UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549









FORM
      10-Q





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





For
      the
      quarterly period ended June 30, 2007





 ̈  TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      transition period from __________ to __________





GENERAL
      STEEL HOLDINGS, INC.


(Name
      of
      Issuer in Its Charter)




NEVADA
            412079252(State
                or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
                Employer Identification No.)Room
                2315, Kun Tai International Mansion Building, Yi No 12, Chao Yang Men
                Wai Ave.,
              Chao
                Yang District, Beijing, China
            100020(Address
                of Principal Executive Offices)
            (Zip
                Code)





Incorp
      Services Inc.


3155
      East
      Patrick Lane


Suite
      1,
      Las Vegas, Nevada, 89120


Tel:
      (702) 866-2500


(Name,
      address and telephone number for Agent for Service)




+
      86 (10)
      58797346


(Issuer's
      telephone number)





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





Indicate
      by check mark whether the registrant 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 ̈
            Non-accelerated
                filerx





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




The
      number of shares of Common Stock outstanding on August 17, 2007 was
      32,444,665.




Transitional
      Small Business Disclosure Format (check one):  Yes o No x










PART
      I.
      FINANCIAL INFORMATION




ITEM
      1.
      FINANCIAL STATEMENTS


GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  BALANCE SHEETSAS
                  OF JUNE 30, 2007 AND DECEMBER 31,
                  2006
  ASSETSJune
                  30,
              
              December
                  31,2007
              
              2006(Unaudited)CURRENT
                  ASSETS:Cash
              
              $
              44,304,703
              
              $
              6,831,549Restricted
                  cash
              
              
              13,545,793
              
              
              4,231,523Accounts
                    receivable, net of allowance for doubtful accounts of $140,662
                    and
                    $137,132 as of June 30, 2007 and December 31, 2006,
                    respectively
              
              
              20,703,437
              
              
              17,095,718Notes
                  receivable
              
              
              6,784,263
              
              
              537,946Other
                  receivables
              
              
              436,317
              
              
              268,784Other
                  receivables - related parties
              
              
              1,682,400
              
              
              850,400Inventories
              
              
              66,075,563
              
              
              12,489,290Advances
                  on inventory purchases
              
              
              8,934,047
              
              
              2,318,344Advances
                  on inventory purchases - related parties
              
              
              25,754,327
              
              
              -Advance
                  on equipment purchases
              
              
              1,968,418
              
              
              -Prepaid
                  expenses - current
              
              
              47,340
              
              
              46,152Total
                  current assets
              
              
              190,236,608
              
              
              44,669,706PLANT
                  AND EQUIPMENT, net
              
              
              191,305,061
              
              
              26,606,594OTHER
                  ASSETS:Prepaid
                  expenses - non current
              
              
              873,052
              
              
              740,868Intangible
                  assets - land use right, net of accumulated amortization
              
              
              21,197,244
              
              
              1,804,440Total
                  other assets
              
              
              22,070,296
              
              
              2,545,308Total
                  assets
              
              $
              403,611,965
              
              $
              73,821,608LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              19,788,769
              
              $
              3,001,775Short
                  term loans
              
              
              113,834,289
              
              
              30,284,686Short
                  term notes payable
              
              
              43,421,300
              
              
              8,153,520Other
                  payables
              
              
              2,631,207
              
              
              355,142Other
                  payable - related party
              
              
              90,979,655
              
              
              -Accrued
                  liabilities
              
              
              9,350,456
              
              
              1,064,012Customer
                  deposits
              
              
              34,126,053
              
              
              1,093,602Customer
                  deposits - related parties
              
              
              7,347,109
              
              
              -Deposits
                  due to sales representatives
              
              
              1,743,690
              
              
              2,051,200Taxes
                  payable
              
              
              20,233,032
              
              
              5,391,602Investment
                  payable
              
              
              6,312,000
              
              
              -Shares
                  subject to mandatory redemption
              
              
              1,950,000
              
              
              2,179,779Total
                  current liabilities
              
              
              351,717,560
              
              
              53,575,318MINORITY
                  INTEREST
              
              
              28,313,565
              
              
              6,185,797SHAREHOLDERS'
                  EQUITY:Preferred
                    stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899
                    and 0
                    shares issued
                    and outstanding as of June 30, 2007 and December 31, 2006,
                    respectively
              
              
              3,093
              
              
              -Common
                    Stock, $0.001 par value, 200,000,000 shares authorized, 32,444,665
                    and
                    32,426,665
                    shares issued and outstanding (including 1,000,000 and 1,176,665
redeemable
                    shares) as of June 30, 2007 and December 31, 2006,
                    respectively
              
              
              31,445
              
              
              31,250Paid-in-capital
              
              
              15,610,335
              
              
              6,871,358Retained
                  earnings
              
              
              5,154,150
              
              
              4,974,187Statutory
                  reserves
              
              
              1,107,010
              
              
              1,107,010Accumulated
                  other comprehensive income
              
              
              1,674,807
              
              
              1,076,688Total
                  shareholders' equity
              
              
              23,580,840
              
              
              14,060,493Total
                  liabilities and shareholders' equity
              
              $
              403,611,965
              
              $
              73,821,608




The
        accompanying notes are an integral part of this statement.




2


GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                  THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2007 AND
                  2006(Unaudited)
  Three
                  months ended
              
              Six
                  months endedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006REVENUES
              
              $
              121,254,744
              
              $
              29,398,358
              
              $
              158,862,715
              
              $
              50,040,860COST
                  OF SALES
              
              
              113,141,376
              
              
              27,807,959
              
              
              149,016,342
              
              
              47,082,163GROSS
                  PROFIT
              
              
              8,113,368
              
              
              1,590,399
              
              
              9,846,373
              
              
              2,958,697SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              2,844,411
              
              
              807,633
              
              
              3,474,611
              
              
              1,549,811INCOME
                  FROM OPERATIONS
              
              
              5,268,957
              
              
              782,766
              
              
              6,371,762
              
              
              1,408,886OTHER
                  EXPENSE, NET
              
              
              1,241,143
              
              
              587,552
              
              
              1,461,818
              
              
              747,693INCOME
                  BEFORE PROVISION FOR INCOME TAXES AND
                  MINORITY INTEREST
              
              
              4,027,814
              
              
              195,214
              
              
              4,909,944
              
              
              661,193PROVISION
                  FOR INCOME TAXES
              
              
              1,206,613
              
              
              -
              
              
              1,333,882
              
              
              -NET
                  INCOME BEFORE MINORITY INTEREST
              
              
              2,821,201
              
              
              195,214
              
              
              3,576,062
              
              
              661,193LESS
                  MINORITY INTEREST
              
              
              927,902
              
              
              108,616
              
              
              1,207,896
              
              
              322,190NET
                  INCOME
              
              
              1,893,299
              
              
              86,598
              
              
              2,368,166
              
              
              339,003OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustments
              
              
              374,568
              
              
              61,231
              
              
              598,119
              
              
              182,636COMPREHENSIVE
                  INCOME
              
              $
              2,267,867
              
              $
              147,829
              
              $
              2,966,285
              
              $
              521,639WEIGHTED
                  AVERAGE NUMBER OF SHARES
              
              
              31,444,665
              
              
              31,250,000
              
              
              31,444,665
              
              
              31,250,000EARNING
                  PER SHARE, BASIC AND DILUTED
              
              $
              0.060
              
              $
              0.003
              
              $
              0.075
              
              $
              0.011


The
          accompanying notes are an integral part of this statement.


3


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS’ EQUITY
 FOR
        THE
        SIX MONTHS ENDED JUNE 30, 2007 AND 2006





AccumulatedPreferred
                stock
            
            Common
                stock
            
            
            
            Retained
                  earnings
            
            otherPaid-in
            
            Statutory
            
            
            
            comprehensiveShares
            
            Par
                value
            
            Shares
            
            Par
                value
            
            capital
            
            reserves
            
            Unrestricted
            
            income
            
            TotalsBALANCE,
                January 1, 2006
            
            
            -
            
            $
            -
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            840,753
            
            $
            4,207,236
            
            $
            399,188
            
            $
            12,349,785Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            339,003
            
            
            
            
            
            339,003Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            182,636
            
            
            182,636BALANCE,
                June 30, 2006, unaudited
            
            
            -
            
            $
            -
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            840,753
            
            $
            4,546,239
            
            $
            581,824
            
            $
            12,871,424Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            694,205
            
            
            
            
            
            694,205Adjustment
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            266,257
            
            
            (266,257
            )
            
            
            
            
            -Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            494,864
            
            
            494,864BALANCE,
                December 31, 2006
            
            
            -
            
            $
            -
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            1,107,010
            
            $
            4,974,187
            
            $
            1,076,688
            
            $
            14,060,493Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,368,166
            
            
            
            
            
            2,368,166Preferred
                  stock issued for acquistion of minority interest , net
                  of dividend distribution to Victory New
            
            
            3,092,899
            
            
            3,093
            
            
            
            
            
            
            
            
            8,370,907
            
            
            
            
            
            (2,188,203
            )
            
            
            
            
            6,185,797Common
                  stock issued for conversion of redeemable stock,
                  $1.95/share
            
            
            
            
            
            
            
            
            176,665
            
            
            177
            
            
            344,328
            
            
            
            
            
            
            
            
            
            
            
            344,505Common
                stock issued for service, $1.32/share
            
            
            
            
            
            
            
            
            18,000
            
            
            18
            
            
            23,742
            
            
            
            
            
            
            
            
            
            
            
            23,760Foreign
                currency translation adjustments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            598,119
            
            
            598,119BALANCE,
                June 30, 2007, unaudited
            
            
            3,092,899
            
            $
            3,093
            
            
            31,444,665
            
            $
            31,445
            
            $
            15,610,335
            
            $
            1,107,010
            
            $
            5,154,150
            
            $
            1,674,807
            
            $
            23,580,840


**** The
            accompanying notes are an integral part of this statement.


4


GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF CASH FLOWSFOR
                  THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006(Unaudited)
  2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              2,368,166
              
              $
              339,003Adjustments
                    to reconcile net income to cash provided by (used
                    in) operating activities:Minority
                  interest
              
              
              1,207,896
              
              
              322,190Depreciation
              
              
              1,979,184
              
              
              548,685Amortization
              
              
              194,830
              
              
              147,839Loss
                  on disposal of equipment
              
              
              118,528
              
              
              28,859Stock
                  issued for services
              
              
              23,760
              
              
              -Interest
                  expense accrued on mandatory redeemable stock
              
              
              114,726
              
              
              229,452(Increase)
                  decrease in assets:Accounts
                  receivable
              
              
              499,590
              
              
              (3,236,194
              )Notes
                  receivable
              
              
              (212,753
              )
              
              (561,164
              )Notes
                  receivable-related party
              
              
              -
              
              
              995,031Other
                  receivables
              
              
              (152,646
              )
              
              18,777Other
                  receivables - related parties
              
              
              (814,100
              )
              
              (970,000
              )Inventories
              
              
              (843,369
              )
              
              (12,971,648
              )Advances
                  on inventory purchases
              
              
              248,632
              
              
              3,939,998Advances
                  on inventory purchases - related parties
              
              
              (25,403,755
              )
              
              -Prepaid
                  expenses - current
              
              
              (111,573
              )
              
              (108,732
              )Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              14,049,429
              
              
              3,291,541Other
                  payables
              
              
              808,677
              
              
              242,167Other
                  payable - related party
              
              
              (13,990,128
              )
              
              (980,000
              )Accrued
                  liabilities
              
              
              7,981,708
              
              
              763,533Customer
                  deposits
              
              
              771,354
              
              
              674,434Customer
                  deposits -related parties
              
              
              7,247,099
              
              
              -Taxes
                  payable
              
              
              14,610,931
              
              
              910,544Net
                  cash provided by (used in) operating activities
              
              
              10,696,186
              
              
              (6,375,685
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Cash
                  acquired from subsidiary
              
              
              426,387
              
              
              -Increase
                  in investment payable
              
              
              6,226,080
              
              
              -Advances
                  on equipment purchases
              
              
              (1,941,624
              )
              
              1,058,435Deposits
                  due to sales representatives
              
              
              (355,405
              )
              
              437,416Cash
                  proceeds from sale of equipment
              
              
              39,442
              
              
              -Purchase
                  of equipment
              
              
              (1,350,225
              )
              
              (5,058,840
              )Net
                  cash provided by (used in) investing activities
              
              
              3,044,655
              
              
              (3,562,989
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Restricted
                  cash
              
              
              (5,188,741
              )
              
              256,248Cash
                  contribution received from minority shareholders
              
              
              778,260
              
              
              -Borrowings
                  from related parties
              
              
              25,942,000
              
              
              -Borrowings
                  on short term loans - bank
              
              
              25,727,979
              
              
              14,125,677Payments
                  on short term loans - bank
              
              
              (30,165,358
              )
              
              (10,156,530
              )Borrowings
                  on short term notes payable
              
              
              13,437,956
              
              
              10,542,852Payments
                  on short term notes payable
              
              
              (8,249,556
              )
              
              (11,041,332
              )Net
                  cash provided by financing activities
              
              
              22,282,540
              
              
              3,726,915EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              1,449,773
              
              
              69,449INCREASE
                  (DECREASE) IN CASH
              
              
              37,473,154
              
              
              (6,142,310
              )CASH,
                  beginning of period
              
              
              6,831,549
              
              
              8,648,373CASH,
                  end of period
              
              $
              44,304,703
              
              $
              2,506,063


The
            accompanying notes are an integral part of this statement.
  5





GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2007


(UNAUDITED)




**Note
        1 - Background**
 
 The
        Company (formerly known as American Construction Company) was established
        on
        August 5, 2002 for the purpose of commencing the business of general
        construction contracting. It was the Company's objective to provide to its
        customers timely and durable construction for their residential and commercial
        needs.
 
