land use right of 21.45 hectares (approximately 53 acres) with an appraised value of approximately $4.1 million (RMB30 million). Pursuant to the agreement, the land was converted into shares valued at approximately $3.1 million (RMB22.7 million), providing the Longmen Joint Venture a 22.76% ownership stake in Tongxing and making it Tongxing’s largest and controlling shareholder. Tongxing has two operating areas: coking coal production and rebar processing. Its coking coal operations have an annual production capacity of 150,000 metric tons. Its rebar processing facility has an annualized rolling capacity of 300,000 metric tons.

•  Maoming Hengda Steel Group Limited

On June 25, 2008 through our subsidiary Tianjin Qiu Steel Investment, we acquired 99% of Maoming Hengda Steel Group, Limited (“Maoming”) for $7.3 million (approximately RMB 50 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 facility has two production lines capable of producing 1.8 million metric tons of 5.5mm to 16mm diameter high-speed wire and 12mm to 38mm diameter rebar annually. The products are sold through nine distributors targeting customers in Guangxi province and the western region of Guangdong province.  Previously, the Maoming facility had been operating at approximately 10% of its capacity due to, we believe, the previous owners corporate focus on matters unrelated to the Maoming facility.

42

To take advantage of stronger market demand, in the second quarter of 2009, we relocated the 800,000 metric ton capacity rebar production line from the Maoming facility to the Longmen Joint Venture.

Operating Information Summary by Subsidiaries

	Daqiuzhuang Metal	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
Main Application	Light agricultural vehicles	Energy transport	Infrastructure and construction	Infrastructure and construction

Stock listing

           Our stock trades on the NYSE under the ticker symbol “GSI”.

Factors affecting our operating results

Demand for our products:

Overall, domestic economic growth is an important demand driver for our products. Currently, China is experiencing an economic downturn after eight years of record growth.  Nevertheless, according to estimates issued by Hong Kong and Shanghai Banking Cooperation Ltd., HSBC on November 1, 2009, it estimates that China’s economy will still grow by approximately 8.1% in 2009, well above many western developed economies. Industry demand drivers for our products include construction and infrastructure growth, 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 11th Five-Year National Economic and Social Development Plan (the “NESDP”)(2006-2010), development of China’s western region is one of the top-five national economic priorities.  Shaanxi, the province where Longmen Joint Venture is located, has been designated as a bridgehead for development into the western region, and Xi’an, the provincial capital, has been designated as a focal point for this development. Our Longmen Joint Venture is 180km from Xi’an and does not have another major competitor within a 250km radius. According to Shaanxi Provincial Development and Reform Commission, total fix assets investment was approximately RMB113billion for the first nine months of 2009, a 71% increase over the same period last year. Major projects include thirty-four new highways, expressways and railways, one new airport, the expansion of the Xi’an airport, two new ring subway systems and seven irrigation reservoirs. We see strong demand for our products driven by these and many other construction and infrastructure projects. We believe that there will be sustained regional demand for several years ahead as the government continues to strengthen its western region development efforts.

At Daqiuzhuang Metal, demand for our hot-rolled sheets previously had been tied to their use in light agricultural vehicles. However, due to over capacity in the market of cold-rolled sheets and a resulting decline of cold-rolled sheet prices, many producers of light agricultural vehicles have replaced our hot-rolled steel sheets with cold-rolled sheets. Demand for our product now comes mainly from smaller manufacturers of metal security doors and wiring cabinets used in housing projects.

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

43

At Maoming, infrastructure growth and business development drive demand for our construction steel products. Guangdong province serves as an export hub to Southeast Asia and abroad for many products produced in China, and is one of China’s most economically advanced provinces.

Supply of raw materials:

Iron ore

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

Longmen Joint Venture represents 4.8 million metric tons of our aggregate 6.3 million metric ton annual production capacity.  At Longmen Joint Venture, approximately 90% of the production costs are attributable to the purchase of raw materials, with iron ore being the largest component of the purchase.

According to the China Iron and Steel Association, approximately 60% of the domestic steel industry’s demand for iron ore must be filled by imports. At our 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 Long Steel Group, our joint venture partner), domestic sources and from foreign sources. The Daxigou mine has 300 million metric tons of iron ore reserves. According to the terms of our joint venture agreement with our strategic partner, the Long Steel Group, we have first rights of refusal for sales and development 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 pig-iron.

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

The sources and/or major suppliers of our raw materials are as follows (1):

Longmen Joint Venture

Major Suppliers

Name of the Supplier	Raw Material Purchased	% of Total Raw Material Purchased	Relationship with GSI
Shaanxi Longmen Iron & Steel Group Co., Ltd.	Iron Ore	11.2%	Affiliated company
Shaanxi Haiyan Coal Chemical Industry Co., Ltd.	Coke	9.6%	Related party
Shaanxi Huanghe Material Co., Ltd.	Coke	7.4%	Others
Shaanxi Jinhu Industrial and Commercial Co., Ltd.	Iron Ore	2.6%	Others
Yunnan Jingliyuan Industrial Co., Ltd.	Alloy	2.5%	Others
	Total	33.3%

44

Daqiuzhuang Metal

Major Suppliers

Name of the Supplier	Raw Material Purchased	% of Total Raw Material Purchased	Relationship with GSI
Tianjin Hengying Trade Co., Ltd.	Hot-roll coil	56.1%	Related party
Tianjin Dazhan Industrial Co., Ltd.	Hot-roll coil	16.7%	Related party
General Tongyong Qiu Steel Pipe Co., Ltd.	Hot-roll coil	16.2%	Others
Shenghua Xinyuan	Hot-roll coil	6.9%	Others
Tianjin Zhaoliang Trading Co., Ltd.	Hot-roll coil	1.3%	Others
	Total	97.2%

Baotou Steel Pipe Joint Venture

Major Suppliers

Name of the Supplier	Raw Material Purchased	% of Total Raw Material Purchased	Relationship with GSI
Shaanxi Xinbang Trading Co., Ltd	Steel coil	46.2%	Others
Tianjin Jinchang I&E Co., Ltd.	Steel coil	12.7%	Others
Tianjin Zhaoliang Trade Co., Ltd.	Steel coil	12.3%	Others
Tianjin Fulida Pipe Co., Ltd.	Steel coil	10.2%	Others
Baotou Xinzhongyuan Trade Co., Ltd.	Steel coil	6.3%	Others
	Total	87.7%

Maoming

Major Suppliers

Name of the Supplier	Raw Material Purchased	% of Total Raw Material Purchased	Relationship with GSI
Maoming Shengze Trading Co., Ltd.	Billet	46.6%	Related party
China Railway Material Commercial Corporation Tianjin Office	Billet	21.8%	Others
Guangxi Shenglong Metallurgy Co., Ltd.	Heavy oil	9.7%	Others
Maoming Zhengmao Develop Co., Ltd.	Billet	1.0%	Others
Maoming Dazhongmao Petrochemical Co., Ltd.	Heavy oil	0.9%	Others
	Total	80.0%

(1) For purposes of the above tables, the term (i) “Affiliated company” refers to our joint venture partners, (ii) “Related party” refers to a company over whose operating policies we can exercise control or significant influence and (iii) “Others” refers to entities that are not related to us and are not an Affiliated party or Related party.

45

Industry consolidation

It is the central government’s long-stated goal to consolidate 50% of domestic steel production among the top ten producers by 2010 and 70% by 2020.  In September of this year 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 ten government agencies with enforcing these measures. In the fourth quarter of 2009, the government plans to issue revised steel industry guidelines which are expected to further strengthen measures to minimize old and inefficient capacity.  We believe the government’s action this year demonstrates increased resolve to bring about industry consolidation.  We see the pace of industry consolidation quickening in the coming years.