 On
        October 14, 2004, American Construction Company and General Steel Investment
        Co., Ltd. (referred to as General Steel) and Northwest Steel Company, a Nevada
        corporation, entered into an Agreement and Plan of Merger (the "Agreement")
        pursuant to which American Construction Company acquired General Steel, and
        it’s
        70% ownership in its subsidiary Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang
        Metal) in exchange for shares of the Company’s common stock, of which 22,040,000
        shares was a new issuance by the Company, and 7,960,000 shares are from certain
        shareholders of the Company, which in aggregate, constituted 96% of the total
        issued and outstanding shares of the Company.
 
 Under
        the
        terms of the Agreement, General Steel will remain a 100% owned subsidiary
        of the
        Company. The transaction contemplated by the Agreement was intended to be
        a
“tax-free" reorganization pursuant to the provisions of Section 351 and 368(a)
        (1) (A) of the Internal Revenue Code of 1986, as amended. The stockholders
        of
        General Steel, as of the closing date of the merger own approximately 96%
        of the
        Company's common stock outstanding as of October 15, 2004 (excluding any
        additional shares to be issued on outstanding options, warrants and other
        securities convertible into common stock).
 
 The
        accounting for these transactions is identical to that resulting from a
        reverse-acquisition, except that no goodwill or other intangible assets is
        recorded. Accordingly, the financial statements of General Steel Investment
        Co.,
        Ltd. are the historical financial statements of the Company, formerly the
        operations of Daqiuzhuang Metal Sheet Co., Ltd.
 
 Based
        on
        the Company's Plan of Merger with General Steel Investment Co., Ltd., the
        Board
        of Directors determined to change the Registrant's fiscal year end from January
        31 to December 31.
 
 Daqiuzhuang
        Metal principally engages in the manufacturing of hot rolled carbon and silicon
        steel sheets which are mainly used on tractors, agricultural vehicles and
        in
        other specialty markets. Daqiuzhuang Metal sells its products through both
        retailers and wholesalers. Daqiuzhuang Metal was established on August 18,
        2000 in
        Jinghai county, Tianjin city, Hebei province, the People’s Republic of China
        (PRC). The Articles of Corporation provides for a 10 year operating term
        beginning on August 18, 2000 with registered capital of $ 9,583,200. The
        Company is a Chinese registered limited liability company with a legal structure
        similar to a limited liability company organized under state laws in the
        United
        States of America.
 
 On
        May
        18, 2007, General Steel entered into a Purchase Agreement with Victory New
        Holdings Limited (Victory New), a British Virgin Islands registered company
        under the control of the Company’s Chairman, CEO and majority shareholder Yu Zu
        Sheng (aka Henry Yu) to acquire Victory New’s 30% interest in Daqiuzhuang Metal.
   6
  GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30,
        2007
 (UNAUDITED)
  General
        Steel agreed to issue Victory New an aggregate of 3,092,899 shares of the
        Company’s Series A Preferred Stock with a fair value of $8,374,000, which have a
        voting power of 30% of the combined voting power of the Company’s common and
        preferred stock for the entire life of the Company. As a result of the
        acquisition, the Company has increased its equity interest in Daqiuzhuang
        Metal from 70% to 100%, and Daqiuzhuang Metal will be a wholly owned subsidiary
        of the Company. See details in Note 19- Business Combinations.
 
 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
        "Agreement"), amending the Joint Venture Agreement entered into on September
        28,
        2005 ("Original Joint Venture Agreement"). The Agreement has increased
        Daqiuzhuang Metal's ownership interest in the Joint Venture to 80%. The joint
        venture company’s name is Baotou Steel - General Steel Special Steel Pipe Joint
        Venture Company Limited, a limited liability company formed under the laws
        of
        the People's Republic of China (referred to as “Baotou Steel Pipe Joint
        Venture”). Baotou Steel Pipe Joint Venture obtained the license on May 25, 2007
        and started its normal operation in July 2007. See more discussion in Note
        19-
        Business combinations.
 
 Baotou
        Steel Pipe Joint Venture is located at Kundulun District, Baotou City, Inner
        Mongolia, China. It produces and sells welded steel pipes and primarily serves
        customers in the oil, gas and petrochemical markets. The current designed
        production capacity is 100,000 tons of steel pipes and will be increased
        to
        600,000 tons by 2009.
 
 On
        May
        18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co.,
        Ltd.,
        (referred to as “Yangpu Investment”) and injected registered capital totaling
        RMB100,000,000 or approximately US$13,030,000 into the investment. The total
        registered capital of Yangpu Investment is RMB 110,000,000 or approximately
        US$14,333,000, and Daqiuzhuang Metal has a 99.3% ownership interest in Yangpu
        Investment.
 
 Qiu
        Steel
        Investment Co., Ltd. (referred to as “Qiu Steel Investment”) was founded on June
        1, 2006. In June 2007, Yangpu Investment agreed to invest RMB148,000,000
        or
        approximately US$19,284,400 through a capital injection and equity transfer
        with
        former shareholders. The total registered capital of Qiu Steel is RMB
        150,000,000 or approximate US$ 19,545,000. As a result of the above mentioned
        equity transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel
        Investment. Qiu Steel Investment then becomes a subsidiary of Yangpu Investment
        and Daqiuzhuang Metal.
 
 Yangpu
        Investment and Qiu Steel Investment are Chinese registered limited liability
        companies with a legal structure similar to a limited liability company
        organized under state laws in the United States of America. Those two companies
        were formed to acquire other businesses.
 
 On
        June
        15, 2007, General Steel Holdings Inc. and Shaanxi Long Men Iron and Steel
        (Group) Co., Ltd. (referred to as Long Men Group) signed an agreement to
        form
        Shaanxi Long Men Iron and Steel Co., Ltd. (referred to as Long Men Joint
        Venture). The parties agreed to make the effective date of the transaction
        June
        1, 2007. General Steel Holdings Inc. contributed RMB300 million through its
        subsidiaries, Daqiuzhuang Metal and Qiu Steel Investment., to the Long Men
        Joint
        Venture. General Steel and Long Men Group will own 60% and 40% ownership
        interest in Long Men joint Venture, respectively. The Long Men Joint Venture
        obtained the business license on June 22, 2007. See more discussion in Note
        19-
        Business combinations.
   7
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
  Long
        Men
        Joint Venture is located in Hancheng city, Shaanxi province. Long Men Joint
        Venture is the largest integrated steel producer in Shaanxi Province, China
        that
        uses iron ore and coke as primary raw materials for steel production. Long
        Men
        Joint Venture produces pig iron, crude steel, reinforced bars and high-speed
        wires. Long Men Joint Venture has annual crude steel production capability
        of
        2.5 million tons. Long Men Joint Venture is also engaged in several other
        business activities, most of which are related to steel manufacturing. These
        include the production of coke and the production of iron ore pellets from
        taconite, transportation services and real estate and hotel operations. These
        operations are all located in Shaanxi Province, China and primarily serve
        regional customers in the construction industry.
 
 The
        following table reflects the Company’s current organization
        structure:
  
   8
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 **Note
        2 - Summary of significant accounting policies**
 
 Basis
        of presentation
 
 The
        consolidated financial statements of General Steel Holdings, Inc. reflect
        the
        activities of the following directly and indirectly owned
        subsidiaries:
 Subsidiary
                
                Percentage
                  Of
                    OwnershipGeneral
                    Steel Investment Co., Ltd.
                
                British
                    Virgin Islands
                
                100.0%Victory
                    New Holding, Ltd.
                
                British
                    Virgin Islands
                
                100.0%Tianjin
                    Daqiuzhuang Metal Sheet Co., Ltd
                
                P.R.C.
                
                100.0%Baotou
                    steel Pipe Joint Venture
                
                P.R.C.
                
                80.0%Yangpu
                    Shengtong Investment Co., Ltd.
                
                P.R.C.
                
                99.3%Tianjing
                    Qiu Steel Investment Co., Ltd.
                
                P.R.C.
                
                98.0%Shaanxi
                    Long Men Joint Venture
                
                P.R.C.
                
                60.0%
  The
        accompanying financial statements have been prepared in accordance with accounting
        principles generally accepted in the United States of America. The accompanying
        consolidated financial statements include the accounts of all directly and
        indirectly owned subsidiaries listed above. All material intercompany
        transactions and balances have been eliminated in the consolidation. The
        long
        Men Joint Venture obtained the business license on June 22, 2007 and its
        financial data from June 1 to June 30, 2007 is included in the Company’s
        consolidated financial statements. Baotou Steel Pipe Joint Venture did not
        have
        any material operating activities, therefore, the operating results were
        not
        included in the Company’s consolidated financial statements for the six months
        ended 6/30/2007.
 
 Revenue
        recognition
 
 The
        Company recognizes revenue when the goods are delivered and title has passed.
        Sales revenue represents the invoiced value of goods, net of a value-added
        tax
        (VAT). All of the Company’s products that are sold in the PRC are subject to a
        Chinese value-added tax at a rate of 17% of the gross sales price. This VAT
        may
        be offset by VAT paid by the Company on raw materials and other materials
        included in the cost of producing their finished product.
 
 Foreign
        currency translation
 
 The
        reporting currency of the Company is the US dollar. The Company uses their
        local
        currency, Renminbi (RMB), as their functional currency. Assets and liabilities
        are translated at the unified exchange rate as quoted by the People’s Bank of
        China at the end of the period. Translation adjustments resulting from this
        process are included in accumulated other comprehensive income in the statement
        of 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.
 
 Translation
        adjustments amounted to $1,674,807 and $1,076,688 as of June 30, 2007 and
        December 31, 2006, respectively. Asset and liability amounts at June 30,
        2007
        and December 31, 2006 were translated at 7.60 RMB to $1.00 USD and 7.80 RMB
        to
        $1.00 USD, respectively. Equity accounts were stated at their historical
        rate.
        The average translation rates applied to income statement accounts for the
        six
        months ended June 30, 2007 and 2006 were 7.71 RMB and 8.03 RMB, and for the
        three months ended June 30, 2007 and 2006 were 7.67 RMB and 8.00 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.
   9
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 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. Depreciation expense for the six months
        ended
        June 30, 2007 and 2006 amounted to
        $1,979,184 an d
        $548,685, respectively. Depreciation expense for the three months ended June
        30,
        2007 and 2006 amount to $1,417,475 and $274,910, respectively.
 
 Estimated
        useful lives of the assets are as follows:
 Estimated
                    Useful LifeBuildings
                
                10-40
                    yearsMachinery
                    and equipment
                
                8-30
                    yearsOther
                    equipment
                
                5-8
                    yearsTransportation
                    equipment
                
                5-15
                    years
  Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company’s plant facilities. No depreciation is
        provided for construction in progress until such time as the assets are
        completed and are placed into service. Maintenance, repairs and minor renewals
        are charged directly to expense as incurred. Major additions and betterment
        to
        buildings and equipment are capitalized.
 
 Interest
        incurred during construction is capitalized into construction in progress.
        All
        other interest is expensed as incurred. For the six months ended June 30,
        2007
        and 2006, interest incurred by the Company was $2,340,139 and $993,519,
        respectively, and capitalized interest for the same period was
        immaterial.
 
 Plant
        and
        equipment consist of the following at:
 June
                    30,
                
                December
                    31,2007
                
                2006(unaudited)Buildings
                    and improvements
                
                $
                57,457,149
                
                $
                9,338,865Machinery
                
                
                117,516,705
                
                
                22,675,357Transportation
                    equipment
                
                
                3,934,857
                
                
                1,019,698Other
                    equipment
                
                
                985,647
                
                
                -Construction
                    in process
                
                
                19,973,013
                
                
                -Totals
                
                
                199,867,371
                
                
                33,033,920Less
                    accumulated depreciation
                
                
                8,562,310
                
                
                6,427,326Totals
                
                $
                191,305,061
                
                $
                26,606,594
 Long-term
        assets of the Company are reviewed annually or more often if circumstances
        dictate, 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.
   10
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 The
        Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of June 30, 2007, the Company expects these assets to be fully
        recoverable.
 
 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 combined
        financial statements and accompanying notes. For example, the Company estimates
        its potential losses on uncollectible receivable. Management believes that
        the
        estimates utilized in preparing its financial statements are reasonable and
        prudent. Actual results could differ from these estimates.
 
 Cash
        and concentration of risk
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with
        state **** owned
        banks within the People’s Republic of China and Hong Kong. Total cash (including
        restricted cash balances) in these banks at June 30, 2007 and December 31,
        2006
        amounted to $43,463,308 and $11,058,636, respectively of which no deposits
        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.
 
 Restricted
        cash
 
 The
        Company through its bank agreements is required to keep certain amounts on
        deposit that are subject to withdrawal restrictions and these amounts
        ar e
        $1 3,545,793
        and $4,231,523 as of June 30, 2007 and December 31, 2006,
        respectively.
 
 Inventories
 
 Inventories
        are stated at the lower of cost or market using weighted average method.
        Inventories consisted of the following:
 June
                    30,
                
                December
                    31,2007
                
                2006(unaudited)Supplies
                
                $
                1,388,358
                
                $
                1,061,773Raw
                    materials
                
                
                35,564,123
                
                
                2,827,127Work
                    in process
                
                
                391,431
                
                
                -Finished
                    goods
                
                
                28,731,651
                
                
                8,600,390Totals
                
                $
                66,075,563
                
                $
                12,489,290
  Raw
        materials consist primarily of iron ore and coke at Long Men Joint Venture
        and
        steel strip at Daqiuzhuang Metal. 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.
   11
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 The
        Company reviews its inventory periodically for possible obsolete goods and
        to
        determine if any reserves are necessary for potential obsolescence. As of
        June
        30, 2007 and December 31, 2006, the Company believes no reserves are
        necessary.
 
 Financial
        instruments
 
 Statement
        of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
        Value of Financial Instruments” requires disclosure of the fair value of
        financial instruments held by the Company. SFAS 107 defines the fair value
        of
        financial instruments as the amount at which the instrument could be exchanged
        in a current transaction between willing parties. The Company considers the
        carrying amount of cash, accounts receivable, other **** receivables,
        accounts payable, accrued liabilities and other payables to approximate their
        fair values because of the short period of time between the origination of
        such
        instruments and their expected realization and their current market rate
        of
        interest.
 
 Intangible
        assets
 
 All
        land
        in the People’s Republic of China is owned by the government and cannot be sold
        to any individual or company. However, the government grants the user a “land
        use right” to use the land.
 
 Daqiuzhuang
        Metal acquired land use rights during the years ended 2000 and 2003 for a
        total
        amount of $2,870,902. The land use rights are for 50 years and expire in
        2050
        and 2053. However, Daqiuzhuang Metal's initial business license had ten-year
        term. Therefore management elected to amortize the land use rights over the
        ten-year business term. Daqiuzhuang Metal became a Sino 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.
 
 Long
        Men
        Group contributed land use rights for a total amount of $19,543,875 to the
        Long
        Men Joint venture. The land use rights are for 50 years and expire in 2048
        to
        2052.
 
 All
        land
        use right at Daqiuzhuang Metal and Long Men Joint Venture are listed as
        follows:
 June
                    30,
                
                December
                    31,2007
                
                2006(unaudited)Land
                    use right
                
                $
                22,663,905
                
                $
                3,041,733Accumulated
                    Amortization
                
                
                1,466,661
                
                
                1,237,293Totals
                
                $
                21,197,244
                
                $
                1,804,440
 
 Intangible
        assets of the Company are reviewed annually 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 June 30, 2007, the Company expects these assets to be fully
        recoverable.
   12
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 Total
        amortization expense for the six months ended June 30, 2007 and 2006, amounted
        to $194,830 and $147,839, respectively. The amortization expense for the
        three
        months ended June 30, 2007 and 2006 amounted to $118,306 and $74,121,
        respectively.
 
 Shares
        subject to mandatory redemption
 
 The
        Company adopted Statement of Financial Accounting Standards No. 150, “Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity”. FAS 150 established classification and measurement standards for three
        types of freestanding financial instruments that have characteristics of
        both
        liabilities and equity. Instruments within the scope of FAS 150 must be
        classified as liabilities within the Company’s Consolidated Financial Statements
        and be reported at settlement date value. The Company issued redeemable stock
        in
        September 2005. The amount is presented as a liability on the balance sheet
        at
        the fair market value on the date of issuance plus accrued interest at the
        balance sheet date, see note 16.
 
 Share-based
        compensation
 
 The
        Company records stock-based compensation pursuant to Statement of Financial
        Accounting Standards No. 123 (revised 2004), "Share-Based Payments,"
        ("FAS123R"), which established standards for the accounting for transactions
        in
        which an entity exchange its equity instruments for goods or services. This
        statement requires companies to measure the cost of services received in
        exchange for an award of equity instruments based on the grant-date fair
        value
        of the award. The cost will be recognized over the period of services
        rendered.
 
 Income
        taxes
 
 The
        Company adopted Statement of Financial Accounting Standards No. 109, “Accounting
        for Income Taxes” (SFAS 109). SFAS 109 requires 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 consist of taxes currently
        due plus deferred taxes. There are no deferred tax amounts at June 30, 2007
        and
        December 31, 2006.
 
 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, and
        deferred tax assets are recognized to the extent that it is probably 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.
   13
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
  The
          Company adopted FASB Interpretation 48, “Accounting
          for Uncertainty in Income Taxes” (“FIN 48”), as of January 1, 2007. 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 affect on the Company’s financial statements.
 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 33% (30% state
        income
        taxes plus 3% local income taxes) 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.
 
 Under
        the Income Tax Laws of Tianjin City of PRC, any
        enterprise located in Tianjin Costal Economic Development Zone is subject
        to
        income tax rate of 24%.
 
 T he
        Company’s subsidiary, Daqiuzhuang Metal, became a Chinese Sino-foreign joint
        venture at the time of the merger on October 14, 2004 and it became eligible
        to
        the tax benefit. The
        Company is exempt from income taxes for the years ended December 31, 2005
        and
        2006 and 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 other subsidiary, Long Men 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. The Company is currently applying for this
        special tax treatment. Until the application is approved, a 33% income tax
        rate
        will apply at Long Men Joint Venture.
 
 Beginning
        January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
        existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
        (“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
        applicable to both DES and FIEs. The two years tax exemption, three years
        50%
        tax reduction tax holiday for production-oriented FIEs will be eliminated.
        The
        Company is currently evaluating the effect of the new EIT law will have on
        its
        financial position.
 
 The
        provision for income taxes for the six months ended June 30 consisted of
        the
        following:
 2007
                
                2006(unaudited)
                
                (unaudited)Provision
                    for China Income Tax
                
                $
                1,212,620
                
                $
                -Provision
                    for China Local Tax
                
                
                121,262
                
                
                -Total
                    Provision for Income Taxes
                
                $
                1,333,882
                
                $
                -
   14
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
  The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate for the six months ended June 30:
 2007
                
                2006U.S.
                    Statutory rates
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recognized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                33.0
                
                
                33.0China
                    income tax exemption
                
                
                (6.0
                )
                
                (33.0
                )Total
                    provision for income taxes
                
                
                27.0
                %
                
                -
                %
  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 $31,034,128 and $17,890,459 for the
        six
        months ended June 30, 2007 and $8,506,946 and $7,161,423 for the six months
        ended June 30, 2006, 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:
  June
                    30,
                
                December
                    31,2007
                
                2006(unaudited)VAT
                    taxes payable
                
                $
                18,748,819
                
                $
                5,317,466Income
                    taxes payable
                
                
                1,352,290
                
                
                -Misc
                    taxes
                
                
                131,923
                
                
                74,136Totals
                
                $
                20,233,032
                
                $
                5,391,602
  Recently
        issued accounting pronouncements
 
 In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
        for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
        No. 140, “Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
        simplify the accounting for certain hybrid instruments by permitting fair
        value
        remeasurement for any hybrid financial instrument that contains an embedded
        derivative, as well as, clarifies that beneficial interests in securitized
        financial assets are subject to FAS 133. In addition, FAS 155 eliminates
        a
        restriction on the passive derivative instruments that a qualifying
        special-purpose entity may hold under FAS 140. FAS 155 is effective for all
        financial instruments acquired, issued or subject to a new basis occurring
        after
        the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The adoption of SFAS No. 155 did not have a material
        effect on the Company’s financial position or results of
        operations.
 
 In
        June
        2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF No.
        06-3, How Taxes Collected from Customers and Remitted to Governmental
        Authorities Should Be Presented in the Income Statement (EITF No. 06-3).
        EITF
        No. 06-3 permits that s uch
        taxes
        may be presented on either a gross basis or a net basis as long as that
        presentation is used consistently.
  The
        adoption of EITF No. 06-3 on January 1, 2007 did not impact our consolidated
        financial statements. We present the taxes within the scope of EITF No. 06-3
        on
        a net basis.
   15
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 In
        July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(“FIN 48”). The Company adopted Interpretation No. 48 on January 1, 2007. See
        income taxes section above for details.
 
 In
        September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
        which
        addresses the measurement of fair value by companies when they are required
        to
        use a fair value measure for recognition or disclosure purposes under GAAP.
        SFAS
        No. 157 provides a common definition of fair value to be used throughout
        GAAP
        which is intended to make the measurement of fair value more consistent and
        comparable and improve disclosures about those measures. SFAS No. 157 will
        be
        effective for an entity's financial statements issued for fiscal years beginning
        after November 15, 2007. The Company is currently evaluating the effect SFAS
        No.
        157 will have on its consolidated financial position, liquidity, or results
        of
        operations.
 
 In
        February 2007, the Financial Accounting Standards Board (‘‘FASB’’) issued
        Statement of Financial Accounting Standards (‘‘SFAS’’) No. 159, The Fair Value
        Option for Financial Assets and Financials Liabilities — Including an Amendment
        of FASB Statement No. 115. This standard permits measurement of certain
        financial assets and financial liabilities at fair value. If the fair value
        option is elected, the unrealized gains and losses are reported in earnings
        at
        each reporting date. Generally, the fair value option may be elected on an
        instrument-by-instrument basis, as long as it is applied to the instrument
        in
        its entirety. The fair value option election is irrevocable, unless a new
        election date occurs. SFAS No. 159 requires prospective application and also
        establishes certain additional presentation and disclosure requirements.
        The
        standard is effective as of the beginning of the fiscal year that begins
        after
        November 15, 2007. The Company is currently evaluating the provisions
        of SFAS No. 159 to determine the potential impact, if any, the adoption will
        have on the Company’s financial statements.
 
 In
        June 2007, the
        FASB
        issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
        Payments for Goods or Services Received for use in Future Research and
        Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable
        advance payments for goods or services that used or rendered for research
        and
        development activities should be expensed when the advance payment is made
        or
        when the research and development activity has been performed. Management
        is
        currently evaluating the effect of this pronouncement on financial
        statements.
 
 Reclassifications
 
 Certain
        prior period amounts have been reclassified to conform to the current period
        presentation. These reclassifications have no effect on net income or cash
        flows.
  **Note
        3 - Earnings per share**
 
 The
        Company reports earnings per share in accordance with the provisions of SFAS
        No.
        128, "Earnings Per Share." SFAS No. 128 requires presentation of basic and
        diluted earnings per share in conjunction with the disclosure of the methodology
        used in computing such earnings per share.
  16
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 Basic
        earnings per share is 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.
 
 Under
        SFAS 150 " Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity", entities
        that have issued mandatory redeemable shares of common stock or entered into
        forward contracts that require physical settlement by repurchase of a fixed
        number of the issuer’s equity shares of common stock in exchange for cash shall
        exclude the common shares that are to be redeemed or repurchased in calculating
        basic and diluted earnings per share. Thus the 1,000,000 shares described
        in
        note 16 have been excluded from the earnings per share calculation.
 
 As
        described in Note 19, the Company issued Victory
        New an aggregate of 3,092,899 shares of the Company’s Series A Preferred
        Stock to
        purchase 30% of minority ownership of Daqiuzhuang Metal. The preferred stock
        has
        par value of $0.001 and could not be converted to common stock. Thus, the
        3,092,899 shares of Series A Preferred Stock have been excluded from the
        earning
        per share calculation. In addition, since no common stock equivalents existed
        at
        June 30, 2007 and June 30, 2006, the basic EPS equals the diluted
        EPS.
 
 The
        weighted average number of shares used to calculate EPS for the six
        months ended June 30, 2007 and 2006 totaled 31,444,665, and 31,250,000,
        respectively, and reflect only the shares outstanding for those periods.
        The
        basic and diluted earnings per share for the six months ended June 30, 2007
        and
        2006 were $0.075 and $0.011, respectively, and for the three months ended
        June
        30, 2007 and 2006 were $0.06 and $0.003, respectively.
 