Results of Operations

The following table sets forth, for the periods indicated, statement of operations data.

	Three months ended									Nine months ended
In thousands	September 30,						%			September 30,						%
	2009			2008			Change			2009			2008			Change
	Unaudited			Unaudited						Unaudited			Unaudited
TOTAL REVENUES	$	484,752		$	411,521			17.8	%	$	1,216,493		$	1,090,116			11.6	%
GROSS PROFIT		39,735			-6,347			726.0	%		75,155			29,503			154.7	%
GROSS PROFIT MARGIN		8.2	%		-1.5	%		632.5	%		6.2	%		2.7	%		128.3	%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		10,487			12,328			-14.9	%		29,219			28,364			3.0	%
INCOME (LOSS) FROM OPERATIONS		29,248			-18,675			256.6	%		45,936			1,139			3933.0	%
Total other income (expense), net		-5,986			31,726			-118.9	%		-31,488			-3,188			887.7	%
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST		23,262			13,051			78.2	%		14,448			-2,049			805.1	%
NET INCOME		19,470			15,135			28.6	%		7,262			-1,502			583.5	%
NET INCOME ATTRIBUTABLE TO GENERAL STEEL		10,382			20,464			-49.3	%		-14,159			-1,618			775.1	%
EARNINGS PER SHARE
Basic	$	0.23		$	0.57			-59.6	%	$	(0.35	)	$	(0.05	)		660.9	%
Diluted	$	0.22		$	0.57			-61.4	%	$	(0.35	)	$	(0.05	)		660.9	%

Sales Revenue

Three months ended September 30, 2009 compared with three months ended September 30, 2008

The following table sets forth sales revenue and volume in metric tons for each of our reporting segments.

SALES REVENUE	Three months ending
	September 30, 2009							September 30, 2008							Change			Change
in thousands	Volume		Revenue		%			Volume		Revenue		%			Volume %			Revenue %
	Unaudited							Unaudited
Longmen Joint Venture		958	$	455,054		94	%		535	$	355,938		87	%		79.1	%		27.8	%
Maoming		41	$	10,271		2	%		22	$	14,376		3	%		86.4	%		-28.6	%
Daqiuzhuang Metal		29	$	14,982		3	%		47	$	35,631		9	%		-38.3	%		-58.0	%
Baotou Steel Pipe Joint Venture		8	$	4,445		1	%		15	$	5,576		1	%		-46.7	%		-20.3	%
Total		1,036	$	484,752		100	%		619	$	411,521		100	%		67.4	%		17.8	%

Total Sales Revenue for the three months ended September 30, 2009 increased 17.8% to $484.75 million from $411.52 million for the same period last year.

The increase in sales revenue compared to the same period last year is predominantly due to production volume increases of 79.1% at our Longmen Joint Venture and 86.4% at Maoming, offset by lower average selling prices and production volume declines of 38.3% at Daqiuzhuang Metal and 46.7% at Baotou Steel Pipe Joint Venture.

Longmen Joint Venture - Comprised 94% of third quarter total sales. The 79% production volume increase was fueled by stable demand for construction steel in our addressable markets and increased production capacity from our two new 1,280 cubic meter blast furnaces.

Maoming  - Comprised 2% of third quarter total sales. The 86.4% production volume increase is due to higher factory utilization compared to the same period last year. Maoming was acquired June 25, 2008 and commenced operations in the same month.

46

Daqiuzhuang Metal – Comprised 3% of third quarter total sales. The 38.3% production volume decrease reflects a drop in demand for hot-rolled sheets. Currently, there is excess cold-rolled sheet production capacity in the market which has driven down the price of cold-rolled sheets.  At lower prices, cold-rolled sheets become a cost-effective alternative for hot-rolled sheets typically used in the production of light agricultural vehicles. Cold-rolled sheets are believed to have superior qualities to hot-rolled sheets.

Baotou Steel Pipe Joint Venture – Comprised 1% of third quarter total sales. The 46.7% volume decrease is due to a large pipe processing order last year which is not present this year.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

The following table sets forth sales revenue and volume in metric tons for each of our reporting segments.

SALES REVENUE	Nine months ending
	September 30, 2009							September 30, 2008							Change			Change
in thousands	Volume		Revenue		%			Volume		Revenue		%			Volume %			Revenue %
	Unaudited							Unaudited
Longmen Joint Venture		2,451	$	1,112,536		92	%		1,522	$	948,171		87	%		61.0	%		17.3	%
Maoming		160	$	54,007		4	%		22	$	14,376		1	%		627.3	%		275.7	%
Daqiuzhuang Metal		82	$	41,559		3	%		167	$	117,997		11	%		-50.9	%		-64.8	%
Baotou Steel Pipe Joint Venture		17	$	8,391		1	%		22	$	9,572		1	%		-22.7	%		-12.3	%
Total		2,710		1,216,493		100	%		1,733		1,090,116		100	%		56.4	%		11.6	%

Sales revenue for the nine months ended September 30, 2009 increased 11.6% to $1.22 billion compared to $1.09 billion for the same period last year.

The increase in sales revenue compared to the same period last year is predominantly due to production volume increases of 61% at our Longmen Joint Venture and 627.3% at Maoming, offset by lower selling prices and production volume decreases of 50.9% at Daqiuzhuang Metal and 22.7% at Baotou Steel Pipe Joint Venture.

The Sales Revenue increase is also attributed to our Maoming acquisition, which we acquired June 25, 2008. Sales Revenue for the nine months ended September 30, 2009 reflects a full nine months of operations whereas this subsidiary only operated three months during the same period last year.

Gross Profit

Three months ended September 30, 2009 compared with three months ended September 30, 2008

The following table sets forth gross profit and volume in metric tons by each of our reporting segments.

GROSS PROFIT	Three Months Ending
in thousands	September 30, 2009								September 30, 2008								Change %
	unaudited								unaudited
	Volume		Gross profit			Margin %			Volume		Gross profit			Margin %			Gross Profit
Longmen Joint Venture		958	$	40,864			8.98	%		535	$	(6,401	)		-1.80	%		738.4	%
Maoming		41	$	(750	)		-7.31	%		22	$	(1,630	)		-11.34	%		54.0	%
Daqiuzhuang Metal		29	$	(120	)		-0.80	%		47	$	1,092			3.06	%		-111.0	%
Baotou Steel Pipe Joint Venture		8	$	(259	)		-5.86	%		15	$	592			10.61	%		-143.8	%
Total		1,036	$	39,735			8.20	%		619	$	(6,347	)		-1.54	%		726.0	%

Gross profit for the three months ended September 30, 2009 increased 726.0% to $39.74 million from a loss of $6.35 million for the same period last year.

47

Longmen Joint Venture

The Gross Profit Margin of our largest subsidiary, Longmen Joint Venture, improved significantly due to lower raw material prices compared to the same period last year.  Additionally, selling prices trended upward in July and August reaching peaks equal to highs of last year and began descending in September.

Maoming

Although the Gross Profit at Maoming improved by 54%, the Gross Profit of this subsidiary remains at a loss due to low factory utilization and volatile price swings for steel billet, our raw material.

Daqiuzhuang Metal

Daqiuzhuang Metal is experiencing the effects of the global economic slowdown, specifically weak demand and competition from cold-rolled steel sheets has negatively affected our Gross Profit.

Baotou Steel Pipe Joint Venture

At our Baotou Steel Pipe Joint Venture, gross margins have been negatively impacted by volatile raw material prices.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

The following table sets forth gross profit and volume in metric tons for each of our reporting segments.

GROSS PROFIT	Nine Months Ending
in thousands	September 30, 2009								September 30, 2008								Change %
	unaudited								unaudited
	Volume		Gross profit			Margin %			Volume		Gross profit			Margin %			Gross Profit
Longmen Joint Venture		2,451	$	80,259			7.21	%		1,522	$	25,788			2.72	%		211.2	%
Maoming		160	$	(4,323	)		-8.00	%		22	$	(1,631	)		-11.34	%		165.1	%
Daqiuzhuang Metal		82	$	(523	)		-1.26	%		167	$	4,718			4.00	%		-111.1	%
Baotou Steel Pipe Joint Venture		17	$	(258	)		-3.09	%		22	$	628			6.56	%		-141.1	%
Total		2,710	$	75,155			6.18	%		1,733	$	29,503			2.71	%		154.7	%

Gross profit for the nine months ended September 30, 2009 increased 154.7% to $75.16 million from $29.5 million for the same period last year.

Our significant gross profit increase is due to the increased gross profit at Longmen Joint Venture. Our Longmen Joint Venture makes up 94% of our total revenue and offsets the combined negative gross profit from our smaller subsidiaries.

Selling, General and Administrative Expenses

Three months ended September 30, 2009 compared with three months ended September 30, 2008

In thousands	Three months ended
	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	$	10,487	$	12,328		-14.9	%

Selling, general and administrative expenses, such as executive compensation, office expenses, legal and accounting charges, travel charges, equipment maintenance and various taxes decreased 14.9% to $10.49 million for the three months ended September 30, 2009, compared to $12.33 million for the same period of 2008. The decrease is mainly due to the new blast furnaces requiring less maintenance expenses.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

In thousands	Nine months ended
	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	$	29,219	$	28,364		3.0	%

48

Selling, general and administrative expenses increased 3% to $29.22 million for the nine months ended September 30, 2009, compared to $28.36 million for the same period of 2008. This minor increase in expenses during a period of 56.4% sales volume increase was achieved by careful cost control measures.

Income from operations

Three months ended September 30, 2009 compared with three months ended September 30, 2008

In thousands	Three months ended
	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
INCOME (LOSS) FROM OPERATIONS	$	29,248	$	-18,675	256.6	%

Income from operations for the three months ended September 30, 2009 increased to $29.25 million from a loss of $18.68 million for the same period last year. This was the highest income from operations we have ever recorded for a single quarter.

This result is a due to a combination of the following factors at our Longmen Joint Venture:

·      Efficient business plan execution by management;

·      Increased capacity from our two newly completed 1280 cubic meter blast furnaces;

·      High selling prices in July and August; and

·      Stable raw material prices.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

In thousands	Nine months ended
	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
INCOME (LOSS) FROM OPERATIONS	$	45,936		1,139		3933.0	%

Income from operations for the nine months ended September 30, 2009 increased 3933.0% to $45.94 million from $1.14 million for the same period last year.

Our increase in income from operations for the nine months ending September 2009 compared to the same period last year is primarily due the operating performance of our Longmen Joint Venture.

Other income (expense)

Three months ended September 30, 2009 compared with three months ended September 30, 2008

Total other income (expense) for the three months ended September 30, 2009 was an expense of $5.99 million compared to an income of $31.73 million for the same period last year.

49

In thousands	Three months ended
	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
OTHER INCOME (EXPENSE), NET
Interest income	$	826	$	646		27.9	%
Interest/finance expense		-4,174		-6,872		-39.3	%
Change in fair value of derivative liabilities		-616		29,885		102.1	%
Gain from debt extinguishment				7,169
Government grant
Income from equity investments		963		-
Other nonoperating income( expense), net		-2,985		898		-432.4	%
Total other income (expense), net	$	-5,986	$	31,726		-118.9	%

The difference between the $5.99 million expense for the three months ended September 30, 2009 and the $31.73 million income for the three months ended 2008 is caused by following factors:

· The 39.3% decrease in interest/finance expense is as a result of more interest expense was capitalized into construction in progress in 2009;

· Change in fair value of derivative liabilities was a loss of $0.62 million for the three months ended September 30, 2009 compared to a gain of $29.89 million for the same period last year;

· Gain from debt extinguishment is none for the three months ended September 30, 2009 compared to $7.17 million debt extinguishment at our Maoming facility for the three months ended September 30, 2008; and

· Other non-operating expense of $2.99 million for the three months ended September 30, 2009 is mainly comprised of costs associated with the disposal of fixed assets at our Longmen Joint Venture.

Change in fair value of derivative liabilities and notes converted make whole expense

These are non-cash item linked to our convertible promissory notes issued December 13, 2007 (“December 2007 Notes”) and accompanying common stock purchase warrants (“December 2007 Warrants”). We used the proceeds from the sale of the December 2007 Notes and the December 2007 Warrants to finance the acquisition of our largest subsidiary, Longmen Joint Venture.

These items are not related to the operational performance of our iron and steel business, but significantly impact our net income and earnings per share.

Change in fair value of derivative liabilities

According to GAAP, our December 2007 Notes with the December 2007 Warrants 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.

Change in fair value of derivative liabilities for the three months ended September 30, 2009 was a loss of $0.62 million compared to a gain of  $29.89 million for the same period last year. The reason of the significant gain for the three months ended September 30, 2008 was due to disruptions in the financial markets causing stock prices globally to drop, including the stock price our company. According to GAAP rules in valuing derivatives, the large drop in our share price required us to record a $29.89 million gain in change in fair value of derivative liabilities.

Notes converted make whole interest

There is a Make Whole Interest Payment clause in our December 2007 Notes. This clause encourages our note holders to convert the December 2007 Notes into our common stock in advance of the note maturity date.  GAAP requires a portion of notes converted make whole interest expense to be capitalized.

50

As of September 30, 2009, 91.75% of our December 2007 Notes have been converted into our common stock in advance of the note maturity date and only 8.25% of the December 2007 Notes remain outstanding. This expense will no longer be incurred once all the December 2007 Notes have been converted.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

In thousands	Nine months ended
	September 30, 2009			September 30, 2008			Change %
	unaudited			unaudited
OTHER INCOME (EXPENSE), NET
Interest income	$	2,468		$	2,104			17.3	%
Interest/finance expense		(18,422	)		(19,149	)		-3.8	%
Change in fair value of derivative liabilities		(23,228	)		4,769			-587.1	%
Gain from debt extinguishment		2,932			7,169			-59.1	%
Government grant		3,433			-
Income from equity investments		3,661			-
Other nonoperating income( expense), net		(2,332	)		1,919			-221.5	%
Total other income (expense), net	$	(31,488	)	$	(3,188	)		887.7	%

The other income (expense) for the nine months ended September 30, 2009 is an expense of $31.49 million compared to expense of $3.19 million for the same period last year.

The difference between the $31.49 million expense for the nine months ended September 30, 2009 and the $3.19 million expense for the three months ended 2008 is caused by following factors:

· Change in fair value of derivative liabilities was a loss of $23.23 million for the nine months ended September 30, 2009 compared to a gain of $4.77 million for the same period last year;

· Gain from debt extinguishment is $2.93 million at our Maoming facility for the nine months ended September 30, 2009 compared to $7.17 million debt extinguishment at our Maoming facility for the nine months ended September 30, 2008; and

· Other non-operating expense $2.33 million for the nine months ended September 30, 2009 is mainly comprised of costs associated with the disposal of fixed assets at our Longmen Joint Venture compared to gain of $1.92 million for the same period last year.

Change in fair value of derivative liabilities and notes converted make whole expense

These are non-cash items linked to our December 2007 Notes along with our December 2007 Warrants. We used the proceeds from the sale of the December 2007 Notes and the December 2007 Warrants to finance the acquisition of our largest subsidiary, Longmen Joint Venture.

For a complete discussion of change in fair value of derivative liabilities and notes converted make whole expense, see the discussion under - Other income (expense) three months ended September 30, 2009 compared with three months ended September 30, 2008.