 **Note
        4 - Supplemental disclosure of cash flow information**
 
 Interest
        paid amounte d
        to $ 2,026,318 an d
        $993,519 for the six months ended June 30, 2007 and 2006,
        respectively.
 
 No
        income tax payments were made during the six
        months ended June 30, 2007 and 2006.
 
 On
        February 12, 2007, the Company issued 18,000 shares of common stock for
        investor relations services rendered amounted to $23,760.
 
 In
        May
        2007, the Company issued 3,092,899 shares of preferred stock with fair value
        of
        $8,374,000 to the former shareholders of Victory New Holdings Inc. to purchase
        30% the minority ownership of Daqiuzhuang Metal.
  17
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 **Note
        5 - Accounts receivable and allowance for doubtful
        accounts**
  The
        Company conducts its business operations in the People’s Republic of China.
        Accounts receivable include trade accounts due from the customers. Management
        believes that the trade accounts are fully collectible as these amounts are
        being collected throughout the year. Also, management reviews its accounts
        receivable on a regular basis to determine if the bad debt allowance is adequate
        and adjusts the allowance when necessary. The allowance for doubtful accounts
        as
        of June 30, 2007 and December 31, 2006 amounted to $140,662 and $137,132,
        respectively.
  Allowance
                    for doubtful account
                
                Beginning
                  balance
                
                Additions
                
                Deductions
                
                Exchange
                  rate
                    effect
                
                Ending
                  balanceSix
                    months ended June, 30, 2007
                
                $
                137,132
                
                $
                -
                
                $
                -
                
                $
                3,530
                
                $
                140,662Year
                    ended December 31, 2006
                
                $
                1,371
                
                $
                135,761
                
                $
                -
                
                $
                -
                
                $
                137,132
  **Note
        6 - Notes receivable**
 
 Notes
        receivable represents trade accounts receivable due from various customers
        where
        the customers’ bank has guaranteed the payment of the receivable. This amount is
        non-interest bearing and is normally paid within three to six months. The
        Company has the ability to submit their request for payment to the customer’s
        bank earlier than the scheduled payment date. However, the Company will incur
        an
        interest charge and a processing fee when they submit the payment request
        early.
        The Company had
        $6,784,263 and $537,946 out standing
        as of June 30, 2007 and December 31, 2006, respectively.
 
 **Note
        7 - Prepaid expenses**
  Prepaid
        expenses at June 30, 2007 and December 31, 2006 consisted of the
        followings:
 June
                    30, 2007
                
                December
                    31, 2006(unaudited)Current
                
                Long-term
                
                Current
                
                Long-termRent
                
                $
                47,340
                
                $
                355,050
                
                $
                46,152
                
                $
                225,523Land
                    use right
                
                
                -
                
                
                518,002
                
                
                -
                
                
                515,345Total
                
                $
                47,340
                
                $
                873,052
                
                $
                46,152
                
                $
                740,868
  The
        Company’s prepaid expenses are prepaid rent for dormitory for its employees and
        land use rights in order to expand its manufactu ring
        capabilities. As of June 30, 2007 and December 31, 2006, prepaid rent for
        dormitory amounted to $402,390 and $271,675, respectively, and prepaid rent
        for
        land use right amounted to $518,002 and $515,345, respectively. See note
        20 for
        more details.
 
 **Note
        8 - Advances on inventory purchases**
 
 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 receive their purchases
        on a timely basis.
 
 This
        amount is refundable and bears no interest. The Company has a legal binding
        contract with their vendors for the guarantee deposit, which is to be returned
        to the Company at the end of the contract. The inventory is normally delivered
        within one month after the monies has been advanced. The total outstanding
        amount was $8,934,047 and $2,318,344 as of June 30, 2007 and December 31,
        2006,
        respectively.
  18
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 **Note
        9 - Related party transactions**
 
 The
        Company has a cash advance to Golden Glister Holdings Limited. Golden Glister
        Holdings Limited is incorporated in the territory of the British Virgin Islands
        which the Company’s Chairman and CEO and majority shareholder, Yu Zuo Sheng (aka
        Henry Yu) is the majority shareholder. The amount was advanced to Golden
        Glister
        Holdings Limited for business operations. Golden Glister Holdings Limited
        has
        agreed to pay back the amount on a short term basis. The Company had a
        receivable from Golden Glister for $367,400 at June 30, 2007 and a receivable
        from Golden Glister for $850,400 at December 31, 2006. The receivable is
        short
        term and non interest bearing.
 
 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 Yu Zuo Zheng (aka Henry Yu), is the chairman
        of the
        largest shareholder of Jing Qiu Steel Market Company. The total rental income
        for six months ended June 30, 2007 and 2006 was $778,260
        and $0 ,
        respectively. Total rental income for three months ended June 30, 2007 and
        2006
        amounted $391,230 and $0, respectively.
 
 The
        Company’s short term loa n
        of $6,575,000 fro m
        Shenzhen Development Bank is personally guaranteed by the Company’s Chairman,
        CEO, and majority shareholder Yu Zuo Sheng (aka Henry Yu).
 
 The
        Company acquired 30% minority ownership of Daqiuzhuang from Victory New which
        was legally owned by Mr. Yu Zuo Sheng’s mother and under Mr. Yu’s control. See
        details of acquisition of minority interest in Note 19.
 
 The
        Long
        Men Joint Venture didn’t obtain the VAT invoices from the local tax bureau until
        late July 2007. Before obtaining VAT invoices, all the sales and purchases
        made
        by the joint venture were carried out through the Company’s joint venture
        partner, Long Men Group, and all the sales proceeds and purchase payments
        were
        recorded as receivables from / payables to Long Men Group. The total receivable
        from Long Men Group is $107,123,503 and the total payable to Long Men Group
        is
        $171,114,932. The net amount is $63,991,429.
 
 The
        following charts summarize the related party transactions as of June 30,
        2007:
 
 **Other
        receivables-related parties**
  Subsidiary
                
                Amount
                
                Due
                    from
                Term
                
                Manner
                    of settleTianjin
                    Qiu Steel Investment
                $
                591,750
                
                Yang
                    Pu Capital Automobile
                Short
                
                To
                    be paid in cashTianjin
                    Qiu Steel Investment
                
                723,250
                
                Beijing
                    Wendlar
                Short
                
                To
                    be paid in cashGeneral
                    Steel Investment
                
                367,400
                
                Golden
                    Glister Holdings
                Short
                
                To
                    be paid in cashTotal
                $
                1,682,400
   19
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 **Advances
        on inventory purchases-related parties**
 Subsidiary
                
                Amount
                
                Due
                    from
                Term
                
                Manner
                    of settleLong
                    Men Joint Venture
                $
                12,887,000
                
                Tianjin
                    Hengying
                Short
                
                Deliver
                    of goodsLong
                    Men Joint Venture
                
                12,867,327
                
                Tianjin
                    Dazhan
                Short
                
                Deliver
                    of goodsTotal
                $
                25,754,327
  **Other
        payable-related party**
  Subsidiary
                
                Amount
                
                Due
                    to
                Term
                
                Manner
                    of settleYangpu
                    Shengtong
                
                19,725
                
                Beijing
                    Wendlar
                Short
                
                to
                    be paid in cashDaqiuzhuang
                    Metal
                
                18,278,500
                
                Tianjin
                    Dazhan
                Annual
                    interest
                    rate
                      of 6.5%
                
                to
                    be paid in cashDaqiuzhuang
                    Metal
                
                8,021,500
                
                Tianjin
                    Hengying
                Annual
                    interest
                    rate
                      of 6.5%
                
                to
                    be paid in cashLong
                    Men Joint Venture
                
                63,761,021
                
                Long
                    Men Group
                Short
                
                to
                    be paid in cashLong
                    Men Joint Venture
                
                392,934
                
                Hua
                    Long Supplies
                Short
                
                to
                    be paid in cashLong
                    Men Joint Venture
                
                382,602
                
                Long
                    MenEnviornmental
                    Protection
                Short
                
                to
                    be paid in cashLong
                    Men Joint Venture
                
                123,373
                
                Long
                    Men Service Co.,
                Short
                
                to
                    be paid in cashTotal
                $
                90,979,655
  **Customer
        deposit - related party**
 Subsidiary
                
                Amount
                
                Due
                    to
                Term
                
                Manner
                    of settleLong
                    Men Joint Venture
                $
                7,347,109
                
                Shannxi
                      Swallow Coking Co.,a shareholder of Long Men Group
                Short
                
                Deliver
                    of goods
  **Investment
        payable**
 
 In
        June
        2007, Yangpu Investment and the former shareholders of Qiu Steel Investment
        entered into an agreement. Pursuant to this agreement, Yangpu Investment
        will
        have 98.7% of total equity of Qiu Steel Investment by injecting RMB148,000,000
        or approximately US$19,462,000. As of June 30, 2007, Yangpu Investment had
        unpaid payables amounted to RMB48,000,000 or approximately $6,312,000.
  20
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
 **Note
        10 - Debt**
 
 Short
        term loans
 
 Short
        term loans represent amounts due to various banks, other companies and
        individuals, which are normally due within one year. These loans can be renewed
        with the banks The Company had a total of $113,834,289 and $30,284,686 short
        term loans as of June 30, 2007 and December 31, 2006, respectively, and
        consisted of the following:
 DAQIUZHUANG
                    METALJune
                    30,
                
                December
                    31,2007
                
                2006(unaudited)Loan
                    from China Bank, JingHai Branch, due October 2007. Monthly interest
                    only
                    payment at 6.732% per annum, secured by equipment and
                    property
                
                $
                1,183,500
                
                $
                1,153,800Loans
                    from Agriculture Bank, DaQuiZhuang Branch, duevarious dates from
                    October
                    to April 2008.Monthly interest only payments ranging from7.344%
                    to 7.668%
                    per annum, guaranteed by anunrelated third party and secured
                    by property
                    andequipment
                
                
                9,873,020
                
                
                9,625,256Loan
                    from Construction Bank of China, JinHai Branch, duevaries dates
                    in Auguest
                    2007. Monthly interest only payment at 8.323% per annum, secured
                    by
                    properties.
                
                
                1,597,725
                
                
                1,557,630Loans
                    from ShangHai PuFa Bank, due various dates from July 2007 to
                    March 2008.
                    Monthly interest only payments ranging from 6.435% to 6.732%
                    per annum,
                    guaranteed by an unrelated third party
                
                
                5,260,000
                
                
                5,128,000Loan
                    from China Merchants Bank, due November 2007. Quarterly interest
                    only
                    payments at floating interest rate,105% of People's Bank base
                    rate,
                    guaranteed by an unrelated third parties.
                
                
                7,890,000
                
                
                7,692,000Loan
                    from ChenZhen Development Bank, due various dates in March 2008.
                    Month
                    interest only payment at 6.426% to 6.710% per annum, secured
                    by inventory
                    and guaranteed by CEO of the Company.
                
                
                6,575,000
                
                
                5,128,000Total
                
                $
                32,379,245
                
                $
                30,284,686
 
 21
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
  LONG
                    MEN JOINT VENTUREJune
                    30,
                
                December
                    31,2007
                
                2006(unaudited)Loans
                    from Construction Bank, HanCheng Branch, due various dates from
                    September
                    to June 2008. Monthly interest only payments ranging from 6.44%
                    to 6.73%
                    per annum, guaranteed by equipment
                
                $
                10,518,685
                
                $
                -Loans
                    from Agriculture Bank, HanCheng Branch, due various dates from
                    September
                    to March 2008. Monthly interest only payments ranging from 6.73%
                    to 8.30%
                    per annum, guaranteed by equipment
                
                
                8,416,000
                
                
                -Loan
                    from China Bank, HanCheng Branch,due various dates from May 2008
                    to July
                    2008. Quarterly interest payments ranging from 6.16% to 6.71%
                    per annum,
                    guaranteed by an unrelated third parties.
                
                
                9,205,000
                
                
                -Loan
                    from Credit Cooperatives ,due various dates from September to
                    March 2008.
                    Quarterly interest payments ranging from 11.02% to 11.52% per
                    annum,
                    guaranteed by third parties.
                
                
                2,753,610
                
                
                -Loan
                    from HuaXia Bank, due October 2007. Monthly interest only payments,
                    annual
                    interest rate of 7.33%, guaranteed by equipment.
                
                
                2,630,000
                
                
                -Loan
                    from communication Bank, due July 2007. Quarterly interest only
                    payments,
                    annual interest rate of 7.34%, guaranteed by equipment.
                
                
                3,287,500
                
                
                -Loan
                    from China Merchants Bank, due July 2007. Monthly interest only
                    payments,
                    annual interest rate of 8.20%, guaranteed by property.
                
                
                2,630,000
                
                
                -Loan
                    from China Minsheng subsidiary Bank, due Septmeber 2007. Quarterly
                    interest only payments, annual interest rate of 6.237%, guaranteed
                    by
                    equipment and unrelated third parties.
                
                
                6,575,000
                
                
                -Loan
                    from China Everbright Bank, due November 2007. Monthlyinterest
                    only payments, annual interest rate of 6.12%, guaranteed by an
                    unrelated
                    third parties.
                
                
                2,630,000
                
                
                -Loan
                    from various companies and individuals, due within one year Non-secured,
                    annual interest rates ranging from 8% to 12%.
                
                
                32,809,249
                
                
                -Totals
                    -Long Men Joint Venture
                
                $
                81,455,044
                
                $
                -Grand
                    totals
                
                $
                113,834,289
                
                $
                30,284,686
   22
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30,
          2007
 (UNAUDITED)
  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.
        This short term note payable is guaranteed by the bank for its complete face
        value. 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.
  The
        Company has the following short term notes payable outstanding as of June
        30,
        2007 and December 31, 2006:
 DAQIUZHUANG
                      METALJune
                      30,
                  
                  December
                      31,2007
                  
                  2006(unaudited)China
                      Bank, Jing Hai Branch, various amounts, due April 2007, restricted
                      cash
                      required of 50%of
                      loan amount, guaranteed by the Company
                  
                  $
                  1,525,400
                  
                  $
                  1,487,120Agricultural
                      Bank of China, various amounts, due dates ranging between April
                      and
                      September 2007, restricted cash required of 50% of loan amount,
                      guaranteed
                      by the Company and an unrelated third party
                  
                  
                  1,578,000
                  
                  
                  1,538,400ShangHai
                      PuFa Bank, due various dates from April to May 2007, restricted
                      cash
                      required of 50% of loan balance,guaranteed
                      by an unrelated third party
                  
                  
                  5,260,000
                  
                  
                  5,128,000ShangHai
                      PuFa Bank, due date from May to November 2007, restricted cash
                      required of
                      100% of loan balance,guaranteed
                      by an unrelated third party
                  
                  
                  5,260,000
                  
                  
                  -Totals
                      -Daqiuzhuang Metal
                  
                  $
                  13,623,400
                  
                  $
                  8,153,520
 23
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
  LONG
                    MEN JOINT VENTUREJune
                    30,
                
                December
                    31,2007
                
                2006(unaudited)Construction
                    Bank of China, Han Cheng Branch, due dateranging
                    between January to July 2007,restricted
                    cash required of 50% of loan amount alreadypaid
                    by Long Men Steel Group,guaranteed
                    by Long Men Steel Group.
                
                $
                1,643,750
                
                $
                -China
                    Merchants Bank , various amounts, due datesranging
                    between January to August 2007,restricted
                    cash required of 50% of loan amount,paid
                    by Long Men Steel Group,guaranteed
                    by Long Men Steel Group.
                
                
                6,575,000
                
                
                -China
                    Everbright Bank of China, due date ranging between January to
                    August 2007,restricted
                    cash required of 30% of loan amount,paid
                    by Long Men Steel Group,guaranteed
                    by Long Men Steel Group.
                
                
                5,260,000
                
                
                -Hua
                    Xia Bank, due date ranging between April and October 2007,restricted
                    cash
                    required of 50% of loan amount,paid
                    by Long Men Steel Group,guaranteed
                    by Long Men Steel Group.
                
                
                2,630,000
                
                
                -ShangHai
                    Pudong Development Bank, various amounts, due datesranging
                    between April to November 2007, restricted cash required of 60%
                    of loan
                    amount, paid by Long Men Steel Group,guaranteed
                    by Long Men Steel Group.
                
                
                4,997,000
                
                
                -ShangHai
                    PuFa Bank, due various dates from April to September 2007, restricted
                    cash
                    required of 50% of loan balance, guaranteed by Long Men Steel
                    Group.
                
                
                6,575,000
                
                
                -China
                    Everbright Bank, due dates ranging between April and October
                    2007,
                    restricted cash required of 50% of loan amount,paid
                    by Long Men Steel Group, guaranteed by Long Men Steel
                    Group.
                
                
                2,117,150
                
                
                -Totals
                
                $
                29,797,900
                
                $
                -Grand
                    totals
                
                $
                43,421,300
                
                $
                8,153,520
   24
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
  Total
        interest expense for the six months ended June 30, 2007 and 2006 on all debt
        amounted to $2,340,139 and $993,519, respectively. Total interest expense
        for
        the three months ended June 30, 2007 and 2006 amounted to $1,716,507 and
        $493,642, respectively.
 
 **Note
        11 - Customer deposits**
 
 Customer
        deposits represent amounts advanced by customers on product orders. The product
        normally is shipped within six months after receipt of the advance payment
        and
        the related sale is recognized in accordance with the Company’s revenue
        recognition policy. As of June 30, 2007 and December 31, 2006, customer deposits
        including related parties amounts amounted to $41,473,163 and $1,093,602,
        respectively.
 
 **Note
        12 - Deposits due to sales representatives**
 
 The
        Company has 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 $1,743,690 and
        $2,051,200 in deposits due to sales representatives outstanding as of June
        30,
        2007 and December 31, 2006, respectively.
 
 **Note
        13 - Major customers and suppliers**
 
 Daqiuzhuang
        Metal has five major customers which represent approximately 21% and 35%
        of the
        Company’s total sales for the six months ended June 30, 2007 and 2006,
        respectively. Five customers accounted for 6% of total acc ounts
        receivable as of June 30, 2007.
 
 Long
        Men Joint Venture has five major customers which represent approximately 93% of the Joint Venture’s total sales for the six months ended June 30,
        2007.
 
 For
        the six months ended June 30, 2007 and 2006, Daqiuzhuang Metal purchase
        approximately 88% and
        97%, respectively, of their raw materials from five major suppliers.
 
 For
        the six months ended June 30, 2007, Long Men Joint Venture Company purchases
        approximately 64% of their raw materials from five major suppliers.
   25
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 **Note
        14 - Other expenses and income, net**
 
 Other
        income and expense for the six months ended June 30 consist of the
        following:
 June
                    30, 2007
                
                June
                    30, 2006Three
                    months
                
                Six
                    months
                
                Three
                    months
                
                Six
                    monthsEnded
                
                Ended
                
                Ended
                
                EndedFinance
                    /Interest expense
                
                $
                1,756,993
                
                $
                2,397,850
                
                $
                676,753
                
                $
                1,222,971Interest
                    income
                
                
                (57,810
                )
                
                (89,465
                )
                
                (73,677
                )
                
                (133,710
                )Other
                    nonoperation income
                
                
                (590,850
                )
                
                (979,377
                )
                
                (38,029
                )
                
                (392,873
                )Other
                    nonoperating expense
                
                
                132,810
                
                
                132,810
                
                
                22,507
                
                
                51,305$
                1,241,143
                
                $
                1,461,818
                
                $
                587,554
                
                $
                747,693
  For
        six months and three months ended June 30, 2007, other nonoperating income
        includes rental income totaling $778,260 and $391,230, respectively, which represents
        land use right subleased to a related party for one year as discussed in
        note
        9.
 
 During
        2005, Daqiuzhuang Metal received an approval from the PRC local government
        for a
        two year income tax exemption and a three year 50% reduction in income tax
        rates. The
        local
        Chinese tax authority waived the previously accrued income tax accumulated
        prior
        to January 1, 2005 in the amount of $253,250 which was included as other
        nonoperating income during the six months ended June 30, 2006.
 
 **Note
        15 - Private offering of redeemable stock**
 
 On
        September 18, 2005, the Company entered into a subscription agreement with
        certain investors to sell a total of 1,176,665 shares of common stock at
        $1.50
        per share for gross proceeds of $1,765,000, commissions totaled $158,849,
        leaving net proceeds of $1,606,151. In addition, two warrants are attached
        to
        each share of common stock and each warrant gives the warrant holder the
        right
        to purchase an additional share of common stock or a total of 2,353,330 of
        common stock in the future. The warrants can be exercised on the second
        anniversary date at $2.50 per share and on the third anniversary date at
        $5.00
        per share. The number of shares attached to the warrants will be adjusted
        due to
        dividends and changes in the capital stock structure changes. At the option
        of
        the investors, the Company may be required to repurchase the 1,176,665 shares
        of
        common stock 18 months after the closing date at a per share price of
        $1.95.
 
 In
        accordance with Accounting Principles Board Opinion No. 14, the Company
        determined the fair value of the detachable warrants issued with redeemable
        stock using the Black-Scholes option pricing model under the following
        assumptions: risk free interest rate of 3.85%, dividend yield of 0% and
        volatility of 11%. The estimated value of the warrants was zero .
 
 In
        accordance with SFAS 150, the Company recorded this stock issuance as a
        liability in the financial statements due to the mandatory redemption provision.
        The shares are recorded at fair value on the date of issuance, which is the
        net
        cash proceeds, plus any accrued interest up to March 31, 2007. The difference
        between the net proceeds, $1,606,151, and the redemption amount, $2,294,497,
        which is $688,346, was accrued and amortized as interest expense over an
        18
        month period, beginning in October 2005 and ending in March 2007.
   26
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 On
        March
        1, 2007, the redemption option on all 1,176,665 redeemable shares expired.
        However, holders of 1,000,000 shares requested, and the Company agreed, to
        extend the redemption option for another six months through September 1,
        2007;
        the repurchase price stayed at $1.95, representing total liabilities of
        $1,950,000. The other 176,665 shares, representing $351,122, were reclassified
        from liabilities to equity. The rollforward of these shares is shown
        below.
  Number
                    of shares
                
                Redemption
                    valueRedeemable
                    shares issued:Matlin
                    Patterson Global Opportunities Partners II L.P.
                
                
                736,361
                
                $
                1,435,904Matlin
                    Patterson Global Opportunities Partners (Caymans) II L.P.
                
                
                263,639
                
                
                514,096Zayd
                    International Limited
                
                
                70,000
                
                
                136,500Yuji
                    Komiya
                
                
                33,333
                
                
                64,999John
                    Yoo
                
                
                33,333
                
                
                64,999Yun
                    Qian Xie
                
                
                20,000
                
                
                39,000Jun
                    Ren
                
                
                13,333
                
                
                26,000Robertson
                    Investments Limited
                
                
                6,666
                
                
                12,9991,176,665
                
                
                2,294,497Shares
                    reclassified to equity on June 30, 2007:Zayd
                    International Limited
                
                
                (70,000
                )
                
                (136,500
                )Yuji
                    Komiya
                
                
                (33,333
                )
                
                (64,999
                )John
                    Yoo
                
                
                (33,333
                )
                
                (64,999
                )Yun
                    Qian Xie
                
                
                (20,000
                )
                
                (39,000
                )Jun
                    Ren
                
                
                (13,333
                )
                
                (26,000
                )Robertson
                    Investments Limited
                
                
                (6,666
                )
                
                (12,999
                )Balance,
                    June 30, 2007
                
                
                1,000,000
                
                $
                1,950,000
 
 As
        of August 9, 2007, we received notification from MatlinPatterson stating
        that
        they won’t exercise the put option on this stock and therefore this stock will
        be reclassified into the equity section in the third quarter of
        2007.
 
 **Note
        16 - Shareholders’ equity**
 
 On
        February 12, 2007, the Company issued to Aurelius Consulting Group, Inc.,
        (known
        to us as RedChip Companies, Inc.) 18,000 shares of common stock as a portion
        of
        their compensation for investor relations services rendered of $23,760. The
        stock was valued at the market price at the date of the agreement..
 
 On
        March
        1, 2007, as discussed in Note 15, 176,665 shares of redeemable stock were
        reclassified from liabilities to common stock upon expiration of the redemption
        feature.
   27
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 **Note
        17 - 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. It was the first year the Company
        was
        required to make contributions to the state retirement plan. The Company
        is
        required to contribute 20% of the employees’ monthly salary. Employees are
        required to contribute 7% of their salary to the plan. Total pension expense
        incurred by the Company amounted to $266,509 and $157,178
        for the six months ended June 30, 2007 and 2006, respectively. Total pension
        expense incurred amounted to $205,805 And $95,517 for the three months ended
        June 30, 2007 and 2006, respectively.
  **Note
        18 - 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, after
        the
        statutory reserve. The statutory reserves include surplus reserve fund and
        the
        enterprise fund and t hese
        statutory reserves represent restricted retained earnings.
 
 Surplus
        reserve fund
 
 The
        Company is required to transfer 10% of its net income, as determined in
        accordance with the PRC accounting rules and regulations, to a statutory
        surplus
        reserve fund until such reserve balance reaches 50% of the Company’s registered
        capital.
 
 The
        transfer to this reserve must be made before distribution of any dividend
        to
        shareholders. For
        the
        six months ended June 30, 2007 and
        2006, the Company did not transfer any fund to this reserve. 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.
 
 Enterprise
        fund
 
 The
        enterprise fund may be used to acquire plant and equipment or to increase
        the
        working capital to expend on production and operation of the business. No
        minimum contribution is required and the Company has not contributed to this
        fund.
 