Change in fair value of derivative liabilities

Change in fair value of derivative liabilities for the nine months ended September 30, 2009 was a loss of $23.23 million compared to a gain of  $4.77 million for the same period last year.

51

Notes converted make whole expense

December 2007 Notes converted make whole interest for the nine months ended September 30, 2009 was an expense of $2.75 million compared to none for the same period last year.

For the purposes of the above disclosure, the following terms have the definitions set forth below:

· Interest Income: interest received from deposits held in banks;

· Interest /finance expense: interest paid on bank loans, on early redemption of Notes Receivables various bank fees;

· Notes-converted–make-whole expense: non-cash incentive written in our convertible bond agreement for early conversion by our note holders;

· Change in fair value of derivative liabilities: related to valuation of the conversion features and warrant liabilities of our convertible debt; a non-cash, non-operating item;

· Gain from debt extinguishment: RMB20 million debt extinguishment by Hengda Group (Not only does the debt extinguishment add to our profitability, it also reduces cash needed to be paid out.);

· Government grant: To reduce energy consumption and pollutant emissions, Shaanxi Province Development and Reform Commission worked with local industries to eliminate outdated iron and steel production facilities. During first quarter 2009 Longmen Joint Venture received RMB29 million in government incentives for compliance in dismantling two small blast furnaces, less RMB5 million residual book value of the furnaces;

· Income from equity investments: entities in which we do not have controlling interest and do not consolidate results into our financial statements; and

· Other non-operating income (expense), net: rental income collected by Daqiuzhuang Metal offset by disposal of obsolete equipment at our Longmen Joint Venture.

For detail regarding the change in fair value of derivative liabilities and the associated convertible note, see note 11 in the financial statement footnotes.

Net income before noncontrolling interest

Three months ended September 30, 2009 compared to three months ended September 30, 2008

In thousands	Threemonthsended
	September30,2009		September30,2008		Change%
	Unaudited		Unaudited
Net income before noncontrolling interest	$	19,470	$	15,135		28.6	%

Net Income for the three months ended September 30, 2009 increased 28.6% to $19.47 million from $15.14 million for the same period last year.

For the three months ended September 30, 2009 we had record income from operations of $29.25 million, which was offset by $5.99 million in other expenses, and $3.79 million in taxes.

Nine months ended September 30, 2009 compared to three months ended September 30, 2008

In thousands	Nine months ended
	September 30, 2009		September 30, 2008			Change %
	Unaudited		Unaudited
Net income (loss) before noncontrolling interest	$	7,262	$	(1,502	)	583.5	%

52

Net Income before noncontrolling interest for the nine months ended September 30, 2009 increased to a gain of $7.26 million from a loss of $1.50 million for the same period last year.

For the nine months ended September 30, 2009, we had record income from operations of $45.94 million, which was offset by $31.49 million in other expenses, and $7.19 million in taxes.

Compared to the nine months ended September 30, 2008, we had income from operations of $1.14 million, which was offset by $3.19 million in other expenses, and a gain of $0.55 million in taxes.

Net income attributable to General Steel Holdings, Inc.

Three months ended September 30, 2009 compared with three months ended September 30, 2008

In thousands	Three months ended
	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
NET INCOME (LOSS) BEFORE NONCONTROLLING INTEREST	$	19,470	$	15,135		28.6	%
LESS:Net income (loss) attributable to the noncontrolling interest		9,088		-5,329		270.5	%
NET INCOME ATTRIBUTABLE TO GENERAL STEEL	$	10,382	$	20,464		-49.3	%

Net income attributable to General Steel Holdings, Inc. for the three months ended September 30, 2009 decreased 49.3% to $10.38 million compared to $20.46 million for the same period of last year.

For the three months ended September 30, 2009 income from operations was $29.25 million of which $9.09 million was distributed to non-controlling interest.

For the three months ended September 30, 2008 loss from operations was $18.68 million of which $5.33 million loss was distributed to non-controlling interest.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

In thousands	Nine months ended
	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
NET INCOME (LOSS) BEFORE NONCONTROLLING INTEREST	$	7,262	$	-1,502	583.5		%
LESS:Net income attributable to the noncontrolling interest		21,421		116		18366.4	%
NET (LOSS) ATTRIBUTABLE TO GENERAL STEEL	$	-14,159	$	-1,618		775.1	%

Net loss attributable to General Steel Holdings, Inc. for the nine months ended September 30, 2009 increased 775.1% to a loss of $14.16 million compared to a loss of $1.62 million for the same period of last year.

For the nine months ended September 30, 2009 income from operations was $45.94 million of which $21.42 million was distributed to non-controlling interest.

For the nine months ended September 30, 2008 income from operations was $1.14 million of which $0.12 million was distributed to non-controlling interest.

Earnings per share

Three months ended September 30, 2009 compared with three months ended September 30, 2008

	Three months ended
Earnings per Share	September 30, 2009		September 30, 2008		Change %
	unaudited		unaudited
NET INCOME ATTRIBUTABLE TO GENERAL STEEL	$	10,382	$	20,464		-49.3	%
WEIGHTED AVERAGE NUMBER OF SHARES
Basic		44,973,882		35,687,891		26.0	%
Diluted		45,750,152		35,687,891		28.2	%
EARNINGS PER SHARE
Basic	$	0.23	$	0.57		-59.9	%
Diluted	$	0.22	$	0.57		-61.6	%

53

Earnings per share (basic) for the three months ended September 30, 2009 decreased 59.9% to $0.23 per share compared to $0.57 for the same period of last year.

Earnings per share (diluted) for the three months ended September 30, 2009 decreased 61.6% to $0.22 per share compared to $0.57 for the same period of last year.

The primary reasons for the decrease in net income attributable to General Steel Holdings, Inc. is due to change in fair value of derivative liabilities and notes converted make whole expense.

It is important to understand the items – change in fair value of derivative liabilities and notes converted make whole expense to understand our financial statements.

These items are not related to the operational performance of our iron and steel business, but significantly impact our net income and earnings per share.

For a complete discussion of change in fair value of derivative liabilities and notes converted make whole expense, see the discussion under - Other income (expense) three months ended September 30, 2009 compared with three months ended September 30, 2008.

The primary reason for the increase in our total number of shares outstanding is the reduced conversion price of our outstanding convertible promissory notes (and the conversions into common stock resulting there from) and the make whole interest expense paid in shares also associated with the conversions of the convertible promissory notes.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

	Nine months ended
Earnings per Share	September 30, 2009			September 30, 2008			Change %
	unaudited			unaudited
NET INCOME (LOSS) ATTRIBUTABLE TO GENERAL STEEL	$	(14,159	)	$	(1,618	)		775.1	%
WEIGHTED AVERAGE NUMBER OF SHARES
Basic		40,295,924			35,157,579			14.6	%
Diluted		40,295,924			35,157,579			14.6	%
LOSS PER SHARE
Basic	$	(0.35	)	$	(0.05	)		660.3	%
Diluted	$	(0.35	)	$	(0.05	)		660.3	%

Loss per share (basic and diluted) for the nine months ended September 30, 2009 increased 660.3% to a loss of $0.35 per share compared to a loss of $0.05 per share for the same period of last year.

The primary reasons for the increase in net loss attributable to General Steel Holdings, Inc. is due to change in fair value of derivative liabilities and notes converted make whole expense.

It is important to understand the items – change in fair value of derivative liabilities and notes converted make whole expense to understand our financial statements.

These items are not related to the operational performance of our iron and steel business, but significantly impact our GAAP net income and earnings per share.

For a complete discussion of change in fair value of derivative liabilities and December 2007 Notes converted make whole interest payment expense, see the discussion under - Other income (expense) three months ended September 30, 2009 compared with three months ended September 30, 2008.