 **Note
        19 - Business combinations**
 
 **Acquisitions
        of 30% Minority Interest of Daqiuzhuang Metal**
 
 As
        previously described in Note 1, on
        May
        18, 2007, General Steel entered into a Purchase Agreement with Victory New
        Holdings to acquire the remaining 30% interest in Daqiuzhuang Metal. General
        Steel agreed to issue Victory New an aggregate of 3,092,899 shares of the
        Company’s Series A Preferred Stock which have a voting power of 30% of the
        combined voting power of the Company’s common and preferred stocks for the
        entire life of the Company. As a result of the acquisition, the Company has
        increased its equity interest in Daqiuzhuang Metal from 70% to
        100%.
   28
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 Victory
        New Holdings is a newly formed entity under the control of the Company’s
        Chairman, CEO and majority shareholder Yu Zuo Sheng (aka Henry Yu). Victory
        New
        was legally owned by Mrs. Yang, Baoyin, Mr. Yu’s mother. Therefore, General
        Steel and Victory New were under common control. According to FASB
        Statement No. 141, "Business Combinations", a cquisition
        of minority interest from entities under common control should be accounted
        for
        using the purchase method. The
        Company engaged a third party to determine the fair value of 3,092,899
        shares of the Company’s Series A Preferred Stock, which was $8,374,000. The
        premium over book value of $2,188,203 was accounted for as dividend distribution
        to Victory New.
 
 The
        Company is in the process of obtaining a fairness opinion on these related
        party
        transactions.
 
 **Joint
        venture agreement with Baotou Steel**
 
 As
        Mentioned in Note 1, on April 27, 2007, Daqiuzhuang Metal, a wholly owned
        subsidiary of the Company, and Baotou Iron and Steel Group Co., Ltd. (“Baotou
        Steel”) entered into an Amended and Restated Joint Venture Agreement (the
“Amended agreement”), amending the Joint Venture Agreement entered into on
        September 28, 2005 (“Original Joint Venture Agreement”). The Amended agreement
        has increased Daqiuzhuang Metal's ownership interest in the Joint Venture
        from
        20% to 80%.
 
 The
        Amended agreement states that the initial capital of the joint venture company
        will be approximately $6,400,000, equal to the registered capital. Baotou
        Steel
        will contribute RMB 10,000,000, or approximately $1,270,000 and Daqiuzhuang
        Metal will contribute RMB 40,000,000, or approximately $5,130,000. Daqiuzhuang
        Metal and Baotou Steel each have contributed 30% of their portion of the
        registered capital to commence the business. This joint venture company obtained
        the business license on  May
        25, 2007. Operations began in the third quarter of 2007.
 
 The
        joint venture company’s name is Baotou Steel - General Steel Special Steel Pipe
        Joint Venture Company Limited, a limited liability company formed under the
        laws
        of the People's Republic of China.. Baotou Steel Pipe Joint Venture is located
        at Kundulun District, Baotou City, Inner Mongolia, China. It produces and
        sells
        seamless and welded steel pipes.
 
 The
        ownership will be comprised of the following:
 %
                    OwnershipBaotou
                    Iron and Steel (Group) Co., Ltd.
                
                
                20%Daqiuzhuang
                    Metal Sheet Co., Ltd
                
                
                80%
  **Shaanxi
        Long Men Iron and Steel Co., Ltd** **Joint venture**
 
 As
        described in Note 1, on June 15, 2007, General Steel Holdings Inc. and Shaanxi
        Long Men Iron and Steel (Group) Co., Ltd. (“Long Men Group”) signed the
        agreement to form Shaanxi Long Men Iron and Steel Co., Ltd. (“Long Men Joint
        Venture”).
   29
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 Long
        Men
        Group will contribute its operating facility and corresponding debt with
        an
        appraised net asset value of RMB 200 million. General Steel Holdings Inc.
        will
        contribute RMB 300 million to the Long Men Joint Venture through its
        subsidiaries which are Daqiuzhuang Metal and Qiu Steel Investment. Daqiuzhuang
        Metal and Qiu Steel Investment will each contribute RMB200,000,000 and
        RMB140,000,000 in cash, each holding 32% and 28% respectively of the Long
        Men
        Joint Venture and 60% collectively. Long Men Group will own 40% of the Long
        Men
        Joint Venture and General Steel Holdings Inc. through its subsidiaries will
        own
        approximately 60% of the Long Men Joint Venture. The Long Men Joint Venture
        obtained the business license on June 22, 2007.
 
 Assets
        acquired and debts assumed of the transaction are listed as below:
 Assumed
                    byItem
                
                Fair
                    Value
                
                Long
                    Men Joint VentureCurrent
                    assets
                
                $
                317,744,960
                
                $
                98,530,222Property,
                    plant, and equipment
                
                
                186,915,879
                
                
                164,811,374Intangible
                    assets
                
                
                20,128,972
                
                
                19,543,875Other
                    assets
                
                
                99,604,841Total
                    assets
                
                
                624,394,652
                
                
                282,885,471Current
                    liability
                
                
                473,168,746
                
                
                223,776,221Long
                    term liability
                
                
                38,246,111
                
                
                32,809,250Total
                    liabilities
                
                
                511,414,857
                
                
                256,585,471Net
                    assets
                
                $
                112,979,795
                
                $
                26,300,000
   30
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 **Pro
        Forma**
 
 The
        following unaudited pro forma condensed income statements for six months
        ended
        June 30, 2007 and year ended December 31, 2006 were prepared under Generally
        Accepted Accounting Principles and as if the Long Men Joint Venture transactions
        had occurred on January 1, 2006. The pro forma information may not be indicative
        of the results that actually would have occurred if the acquisition had been
        in
        effect from and on the dates indicated or which may be obtained in the
        future.
 
 Pro
        Forma
        Condensed Income Statements
 For
                    the six months
                
                For
                    the yearended
                
                endedJune
                    30, 2007
                
                December
                    31, 2006(in
                    Million $)
                
                (in
                    million $)Sales
                
                $
                636.3
                
                $
                815.8Cost
                    of sales
                
                
                587.4
                
                
                775.5Gross
                    Profit
                
                
                48.9
                
                
                40.3SG&A
                    expenses
                
                
                15.3
                
                
                14.9Other
                    expense
                
                
                14.9
                
                
                5.6Income
                    before income tax and minority interest
                
                
                18.7
                
                
                19.8Income
                    tax
                
                
                2.8
                
                
                2.7Net
                    income before minority interest
                
                
                15.9
                
                
                17.1Minority
                    interest
                
                
                5.9
                
                
                6.9Net
                    income
                
                $
                10.0
                
                $
                10.2
  **Note
        20 - Commitment and contingencies**
 
 The
        Company is obligated to contribute RMB40,000,000, or approximately $5,130,000
        as
        registered capital of Baotou Steel Pipe Joint Venture. The Company has already
        made a capital contribution of approximately $1,560,000 as of June 30, 2007,
        and
        the rest of the required registered capital will be invested within a year.
        The
        remainder of the investment will come from the operating cash flow from
        Daqiuzhuang Metal.
 
 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 $466,200. Total rental expenses for the six months
        ended
        June 30, 2007 and 2006 amounted to $22,348 and $22,432 respectively. Total rental expensed for the three
        months
        ended June 30, 2007 and 2006 amounted to $10,737and $11,247,
        respectively.
   31
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
            30,
            2007
 (UNAUDITED)
 Daqiuzhuang
        Metal has rented additional land for fifty years starting September 2005.
        The
        agreement was for Daqiuzhuang Metal to pay the first three years’ rent payments
        upon signing the agreement. The other forty years’ rent payment will be paid in
        full three years after the agreement date. Total amount of the rent over
        the 50
        years period is approximately $1, 044,728 (or 8,067,400 RMB). During the
        period,
        the lessor has to assist Daqiuzhuang Metal in obtaining land use right. Upon
        obtaining land use right, Daqiuzhuang Metal will pay the remaining balance
        before September 2008 as stated in the agreement. At March 31, 2007, total
        future minimum lease payments for the unpaid portion under an operating lease
        were as follows:
  For
                    the year ended December 31,
                
                Amount2007
                
                $
                -2008
                
                
                424,909Thereafter
                
                $
                -
  Total
        rental expense of the land use right for the six months ended June 30, 2007
        and
        2006 amounted to $10,464 and $10,053, respectively.






32




ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
      OPERATIONS




**Forward-Looking
      Statements:**




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




**Company
      Overview**




General
      Steel Holdings, Inc. (“General Steel”), headquartered
      in Beijing China, operates a diverse portfolio of Chinese steel companies.
      Our
      companies serve vario us
      industries and produce a variety of steel products: reinforced bars (rebar),
      hot-rolled carbon and silicon sheets and spiral weld pipes. Our aggregate
      production capacity of steel products is 3 million tons, of which the majority
      is rebar. Individual industry segments have unique demand drivers, such as
      rural
      income, infrastructure construction and energy consumption. Domestic economic
      conditions are an overall driver for all our products.




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




33





Our
      mission is to acquire Chinese steel companies and increase their profitability
      and efficiencies with 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 potential. In the second quarter, we executed this strategy and
      consummated controlling interest positions in two joint ventures. We are
      actively pursuing a plan to acquire additional assets.




We
      presently have controlling interest in three steel subsidiary companies:




·
            Shaanxi
                Long Men Iron and Steel Co., Ltd. (Long Men Joint Venture);


·
            Tianjian
                Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal);


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









**Steel
      Operating Companies**





·
            *Tianjin
                Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang
                Metal”)*




34





Tianjin
      Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”), started its operation
      in 1988. Daqiuzhuang Metal’s core business is the manufacturing of high quality
      hot-rolled carbon and silicon steel sheets which are mainly used in the
      production of small agricultural vehicles and other specialty markets. In the
      niche market for metal sheets used in small agricultural vehicles, Daqiuzhuang
      Metal currently maintains an approximate 50% market share.




Daqiuzhuang
      Metal has ten steel sheet production lines capable of processing approximately
      400,000 tons of 0.75-2.0 mm hot-rolled carbon steel sheets per year, of which
      150,000 tons has been added since mid-March 2006. Products are sold through
      a
      nation-wide network of 35 distributors and 3 regional sales
      offices.





Daqiuzhuang
      Metal uses a traditional rolling mill production sequence, such as heating,
      rolling, cutting, annealing, and flattening to process cut coil segments into
      steel sheets. The sheet sizes are approximately 2,000 mm (length) x 1,000 mm
      (width) x 0.75 to 2.0 mm (thickness). Limited size adjustments can be made
      to
      meet order requirements. Products sell under the registered “Qiu Steel” brand
      name.




On
      May
      22, 2007, we filed a current report on Form 8-K announcing we agreed to acquire
      from Victory New Holdings, Ltd., a British Virgin Islands Company (“Victory
      New”), the remaining 30% outstanding shares of Daqiuzhuang Metals. The mother of
      Henry Yu, our Chairman and CEO, is the sole shareholder of Victory New. For
      the
      acquisition, we agreed to issue an aggregate of 3,092,899 shares of Series
      A
      Preferred Stock at $0.001 par value.





·
            *Baotou
                Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd.
                (“Baotou
                Steel Pipe Joint Venture”)*




*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 "Agreement"), amending the Joint Venture Agreement entered into on
      September 28, 2005 ("Original Joint Venture Agreement"). The Amended and
      Restated Joint Venture Agreement has increased Daqiuzhuang Metal's ownership
      interest in the Joint Venture to 80%. The joint venture company’s name is Baotou
      Steel - General Steel Special Steel Pipe Joint Venture Company Limited (referred
      to as Baotou Steel Pipe Joint Venture). Baotou Steel will initially contribute
      RMB 10,000,000, or approximately US$1,270,000 taking 20% ownership interest
      in
      the Baotou Steel Pipe Joint Venture. Daqiuzhuang Metal will initially contribute
      RMB 40,000,000, or approximately US$5,130,000 taking 80% ownership interest
      in
      the Baotou Steel Pipe Joint Venture.*





We
      have
      invested $1.56 million cash into this joint venture and the rest of the required
      register capital will be invested within a year. The remainder of the investment
      will come from the operating cash flow from Daqiuzhuang Metal.





Baotou
      Steel Pipe Joint Venture ** received
      its business license approval on May 25, 2007. It has four production lines
      capable of producing 100,000 tons or double spiral-weld pipes. These pipes
      are
      used in the energy sector to transport natural gas, oil and steam. Pipes
      produced at the mill have a diameter ranging from 219-1240 mm; a wall thickness
      ranging from 6 - 13 mm; and a length ranging from 6 - 12 m. Final production
      capacity at the mill will reach 600,000 tons in 2009. Additional products may
      also be added. Presently, Baotou Steel Pipe Joint Venture sells its products
      using an internal sales force to customers in Inner Mongolia and the Northwest
      region of China.




35





During
      the quarter, this joint venture only did test runs. Commencing the third
      quarter, Baotou Steel Pipe Joint Venture should be fully in operation and is
      expected to have a positive impact on our company.





·
            *Shaanxi
                Long Men Iron and Steel Co., Ltd. (“Long Men Joint Venture”)*





On
      June
      15, 2007, through our 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
      Long Men Iron and Steel Co., Ltd. (“Long Men Joint Venture”). Through our two
      subsidiaries, we invested approximately $39 million cash and collectively
      hold approximately 60% of the new joint venture.





Long
      Steel Group, located in Hancheng city, Shaanxi province, in China’s central
      region, was founded in 1958 and incorporated in 2002. In 2006, its reported
      sales revenue was $7.4 billion RMB million ($900 million). It is the largest
      steel company in the province. It has a total annual production capacity of
      3
      million tons of finished steel products, 3 million tons of billet, 3 million
      tons of pig iron and 2.2 million tons of coke. Last year, the Chinese National
      Statistics Bureau ranked it among the top 50 steel companies in China in terms
      of output.





Long
      Steel Group operates as a fully-integrated steel production facility, which
      means it is capable of taking iron ore and other raw materials, processing
      them
      into crude steel and then processing the crude steel into finished steel
      products. Fewer than 100 steel companies in China have this fully-integrated
      steel production capacity.





Our
      joint
      venture, Long Men Joint Venture, assumes existing operating units of the Long
      Steel Group. The Long Steel Group contributed most of its working assets to
      the
      joint venture. Key units of the joint venture include:





·
            Shaanxi
                Longmen Iron and Steel Group Co., Ltd., (“Base Steel Operations”):
                Includes 8 blast furnaces (total volume 1749 cubic meters), 4 converters
                (total load 150 tons) and 1 continuous casting mill;


·
            Shaanxi
                Longmen Iron and Steel Group Co., Ltd., Xi’an Rolling Mill: Annual
                capacity is 700,000 tons of rebar - includes 1 semi-continuous mill
                line;


·
            Shaanxi
                Longmen Iron and Steel Group Co., Ltd., Mulonggou Mining Co.: An
                iron-ore
                mine with 150,000 tons annual
                capacity;


·
            Shaanxi
                Longmen Iron and Steel Group Co., Ltd., Changlong Transportation
                Co: A
                comprehensive transportation company combining railroad transportation,
                loading and discharging, maintenance as well as finished oil products
                and
                components - daily throughput capacity exceeds 5000
                tons;


36





·
            Shaanxi
                Longmen Iron and Steel Group Co., Ltd., Hancheng Yulong Hotel: A
                three-star rated, 125 room hotel and recreation complex catering
                to the
                construction and steel support
                industries;


·
            Shaanxi
                Yuxin Commercial Trading Co., Ltd.; and


·
            Shaanxi
                Yuteng Commercial Trading Co., Ltd.





Long
      Men
      Joint Venture employs 4,000 full-time and 2,000 part-time workers.





The
      annual capacity at Long Men Joint Venture is 2.5 million tons of crude steel.
      It
      is the largest steel producer in Shaanxi province. Last year, Long Steel Group
      recorded a shipment volume of 2.2 million tons of finished product, of which
      94%
      was reinforced bar steel (rebar - a commodity grade steel used in construction
      to reinforce concrete), with the remainder being roundbar, wire rod and related
      products. These products are primarily used in building and infrastructure
      construction.





Long
      Men
      Joint Venture’s products are categorized within the steel industry as “longs”
(referencing their shape). They are generally considered regional products
      because their size, weight and dimension make them ill-suited for cost-effective
      long-haul ground transportation. By our estimates, the provincial market demand
      for rebar is 6 - 8 million tons. Slightly more than half of the province demand
      radiates from Xi’an, the province capital, located 180 km from the joint venture
      main site. We estimate in Xi’an we have a 72% market share.





An
      established regional network of 27 agents and 2 sales offices sell the joint
      venture’s products. Agents account for approximately 66% of sales. 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.





**Operating
      Results**





We
      have
      three steel operating companies: Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
      (“Daqiuzhuang Metal”), Baotou Steel - General Steel Special Steel Pipe Joint
      Venture Co., Ltd., (“Baotou Steel Pipe Joint Venture”), and Shaanxi Long Men
      Iron and Steel Co., Ltd. (“Long Men Joint Venture”).





As
      Baotou
      Steel Pipe Joint Venture is a new start-up and its operation mainly started
      in
      the third quarter, we have not included the financial results from Baotou Steel
      Pipe Joint Venture in this analysis. We will begin including them in our
      analysis starting in the third quarter of this year.




37





Additionally,
      Long Men Joint Venture started its operations in June 2007. Its financial
      results for the month of June only are consolidated into our financial
      statements.





***Sales
      Revenue and Gross Profit***





***Three
      months ended June 30, 2007 compared with three months ended June 30,
      2006***





Overall,
      net sales for the three months ended June 30, 2007 were approxima tely
      $121.3 million compared to $29.4
      million i n
      the
      same period of 2006, an increase of 312%.





At
      Daqiuzhuang Metal, shipments for the three months ended June 30, 2007 climbed
      4 7%
      to
      97,381 tons f rom
      66,359 tons
      in
      the same period last year. This increase is a result from a combination of
      factors, including a continued strong demand for light agricultural vehicles
      brought about by the central government’s effort to raise rural income, and our
      ability to capitalize on this demand through our increased 150,000 ton
      production capacity, 16 new distributors, 3 new sales offices and other
      strategic operating investments made in 2006. Average
      selling price per ton including sale of scrap for the three months ended June
      30, 200 7
      increased to $447 fr om
      $443
      in the same period of 2006. The increase in sales price mainly resulted from
      the
      overall steel market rebound.





At
      our
      new Long Men Joint Venture, shipments for the one month recorded in the three
      month period ended June 30, 2007 were 207,573 tons. The average selling price
      per ton was $375. Long Men
      Joint Venture accounted for $77.7 million in sales during the month of June.
      Since June was a transitional period, we believe revenues will increase in
      coming months at Long Men Joint Venture.





The
      following table displays sales and steel shipment data for General Steel by
      operating unit for the three months ended 2007 and 2006.




2nd
                    Quarter 2007
                
                2nd
                    Quarter 2006Operating
                    Unit
                
                Shipment
                    Volume
                
                Sales
                    Amount
                
                Shipment
                      Volume
                
                Sales
                    Amount(in
                    Tons)
                
                
                
                (in
                    Tons)Daqiuzhuang
                    Metal
                
                
                97,381
                
                $
                43,516,921
                
                
                66,359
                
                $
                29,398,358Long
                    Men Joint Venture
                *
                
                207,573
                
                
                77,737,823
                
                
                -
                
                
                -Totals
                
                
                304,954
                
                $
                121,254,744
                
                
                66,359
                
                $
                29,398,358




*
      Sales
      and shipment data from Long Men Joint Venture are for the month of June only.
      Data reflects 100% of the Long Men Joint Venture. General Steel, through its
      subsidiaries, owns 60% of the Long Men Joint Venture. The minority interest
      is
      removed after profits.





Overall,
      gross profit for the three months ended June 30, 2007 was approxima tely
      $8.11 million, an in crease
      o f
      410% or
      $6.52 million
      from $1.59 million for the same period last year. Gross profit margin
      increased to 6.69%
      f rom
      5.41%
      for the three month periods ended June 30, 2007 and 2006, respectively.





At
      Daqiuzhuang Metal, gross profit margin went down from 5.41% to 2.26% mainly
      due
      to increase in raw materials price. In view of this, w e
      have
      adjusted our production mix in the third quarter to produce more silicon steel
      sheets which have a higher selling price and higher gross margin than our carbon
      steel sheets.




38





At
      our
      new Long Men Joint Venture, gross profit was $7.13 million and gross profit
      margin was 9.17% for the one month recorded in the second quarter. Geographic
      location gives our Long Men Joint Venture a unique competitive advantage over
      its competitors. Long Men Joint Venture is the largest integrated steel company
      in Shaanxi Province and the only steel company within a 250km radius. It uses iron
      ore
      and coke purchased regionally as primary raw materials to produce pig iron,
      crude steel and finished steel products. Its fully-integrated production ability
      and regionally sourced raw materials are key factors contributing to the high
      gross profit margin.





Long
      Men
      Joint Venture made $7.13 million in the month of June 2007. If June is an
      average month, Long Men Joint Venture would make $85.5 million for a 12 month
      period. Since we own 60% of the joint venture, based on these calculations,
      it
      would contribute $51.3 million in gross profit.





This
      is
      not to be taken as a projection. Rather it is an explanation of the current
      situation, so investors can judge the potential impact.




The
      following table displays gross profit and gross margin data for General Steel
      by
      operating unit for the three months ended 2007 and 2006.




2nd
                  Quarter 2007
              
              2nd
                  Quarter 2006Operating
                  Unit
              
              Gross
                  Profit
              
              Gross
                  Margin
              
              Gross
                  Profit
              
              Gross
                  MarginDaqiuzhuang
                  Metal
              
              $
              984,263
              
              
              2.26
              %
              $
              1,590,399
              
              
              5.41
              %Long
                  Men Joint Venture
              **
              
              7,129,105
              
              
              9.17
              %
              
              -Totals
              
              $
              8,113,368
              
              
              6.69
              %
              $
              1,590,399
              
              
              5.41
              %




**
      Gross
      profit and gross margin data reflect 100% of operations from Long Men Joint
      Venture for the month of June only. General Steel, through its subsidiaries,
      owns 60% of the Long Men Joint Venture. Minority interest is removed after
      profits.





***Six
      months ended June 30, 2007 compared with Six months ended June 30,
      2006***





Overall,
      net sales for the six months ended June 30, 2007 were approximate ly
      $158.9
      million compared
      to $50 million in the same period of 2006, an increase of 217%.





At
      Daqiuzhuang Metal, shipments for the six months ended June 30, 2007 climbed
      54 %
      to
      185,167 tons f rom
      119,906 tons in the same period last year due to increase in production
      capacity, productivity and market development. Average selling price per ton
      including sale of scrap for the six months ended June 30, 200 7
      increased to $438 fr om
      $417
      in the same period of 2006. The increase in sales price mainly resulted from
      the
      overall steel market rebound.





At
      our
      new Long Men Joint Venture, shipments represented in the six month period ended
      June 30, 2007 were 207,573 tons. Average selling price per ton was
      $375.




39





The
      following table displays sales and steel shipment data for General Steel by
      operating unit for the six months ended 2007 and 2006.




H1
                  2007
              
              H1
                  2006Operating
                  Unit
              
              Shipment
                    Volume
              
              Sales
                  Amount
              
              Shipment
                  Volume
              
              Sales
                  Amount(in
                  Tons)
              
              
              
              (in
                  Tons)Daqiuzhuang
                  Metal
              
              
              185,167
              
              $
              81,124,892
              
              
              119,906
              
              $
              50,040,860Long
                  Men Joint Venture
              *
              
              207,573
              
              
              77,737,823
              
              
              -
              
              
              -Totals
              
              
              392,740
              
              $
              158,862,715
              
              
              119,906
              
              $
              50,040,860




*
      Sales
      and shipment data from Long Men Joint Venture are for the month of June only.
      Data reflects 100% of the Long Men Joint Venture. General Steel, through its
      subsidiaries, owns 60% of the Long Men Joint Venture. The minority interest
      is
      removed after profits.





Gross
      profit for the six months ended June 30, 2007 was approximatel y
      $9.85 million,
      an increase of 233%
      or $6.89 million f rom
      $2.96
      million for the same period last year. Gross profit margin increased to
      6.20%
      f rom
      5.91%
      for the six months ended June 30, 2007 and 2006.





The
      following table displays gross profit and gross margin data for General Steel
      by
      operating unit for the six months ended 2007 and 2006.




H1
                  2007
              
              H1
                  2006Operating
                  Unit
              
              Gross
                  Profit
              
              Gross
                  Margin
              
              Gross
                  Profit
              
              Gross
                  MarginDaqiuzhuang
                  Metal
              
              $
              2,717,268
              
              
              3.35
              %
              $
              2,958,697
              
              
              5.91
              %Long
                  Men Joint Venture
              **
              
              7,129,105
              
              
              9.17
              %
              
              -Totals
              
              $
              9,846,373
              
              
              6.20
              %
              $
              2,958,697
              
              
              5.91
              %




**
      Gross
      profit and gross margin data reflect 100% of operations from Long Men Joint
      Venture for the month of June only. General Steel, through its subsidiaries,
      owns 60% of the Long Men Joint Venture. Minority interest is removed after
      profits.





***Cost
      of Sales***





***Three
      months ended June 30, 2007 compared with three months ended June 30,
      2006***





Cost
      of
      sales principally consists of the cost of raw materials, labor, utilities,
      manufacturing costs, manufacturing related depreciation and other fixed costs.
      Overall, cost of sales increased to $113.1 million for the three months ended
      June 30, 2007 from $27.8 million for the same period of 2006.