The primary factors for increase in share count are due to conversion of the December 2007 Notes into our common stock and make whole interest expense paid in shares also associated with the December 2007 Notes.

54

Adjusted Earnings and Earnings per share

The management of General Steel Holdings, Inc. uses non-GAAP adjusted net earnings to measure the performance of our business internally by excluding non-recurring items as well as non-cash charges related to our convertible promissory notes issued December 13, 2007.  Our management believes that these non-GAAP adjusted financial measures allow the management to focus on managing business operating performance because these measures reflect the essential operating activities of General Steel Holdings and provide a consistent method of comparison to historical periods. We believe that providing the non-GAAP measures that management uses internally to our investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand General Steel Holding’s financial performance in comparison to historical periods without variation of non-recurring items and non-operating related charges. In addition, it allows investors to evaluate our performance using the same methodology and information as that used by the management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, the management of General Steel Holdings, Inc. compensates for these limitations by providing the relevant disclosure of the items excluded.

Specifically, in December 2007 we issued convertible promissory notes (“December 2007 Notes”) and common stock purchase warrants (“December 2007 Warrants”) as part of a private placement financing transaction. The convertible feature of the December 2007 Notes and the December 2007 Warrants are considered a derivative and GAAP requires us to value this derivative using a valuation model linked to our stock price, conversion price and other variables. The period covering the third quarter of 2008 through the third quarter of 2009 has seen our stock price reach a high of $15.15 and a low of $1.84. This wide fluctuation in our stock price has created large derivative gains and losses not correlated to the underlying business of the company. The end result is that derivative gain or loss may impact GAAP Net Income to the extent that GAAP Net Income does not reflect the underlying business of the company.

The following table provides the non-GAAP financial measure and a reconciliation of the non-GAAP measure to the GAAP net income.

Adjusted Earnings and Earnings per share

Three months ended September 30, 2009 compared with three months ended September 30, 2008

ADJUSTED  EARNING PER SHARE	Three monthsended
	September30, 2009		September30, 2008			Change%
	Unaudited		Unaudited
NET INCOME (LOSS) ATTRIBUTABLE TO GENERAL STEEL		10,382		20,464			-49.3	%
less - Non-operating, non-cash expenses associated with our December 2007 Convertible Bond
Notes converted-make-whole interest		3,700		-
Change in fair value of derivative liabilities		-616		29,885			-102.1	%
ADJUSTED NET INCOME (LOSS)		7,298		-9,421			177.5	%
WEIGHTED AVERAGE NUMBER OF SHARES
Basic		44,973,882		35,687,891			26.0	%
Diluted		45,750,152		35,687,891			28.2	%
ADJUSTED EARNING (LOSS) PER SHARE
Basic	$	0.16	$	(0.26	)		161.5	%
Diluted	$	0.16	$	(0.26	)		161.5	%

55

For the three months ended September 30, 2009, the adjusted net income was $7.3 million, with an adjusted EPS of $0.16 per share. For the three months ended September 30, 2008, the adjusted net loss was $9.42 million, with an adjusted EPS loss of $0.26 per share.

The results of the three month period ended September 30, 2008 illustrate why management uses adjusted earnings and adjusted earnings per share to measure the performance of our business. According to GAAP, valuation of our December 2007 Notes and December 2007 Warrants must be marked-to-market using a formula, which includes our stock price.  The global disruption in the financial markets in the third and fourth quarters of 2008, severely drove down stock prices worldwide. Because our stock price dropped substantially in the quarter ended September 30, 2008, according to GAAP we are required to record a $29.88 million gain in fair value of derivative liabilities for the third quarter of 2008. This allowed us to record the largest quarterly GAAP net income gain in the history of our company.

While GAAP required us to book the largest single quarter GAAP net income gain in the history of our company for third quarter 2008, our operations were losing money and experiencing negative gross margins. The GAAP net income for third quarter of 2008 clearly did not reflect our business operating results. By eliminating the GAAP-required account impact of the non-cash; non-operating expenses associated with our December 2007 Notes, the results better reflect the operating performance of our iron and steel business.

Nine months ended September 30, 2009 compared with nine months ended September 30, 2008

ADJUSTED  EARNING PER SHARE	Ninemonthsended
	September30,2009		September30,2008			Change%
	Unaudited		Unaudited
NET INCOME (LOSS) ATTRIBUTABLE TO GENERAL STEEL		-14,159		-1,618			775.1	%
less - Non-operating, non-cash expenses associated with our December 2007 Convertible Bond
Notes converted-make-whole interest		-2,754
Change in fair value of derivative liabilities		-23,228		4,769			-587.1	%
ADJUSTED NET INCOME (LOSS)		11,823		-6,387			285.1	%
WEIGHTED AVERAGE NUMBER OF SHARES
Basic		40,295,924		35,157,579			14.5	%
Diluted		40,295,924		35,157,579			14.5	%
ADJUSTED EARNING (LOSS) PER SHARE
Basic	$	0.29	$	(0.18	)		261.1	%
Diluted	$	0.29	$	(0.18	)		261.1	%

For the nine months ended September 30, 2009 the adjusted net income is $11.82 million and the adjusted EPS is $0.29 per share. For the nine months ended September 30, 2008, the adjusted net loss was $6.39 million, with an adjusted EPS loss of $0.18 per share.

Income taxes

We did not carry on any business and did not maintain any branch office in the United States during the three months ended September 30, 2009 and 2008. Therefore, no provision for withholding or U.S. federal or state income taxes or tax benefits on the undistributed earnings and/or losses of our company has been made.

Under the Income Tax Laws of PRC, our subsidiary, Daqiuzhuang Metal, 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.  Daqiuzhuang Metal 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.  Daqiuzhuang Metal is located in Tianjin Costal Economic Development Zone and under the Income Tax Laws of Tianjin City of PRC, it is eligible for an income tax rate of 24%.  Therefore, Daqiuzhuang Metal is exempt from income taxes for the years ended December 31, 2005 and 2006 and is entitled to 50% income tax reduction of the special income tax rate of 24%, which is a rate of 12% for the years ended December 31, 2007, 2008 and 2009.

56

Our 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 accrued at 15%.

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

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

For the three months ended September 30, 2009, we had a tax expense of $3.79 million and for the nine months ended September 30, 2009 we had a tax expense of $7.19 million.

We have cumulative undistributed earnings of foreign subsidiaries of approximately $23.2 million as of September 30, 2009, is included in consolidated retained earnings and will continue to be indefinitely reinvested in international operations.  Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.

General Steel Holdings, Inc. was incorporated in the United States and has incurred net operating losses for income tax purposes for the nine months ended September 30, 2009 and 2008, respectively. The net operating loss carry forwards for United States income taxes amounted to $4.9 million which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2029. 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 at September 30, 2009 was $1.7 million. The net change in the valuation allowance for the nine months ended September 30, 2009 and year ended December 31, 2008 was an increase of $0.7 million and $0.6 million, respectively. 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 $14.94 million as of September 30, 2009 compared to $8.33 million on December 31, 2008.

We recognize revenue when we ship out products and pass the titles of the products to our customers and distributors. We extended short-term credit to our customers and distributors with good reputations and long-term business relationships. We have not experienced any bad debt in these accounts. Also, we review our accounts receivable on a regular basis to determine if the bad debt allowance is adequate and adjust the allowance amount if needed. We believe the accounts receivable amount is collectible. Nevertheless, to be conservative and prudent in our management practice, as of September 30, 2009, we reserved $0.6 million for bad debt allowance based on our reasonable estimate.

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.

57

Short-term notes payable

As of September 30, 2009, we had $280.13 million in short-term notes payables liabilities, which are secured by restricted cash of $197.58 million and other assets. These are lines of credit extended by banks for a maximum of 6 months and used to finance working capital. The short-term notes payables must be paid in full at maturity and credit availability is continued upon payment at maturity. There are no additional significant financial covenants.

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

Short-term loans – banks

As of September 30, 2009, we had $151.05 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 8 in our notes of the financial statements.

Convertible Notes

On December 13, 2007, we entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”) issuing convertible promissory notes in the principal amount of $40 million (“December 2007 Notes”) and 1,154,958 warrants (the “December 2007 Warrants”). The December 2007 Warrants can be exercised to purchase common stock through May 13, 2013 at an exercise price of $13.51 per share, subject to customary anti-dilution adjustments.

The December 2007 Notes bear initial interest at 3% per annum, which will be increased each year as specified in the December 2007 Notes, payable semi-annually in cash or shares of our common stock. The December 2007 Notes have a five year term through December 12, 2012. They are convertible into shares of the common stock, subject to customary anti-dilution adjustments. The initial conversion price was $12.47.  We may redeem the December 2007 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.

The December 2007 Notes are secured by a first priority, perfected security interest in certain shares of common stock of Zuosheng Yu, as evidenced by a pledge agreement. The December 2007 Notes are subject to events of default customary for convertible securities and for a secured financing.

The December 2007 Warrants grant the Buyers the right to acquire shares of common stock at $13.51 per share, subject to customary anti-dilution adjustments. The December 2007 Warrants may be exercised at any time on or after May 13, 2008 until May 13, 2013, the expiration date of the December 2007 Warrants.  In connection with this transaction, our Company and the Buyers entered into a registration rights agreement whereby we agreed to register within 60 calendar days common stock issuable to the Buyers for resale on a registration statement to be effective by 90 calendar days or 120 days if the registration statement is subject to a full review by the U.S. Securities and Exchange Commission.  We were required to register at least 120% of the sum of shares issuable upon conversion of the December 2007 Notes, the exercise of the December 2007 Warrants and the payment of interest accrued on the December 2007 Notes. The registration rights are subject to customary exceptions and qualifications and compliance with certain registration procedures. We were required to file the registration statement on February 11, 2008. We filed the registration statement on February 13, 2008, which was two days after the required filing date. We reached an agreement with all note holders to waive the related penalty of $0.4 million.

58

In connection with this transaction, our Company and Zuo Sheng Yu, the Chief Executive Officer, and Victory New Holding Limited entered into a voting agreement (the “Voting Agreement”), pursuant to which such shareholders agree to vote in favor of the approval of this transaction. Certain of our management members also entered into a lock-up agreement with us pursuant to which each of such management members agrees not to sell or offer to sell the Common Stock held by such a management member for one year after the initial effective date of the resale Form S-3 Registration Statement described above.

According to the terms of the December 2007 Notes, on May 7, 2009 the conversion price of $12.47 was reset to the market price, which is defined as the lower of $12.47 or the average of the weighted average price of our common stock for 30 consecutive days preceding May 7, 2009.  This resulted in the conversion price being reset to $4.2511.

As of September 30, 2009, $36.7 million of December 2007 Notes debt have been converted to equity. Such conversion has reduced our debt and increased our public float.

Considering the proceeds from the sale of the December 2007 Notes and December 2007 Warrants were used to purchase our controlling interest in the Longmen Joint Venture (which provides approximately 90% of our total revenue), this financing played an important role in executing our growth strategy. The acquisition of Longmen Joint Venture was transformational to our company.

Cash-flow

Operating activities

Net cash used by operating activities for the nine months ended September 30, 2009 was $5.38 million compared to cash provided in operating activities of $83.46 million in the same period of 2008. This change was mainly due to the combination of the following factors:

· Cash inflow after the adjustments of some non-cash items to the net income such as depreciation and amortization, (Gain) Loss from debt extinguishment, (Gain) Loss on disposal of equipment, stock issued for service and compensation, amortization of deferred note issuance cost, amortization of discount on convertible notes, Change in fair value of derivative instrument, make whole expense on note conversion, income from investment and deferred tax assets, totaled of $53.44 million;

· Cash outflow resulting from accounts receivable, accounts receivables-related parties, inventory, advance on inventory purchase-related parties, prepaid expense, other payable-related parties, taxes payable and dividend payable, which was $192.26 million, compared to the same period last year an outflow of $142.94 million. The increase of $49.32 million is mainly due to inventory; and

· Cash inflow due to the increase in note receivable, other receivables, other receivables-related parties, dividend receivables, advance on inventory purchases, other receivables, accounts payable, accounts payable-related parties, other payable, accrued liabilities, customer deposits and customer deposits-related parties totaled of $133.44 million compared to the same period last year an inflow of $218.89 million. The decrease of $85.45 million is mainly due to decrease in customer deposits and accounts payable.

59

Investing activities

Net cash used in investing activities was $70.9 million for the nine months ended September 30, 2009 compared to $150.26 million used in the same period of 2008. This reduction in cash outflow is mainly to increase in deposits due to sales representatives and reduction of equipment purchases.

Financing activities

Net cash provided by financing activities was $115.6 million for the nine months ended September 30, 2009 compared to $39.4 million in the same period of 2008.

Shelf Registration SEC Form S-3

On October 22, 2009, the SEC declared effective our shelf registration statement SEC Form S-3, which is effective for a term of three years.

We may from time to time 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. We may sell the 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 provide a prospectus supplement containing more specific information about the particular offering and attach it to this prospectus. 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 2,000m3/h treatment capacity system was implemented at the end of 2005. In the first quarter of 2009, new water consumption per metric ton of steel produced was 1.1 metric ton.

Long Steel Group has one 10,000m3 coke-oven gas tank and one 50,000m3 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 25KW dynamos that uses the residual coal gas from the blast furnaces and converters as fuel to generate power.

60

Long Steel Group also has several plants to further process solid waste generated from the steel making process into useful products such as construction materials, building blocks, porcelain tiles, curb tops, ornamental tiles, etc. The plants are capable of processing 400,000 metric tons of solid waste and generate revenue of more than $2.6 million (RMB20 million) each year.

Daqiuzhuang Metal:

Based on the equipment, technologies and measures adopted, Daqiuzhuang Metal is not considered a high-pollutant factory in China. The production process does not need much water and produces only a minimal amount of chemical waste.  Daqiuzhuang Metal uses gas-fired reheat furnaces recommended by the State Environmental Protection Agency to heat raw materials and semi-finished products.

In 2005, Daqiuzhuang County ordered an environmental clean-up campaign and required harmful waste water discharge to be reduced. In order to meet these requirements, we invested $94,190 to remodel our industrial water recycling system to reduce new water consumption and industrial water discharge.

This wastewater recycling system is able to process 350 metric tons of wastewater daily. We can realize yearly savings using this system of approximately $10,000.

We believe that future costs relating to environmental compliance will not have a materially adverse effect on our financial position. There is always the possibility, however, that unforeseen changes, such as new laws or enforcement policies, could result in materially adverse costs.

Off-balance sheet arrangements

There were no off-balance sheet arrangements in the third quarter of 2009.

 Critical Accounting Policies

Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies.” Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

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

Revenue recognition

The Company follows 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 the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 13% to 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product.

61

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

We entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”). Pursuant to the Agreement, 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 of our Company (the “December 2007 Warrants”). Both the December 2007 Warrants and the conversion option embedded 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 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.

62

Our investment in unconsolidated subsidiaries amounted to $17.64 million as of September 30, 2009. Since there is no quoted or observable market price for the fair value of similar long term investment, we then used the level 3 inputs for its valuation methodology. The determination of the fair value was based on the capital investment that we contributed and income from investment. The carrying value of the long term investments approximated the fair value as of September 30, 2009.

In 2007, the conversion feature on the December 2007 Notes, as well as the December 2007 Warrants issued in conjunction with the December 2007 Notes are 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 September 30, 2009, the outstanding principal amounted to $3.3 million, and the carrying value of the December 2007 Notes amounted to $0.9 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 their conversion feature are valued by using level 2 inputs to the Binomial Model and determined that the fair value amounted to approximately $4.9 million due to the decrease in our common stock price.

 Noncontrolling interest

Effective January 1, 2009, we adopted generally accepted accounting principals 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.

As a result, we reclassified noncontrolling interests in the amounts of $72.5 million and $54.3 million from the mezzanine section to equity in the September 30, 2009 and December 31, 2008 balance sheets, respectively.

New Accounting Pronouncements

In January 2009, the Financial Accounting Standards Board issued an accounting standard which amended the impairment model by removing its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of this accounting standard did not have a material impact on our consolidated financial statements because all of the investments in debt securities are classified as trading securities.

In April 2009, the Financial Accounting Standards Board issued an accounting standard that makes the other-than-temporary impairments guidance more operational and improves the presentation of other-than-temporary impairments in the financial statements. This standard replaced the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This standard provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this standard does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. We adopted this accounting standard, but it did not have a material impact on our consolidated financial statements.

63

In April 2009, the Financial Accounting Standards Board issued an accounting standard that requires disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this accounting standard, fair values for these assets and liabilities were only disclosed annually. This standard applies to all financial instruments within its scope and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This standard does not require disclosures for earlier periods presented for comparative purposes at initial adoption, but in periods after the initial adoption, this standard requires comparative disclosures only for periods ending after initial adoption. We adopted this accounting standard, but it did not have a material impact on the disclosures related to our consolidated financial statements.

In June 2009, the Financial Accounting Standards Board issued an accounting standard amending the accounting and disclosure requirements for transfers of financial assets. This accounting standard requires greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them and changes the requirements for derecognizing financial assets. In addition, it eliminates the concept of a qualifying special-purpose entity (“QSPE”). This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009, and we do not expect this standard to have a material effect on our consolidated financial statements.

In June 2009, the Financial Accounting Standards Board also issued an accounting standard amending the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). The elimination of the concept of a QSPE, as discussed above, removes the exception from applying the consolidation guidance within this accounting standard. Further, this accounting standard requires a company to perform a qualitative analysis when determining whether or not it must consolidate a VIE. It also requires a company to continuously reassess whether it must consolidate a VIE. Additionally, it requires enhanced disclosures about a company’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the company’s financial statements. Finally, a company will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2009, and we do not expect this standard to have a material effect on our consolidated financial statements.

In June 2009, the Financial Accounting Standards Board issued an accounting standard which establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. The Codification is effective for interim and annual periods ending after September 15, 2009, and as of the effective date, all existing accounting standard documents will be superseded. The Codification is effective for us in the third quarter of 2009, and accordingly, our Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all current and subsequent public filings will reference the Codification as the sole source of authoritative literature.

In August 2009, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) regarding measuring liabilities at fair value. This ASU provides additional guidance clarifying the measurement of liabilities at fair value in circumstances in which a quoted price in an active market for the identical liability is not available; under those circumstances, a reporting entity is required to measure fair value using one or more of valuation techniques, as defined. This ASU is effective for the first reporting period, including interim periods, beginning after the issuance of this ASU. We are currently evaluating the impact of this ASU on our consolidated financial statements.

64

In October 2009, the Financial Accounting Standards Board issued an ASU regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing.  This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation.  This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. We are currently evaluating the impact of this ASU on our consolidated financial statements.

Contractual obligations and commercial commitments

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

The following tables summarize our contractual obligations as of September 30, 2009 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
	Dollars amounts in thousands
Bank loans (1)	$	151,050	$	151,050	$		$
Notes payable		280,134		280,134
Deposits due to sales representatives		39,286		39,286
Lease with Bao Gang		726		264		462
Blast Furnace construction		19,278		19,278
Convertible notes ( Principal plus Interest )		4,225		217		639		3,369
Total	$	494,699	$	490,229	$	1,101	$	3,369

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk and Related Risks

In the normal course of our business, we are exposed to market risk or price fluctuations related to the purchase, production or sale of steel products over which we have little or no control. We do not use any derivative commodity instruments to manage the price risk. Our market risk strategy has generally been to obtain competitive prices for our products and allow operating results to reflect market price movements dictated by supply and demand. Based upon an assumed 2009 annual production capacity of 6.3 million metric tons, a $1 change in the annual average price would change annual pre-tax profits by approximately $6.3 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.

65

Foreign Currency Exchange Rate Risk

Our operating units, Daqiuzhuang Metal, Longmen Joint Ventures, Baotou Steel Pipe Joint Venture and Maoming, are all located in China. They produce and sell all of their products domestically in the P.R.C. 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 $1.3 million decrease to income.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were not effective at the reasonable assurance level because of the identification of material weaknesses in our internal control over financial reporting discussed below, which we view as an integral part of our disclosure controls and procedures.

Internal Control Over Financial Reporting

As discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, we identified the following material weaknesses in our internal controls over accounting:

Insufficient personnel with appropriate accounting knowledge and training. We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and training in the application of generally accepted accounting principles commensurate with financial reporting requirements and did not implement adequate supervisory review to ensure the financial statements at the subsidiary level were prepared in conformity with generally accepted accounting principles in the United States of America.  This material weakness resulted in audit adjustments that corrected interest capitalization, raw material reserves and long term investment in the consolidated financial statements for the year ended December 31, 2008.

Incomplete related party transaction identification. We did not design and maintain effective controls to identify related party and intercompany transactions, which resulted in material adjustments for intercompany transactions and disclosures of related party transactions in the consolidated financial statements for the year ended December 31, 2008.

These deficiencies could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined this control deficiency constitutes a material weakness.

We are continuing to build our accounting resources and implement related party transaction review processes in response to the weaknesses. While we continue to develop and implement new control processes and procedures to address these weaknesses, we have determined that further improvements are required in our accounting processes before we can consider the material weakness remediated.

66

Changes in Internal Control Over Financial Reporting

Other than the remediation efforts described below, there have been no changes in our internal control over financial reporting that have materially affected, or are likely to materially affect, our internal control over financial reporting.

We continue to undertake steps to strengthen our controls over accounting, including:

· Increasing preparation and review on related party transactions;

· Hiring more staff accountants who have appropriate knowledge about the U.S. financial reporting requirements;

· Enhancing job responsibilities and procedures for staff at all levels; and

· Strengthening communications between senior management and subsidiary level management.

Our material weaknesses in controls over accounting will not be considered remediated until new internal controls are operational for a period of time and are tested, and management and our independent registered public accounting firm conclude that these controls are operating effectively. Due to the nature of and time necessary to effectively remediate the material weaknesses identified to date, we have concluded that material weaknesses in our internal control over reclassification and elimination of related party transactions continues to exist as of September 30, 2009.

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 1A. RISK FACTORS

A restated description of the risk factors associated with our business is set forth below. This description includes any material changes to and supersedes the descriptions of the risk factors associated with our business previously disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for our fiscal period ended June 30, 2009.  The following factors should be reviewed carefully, in conjunction with the other information contained in this Report and our consolidated financial statements. These factors, among others, could cause actual results to differ materially from those currently anticipated and contained in forward-looking statements made in this Form 10-Q and presented elsewhere by our management from time to time. See “Part I—Note Regarding Forward Looking Statements.”

Our business, financial condition and results of operations are subject to various risks, including those discussed below, which may affect the value of our securities.  

Risks Related to Our Business

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

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

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

• Quality;

67

•   Price/cost competitiveness;

•   System and product performance;

•   Reliability and timeliness of delivery;

•   New product and technology development capability;

•   Excellence and flexibility in operations;

•   Degree of global and local presence;

•   Effectiveness of customer service; and

•   Overall management capability.

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

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

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

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

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

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

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

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

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

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

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

68

• Maintain adequate control of our expenses;

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

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

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

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

• Our financial condition and results of operations,

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

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

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

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

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

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

69

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

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

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

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

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

Our revenue is dependent, in large part, on significant contracts with a limited number of large customers. For the three months ended September 30, 2009, approximately 27% of our sales were to five customers. For the nine months ended September 30, 2009, approximately 20% of our sales were to five customers. These customers accounted for 24% of total account receivables as of September 30, 2009.  We believe that revenue derived from our current and future large customers will continue to represent a significant portion of our total revenue. Our inability to continue to secure and maintain a sufficient number of large contracts or the loss of, or significant reduction in purchases by, one or more of our major customers would have the effect of reducing our revenues and profitability.

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

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

Steel consumption is highly cyclical and follows general economic and industrial conditions both worldwide and in regional markets. The steel industry has historically been characterized by excess world supply, which has led to substantial price decreases during periods of economic weakness. Future economic downturns could decrease the demand for our products. Substitute materials are increasingly available for many steel products, which further reduces demand for steel.

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

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

70

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

According to the survey conducted by China Iron and Steel Association, there are more than 1,100 steel companies in China. Among those, only 25 companies have over 5 million metric tons of production capacity. Each steel company has its own production plan. The Chinese government posted a new guidance on the steel industry to encourage consolidation within the fragmented steel sector to mitigate problems of low-end repetitive production and inefficient use of resources. The current situation of overproduction may not be solved by these measures posted by the Chinese government. If the current state of overproduction continues, our product shipments could decline, our inventory could build up and eventually we may be required to decrease our sales price, which may eventually decrease our profitability.

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

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

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

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

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

We depend on acquiring companies to fulfill our growth plan

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

We depend on bank financing for our working capital needs.

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

71

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

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

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

While we believe that we currently have adequate internal control procedures in place, we are still exposed to potential risks from legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002. Under the supervision and with the participation of our management, we have evaluated our internal controls systems in order to allow management to report on, and our registered independent public accounting firm to attest to, our internal controls, as required by Section 404 of the Sarbanes-Oxley Act. We have performed the system and process evaluation and testing required in an effort to comply with the management certification and auditor attestation requirements of Section 404. As a result, we have incurred additional expenses and a diversion of management’s time. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE Market. Any such action could adversely affect our financial results and the market price of our stock.

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

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

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

Risks Related to Operating Our Business in China

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

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

72

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

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

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

All of our operations are conducted in China and all of our revenues are generated from sales to businesses operating in China. Although the Chinese economy has grown significantly in recent years, such growth may not continue. We do not know how sensitive we are to a slowdown in economic growth or other adverse changes in the Chinese economy which may affect demand for our products. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our products and in turn adversely affect our results of operations and our productivity.

Inflation in China could negatively affect our profitability and growth.

While the Chinese economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability. In order to control inflation in the past, the Chinese government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. Such an austerity policy can lead to a slowing of economic growth.

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

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

73

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

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

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

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

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

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

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

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

74

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

The fluctuation of the Renminbi may cause the value of your investment in our common stock to decrease.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. As we rely entirely on revenues earned in China, our cash flows, revenues and financial condition will be affected by any significant revaluation of the Renminbi. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into Renminbi for our operations, if the Renminbi appreciates against the U.S. dollar, the Renminbi equivalent of the US dollar we convert would be reduced. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be reduced. To date, however, we have not engaged in transactions of either type. In addition, the depreciation of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these assets.

Since 1994, China pegged the value of the Renminbi to the U.S. dollar. We do not believe that this policy has affected our business. However, there have been indications that the Chinese government may be reconsidering its monetary policy in light of the overall devaluation of the U.S. dollar against the Euro and other currencies during the last two years. In July 2005, the Chinese government revalued the Renminbi by 2.1% against the U.S. dollar, moving from Renminbi 8.28 to Renminbi 8.11 per dollar. If the pegging of the Renminbi to the U.S. dollar is loosened, we anticipate that the value of the Renminbi will appreciate against the dollar with the consequences discussed above. As of September 30, 2009, the exchange rate of the Renminbi to the U.S. dollar was 6.82 yuan to 1 dollar.

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

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

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

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

75

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

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

Risks Related to Our Common Stock

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

Our officers, directors and affiliates beneficially own approximately 46.3% of our common stock. Mr. Zuosheng Yu, our major shareholder, beneficially owns approximately 45.9% of our common stock. Mr. Yu can effectively control us and his interests may differ from other stockholders.

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

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

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

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

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

Investors may experience dilution from any conversion of the senior convertible notes and the exercise of warrants we issued in December 2007.

Shares of our common stock are issuable upon conversion of approximately $40 million worth of the senior convertible notes and warrants to purchase common stock issued in connection with such notes.  The notes and warrants were issued in December 2007.  The senior convertible notes were initially convertible into 4,170,009 shares of our common stock based on a conversion price of $12.47 per share and applicable interest rates.  Upon the exercise of the warrants, an additional aggregate amount of 1,154,958 shares of our common stock is issuable based upon the current exercise price of $13.51 per share.  The senior convertible notes have a five year term through December 12, 2012, and the warrants are exercisable from May 13, 2008, to May 13, 2013.  The conversion price of the notes and the exercise price of the warrants (and shares issuable under the warrants) are each subject to adjustment under certain customary circumstances, including, among others, if the sale price of securities issued by us in subsequent offerings is less than the conversion or exercise prices then in effect.  In accordance with the terms of the notes, the conversion price was adjusted and reset to $4.2511, being the market price on May 7, 2009.  This adjustment was required if the conversion price exceeded the market price (as determined in accordance with the notes) on May 7, 2009.   As of September 30, 2009, approximately $36.7 million of the convertible notes had been converted, resulting in the issuance of 9,578,518 shares of our common stock.  The issuance of shares of our common stock upon conversion of the notes and exercise of the warrants (including any increased amount of shares following any reductions in conversion or exercise prices) will dilute current shareholders’ holdings in our company.

76

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Conversion of Senior Convertible Notes

Since May 7, 2009, we have issued 8,841,250 shares of common stock to holders of our outstanding senior convertible notes issued in the private placement in December 2007 (“December 2007 Notes”).  Such issuances have been made as a result of conversion of approximately $29.95 million of the December 2007 Notes and related accrued interest.  We did not otherwise receive any consideration or proceeds as a result of such conversions.  6,504,354 of these shares of common stock were issued as a result of conversions completed in the fiscal quarter ended June 30, 2009 and the remaining 2,336,896 shares were issued as a result of conversions completed in the fiscal quarter ended September 30, 2009.  As of September 30, 2009, approximately $3.3 million in December 2007 Notes remained outstanding and subject to conversion. The conversion rate for such conversions was $4.2511 per share. The foregoing issuances were made in reliance upon an exemption from registration requirements of the Securities Act afforded by Sections 3(a)(9) and 4(2) of the Securities Act for exchanges of securities and offers and sales of securities that do not involve a public offering.

ITEM 6. EXHIBITS

(a) Exhibits

31.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
31.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.

77

SIGNATURES

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

	General Steel Holdings, Inc.
Date: November 9, 2009	By: /s/ Zuosheng Yu
	Zuosheng Yu
	Chief Executive Officer and Chairman
Date: November 9, 2009	By: /s/ John Chen
	John Chen
	Director and Chief Financial Officer

78