At
      Daqiuzhuang Metal, average cost per ton was $437 and $419, respectively for
      the
      three months ended June 30, 2007 and 2006. Cost of sales went up mainly due
      to
      the price increase in iron ore which is a raw material in the steel strip coil
      we buy for processing.





At
      our
      new Long Men Joint Venture, average cost per ton during the one month recorded
      in the period was $340.




40





The
      following table displays cost of sales and steel shipment data for General
      Steel
      by operating unit for the three months ended 2007 and 2006.




2nd
                  Quarter 2007
              
              2nd
                  Quarter 2006Operating
                  Unit
              
              Shipment
                  Volume
              
              Sales
              
              Shipment
                    Volume
              
              Sales(in
                  Tons)
              
              
              
              (in
                  Tons)Daqiuzhuang
                  Metal
              
              
              97,381
              
              $
              42,532,658
              
              
              66,359
              
              $
              27,807,959Long
                  Men Joint Venture
              ***
              
              207,573
              
              
              70,608,718
              
              
              -
              
              
              -Totals
              
              
              304,954
              
              $
              113,141,376
              
              
              66,359
              
              $
              27,807,959




***
      Cost
      of sales and shipment volume data reflect 100% of operations of Long Men Joint
      Venture for the month of June only. General Steel, through its subsidiaries,
      owns 60% of the Long Men Joint Venture.




***Six
      months ended June 30, 2007 compared with Six months ended June 30,
      2006***





Overall
      cost of sales increased to $149 million for the six months ended June 30, 2007
      from $47.1 million for the same period of 2006.





At
      Daqiuzhuang Metal, average cost per ton w as
      $423
      and $393, respectively for the six months ended June 30, 2007 and 2006. Cost
      of
      sales went up mainly due to the price increase in raw materials.





At
      our
      new Long Men Joint Venture, average cost per ton during the one month recorded
      in the period was $340.





The
      following table displays cost of sales and steel shipment data for General
      Steel
      by operating unit for the six months ended 2007 and 2006.




H1
                  2007
              
              H1
                  2006Operating
                  Unit
              
              Shipment
                    Volume
              
              Cost
                  of Sales
              
              Shipment
                    Volume
              
              Cost
                  of Sales(in
                  Tons)
              
              
              
              (in
                  Tons)Daqiuzhuang
                  Metal
              
              
              185,167
              
              $
              78,407,624
              
              
              119,906
              
              $
              47,082,163Long
                  Men Joint Venture
              ***
              
              207,573
              
              
              70,608,718
              
              
              -
              
              
              -Totals
              
              
              392,740
              
              $
              149,016,342
              
              
              119,906
              
              $
              47,082,163


***
      Cost
      of sales and shipment volume data reflect 100% of operations of Long Men Joint
      Venture for the month of June only. General Steel, through its subsidiaries,
      owns 60% of the Long Men Joint Venture.





***Selling,
      General and Administrative Expenses***





***Three
      months ended June 30, 2007 compared with three months ended June 30,
      2006***





Selling,
      general and administrative expenses, such as executive compensation, office
      expenses, legal and accounting charges, travel charges, and various taxes were
      $2.84 million for the three months ended June 30, 2007, compared to $0.81
      million for the same period of 2006. This increase is due to additional SG&A
      expense at the new Long Men Joint Venture which is about $1.76 million. As
      a
      point of reference, Long Men Joint Venture employs approximately 4,000 full-time
      employees. Another large component of the increase came from the legal and
      accounting and other professional expenses for the public listed company mainly
      associated with our newly added joint ventures.


41





***Six
      months ended June 30, 2007 compared with Six months ended June 30,
      2006***





Selling,
      general and administrative expenses were $3.47 million for the six months ended
      June 30, 2007, compared to $1.55 million for the same period of 2006. This
      increase is because our new Long Men Joint Venture added $1.76 million to
      SG&A expense in June.





**Other
      income (expense)**





***Three
      months ended June 30, 2007 compared with three months ended June 30,
      2006***





Other
      income (expense) for the three months
      ended June 30, 2007 consisted mainly of finance charges, interest income and
      other non-operating income (expense). Int erest
      expense w as
      $1.76
      million fo r
      the
      three months ended June 30, 2007, compare d
      to
      $0.68 million for the same
      period in 2006. This increase is attributable the $48.6 million outstanding
      bank
      loans at Long Men Joint Venture as of June 30, 2007. Total
      outstanding short term loans increased to
      $113.8
      milli on
      from
      $31.4 million as of June 30, 2007 and 2006, respectively.





***Six
      months ended June 30, 2007 compared with Six months ended June 30,
      2006***





Interest
      expense was
      $2.40
      millio n
      for the
      six months ended June 30, 2007 ,
      a 96%
      incr ease
      compared to $1.22 million for the same period in 2006 due to increase in short
      term loans.





***Net
      income***





***Three
      months ended June 30, 2007 compared with three months ended June 30,
      2006***





Overall,
      net income was $1.9 million
      for the three months ended June 30, 2007 compared to $86,598 for the same period
      of 2006, a 2,086% increase. These results reflect a full three month operating
      period for one of our subsidiaries and partial quarter results from our other
      two subsidiaries. We anticipate that next quarter will reflect a full three
      month operating period for all our subsidiaries.





Long
      Men
      Joint Venture made $1.71 million in the month of June. As we have noted, June
      was a start-up transitional period. We expect stronger sales and earnings from
      the Long Men Joint Venture in the coming quarter.





***Six
      months ended June 30, 2007 compared with Six months ended June 30,
      2006***





Net
      income was $2.37 million for the six months ended June 30, 2007 compared to
      $0.34 million for the same period of 2006, a 599% increase.





***Earnings
      per share***





Earnings
      per share was $0.060 and $0.075 for the three and six months ended June 30,
      2007. Earnings per share are calculated as follows:




Three
                Months Ended
            
            Six
                Months EndedJune
                30, 2007
            
            June
                30, 2006
            
            June
                30, 2007
            
            June
                30, 2006Net
                income
            
            $
            1,893,299
            
            $
            86,598
            
            
            2,368,166
            
            $
            339,003Weighted-average
                ofcommon
                stock o/s
            
            
            31,444,665
            
            
            31,250,000
            
            
            31,444,665
            
            
            31,250,000Earnings
                per share
            
            $
            0.060
            
            $
            0.003
            
            
            0.075
            
            $
            0.011





42




***Income
      taxes***





The
      Company did not carry on any business and did not maintain any branch office
      in
      the United States during the six months ended June 30, 2007 and 2006. Therefore,
      no provision for withholding or U.S. federal income taxes or tax benefits on
      the
      undistributed earnings and/or losses of the Company has been made.





Pursuant
      to the relevant laws and regulations in the People's Republic of China,
      Daqiuzhuang Metal, as a foreign owned enterprise in the People's Republic of
      China, is entitled to an exemption from the PRC enterprise income tax for two
      years commencing from its first profitable year. Daqiuzhuang Metal has been
      approved for this tax benefit and will be exempt from income tax for the years
      ended December 31, 2005 and 2006 and 50% income tax reduction for the years
      ended December 31, 2007, 2008 and 2009.





Our
      new
      Long Men 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. We
      are
      currently applying for this special tax treatment. Until the application is
      approved, 33% income tax rate will apply at Long Men Joint Venture.





For
      the
      three months ended June 30, 2007, we had a tax expense
      of $1.2 million. For the six months ended June 30, 2007, we had a tax expense
      of
      $1.33 million.





**Minority
      interest**





Minority
      interest represents Long Steel Group’s 40% interest in Long Men Joint
      Venture.





***Accounts
      Receivable***





Accounts
      receivable were $20.7 million as of June 30, 2007 compared to $17.1 million
      on
      December 31, 2006.





We
      recognize the revenue when we ship out products and passed 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 adjusts the allowance amount if needed. We believe
      the
      accounts receivable is collectible. Never-the-less, to be conservative and
      prudent in our management practice, as of June 30, 2007, we reserved $140,662
      for bad debt allowance based on our reasonable estimate.




43





Our
      new
      Long Men Joint Venture didn’t obtain the VAT invoices from the local tax bureau
      until late July. All the sales and purchases made by the joint venture were
      carried out through our joint venture partner, Long Steel Group. The sales
      proceeds collected by Long Steel Group will be paid back to the joint venture
      in
      the third quarter.





**Long
      Men Joint Venture**





On
      June
      15, 2007, General Steel Holdings Inc. and Shaanxi Long Men Iron and Steel
      (Group) Co., Ltd. (referred to as Long Steel Group) signed the agreement to
      form
      Shaanxi Long Men Iron and Steel Co., Ltd. (referred to as Long Men Joint
      Venture). Long Men Group will contribute its operating facility and
      corresponding debt with an appraised net asset value of RMB 200 million. General
      Steel Holdings Inc. will contribute RMB 300 million to the Long Men Joint
      Venture through its subsidiaries which are Daqiuzhuang Metal and Tianjin Qiu
      Steel Investment Co., Ltd. (referred to as Qiu Steel Investment). Long Steel
      Group will own 40% of the Long Men Joint Venture and General Steel Holdings
      Inc.
      through its subsidiaries will own approximately 60% of the Long Men Joint
      Venture. The Long Men Joint Venture obtained the business license on June 22,
      2007 and according to the agreement between two parties, General Steel will
      start to consolidate the financial result since June 1, 2007.





Assets
      acquired and debts assumed of the transaction are listed as below:




Item
            
            Long
                      Steel Balance Sheet May 31, 2007 Fair
                      Value
            
            Assumed
                  by Long Men Joint VentureCurrent
                assets
            
            $
            317,744,960
            
            $
            98,530,222Property,
                plant, and equipment
            
            
            186,915,879
            
            
            164,811,374Intangible
                assets
            
            
            20,128,972
            
            
            19,543,875Other
                assets
            
            
            99,604,841Total
                assets
            
            
            624,394,652
            
            
            282,885,471Current
                liability
            
            
            473,168,746
            
            
            223,776,221Long
                term liability
            
            
            38,246,111
            
            
            32,809,250Total
                liabilities
            
            
            511,414,857
            
            
            256,585,471Net
                assets
            
            $
            112,979,795
            
            $
            26,300,000




44


**Pro
        Forma**
 
 The
        following unaudited pro forma condensed income statement for six months ended
        June 30, 2007 and the year ended December 31, 2006 was prepared under Generally
        Accepted Accounting Principles and as if the Long Men Joint Venture had occurred
        on January 1, 2006. The pro forma information may not be indicative of the
        results that actually would have occurred if the acquisition had been in
        effect
        from and on the dates indicated or which may be obtained in the
        future.




Six
                  months ended
              
              Year
                  endedJune
                  30, 2007
              
              December
                  31, 2006Sales
              
              $
              636.3
              
              $
              815.8Cost
                  of sales
              
              
              587.4
              
              
              775.5Gross
                  Profit
              
              
              48.9
              
              
              40.3SG&A
                  expenses
              
              
              15.3
              
              
              14.9Other
              
              
              14.9
              
              
              5.6Operating
                  income from income tax
              
              
              18.7
              
              
              19.8Income
                  tax
              
              
              2.8
              
              
              2.7Net
                  income before minority interest
              
              
              15.9
              
              
              17.1Minority
                  interest
              
              
              5.9
              
              
              6.9Net
                  income
              
              $
              10.0
              
              $
              10.2
 (US
        Dollars, in millions)


***Liquidity
      and capital resources***




Due
      to
      the strong market demand for our products and our new addition of Long Men
      Joint
      Venture, we plan to maintain a higher-than-average debt to equity ratio to
      better position ourselves in this fast growing market. The bank loans are
      considered short term for the purpose of the preparation of the financial
      statements though they are renewable with the banks every year. Cash balance
      amounted to $44.3
      million and $6.8 million a s
      of June 30,
      2007
      and December 31, 2006, respectively.





***Operating
      activities***




Net
      cash
      provided by operating activities for the six months ended June 30, 2007 was
      $10.7 million compared to $6.4 million used in the same period of 2006. This
      change was mainly due to the combination of the following factors.





Our
      net
      income for the six months ended June 30, 2007 was $2.4 million, an increase
      of
      $2.1 million compared to $0.3 million in the same period of 2006. Accounts
      receivable increased by $0.5 million compared to the beginning of the year.
      Our
      new Long Men Joint Venture didn’t obtain the VAT invoices from the local tax
      bureau until late July. All the sales and purchases made by the joint venture
      were carried out through our joint venture partner, Long Steel Group. All the
      sales proceeds and purchase cost were carried on a net basis payable to Long
      Steel Group until the VAT invoices were received in July.





Accounts
      payable, other payables, accrued liabilities, customer deposits and tax payable
      went up by $31.5 million compared to the beginning of the year. The increase
      in
      these accounts helped the company generate positive cash flows from operating
      activities.





***Investing
      activities***




Net
      cash
      provided by investing activities was $3.04 million for the six months ended
      June
      30, 2007 compared to $3.6 million used in the same period of 2006. This increase
      in cash provided by investing activities mainly resulted from a $6.2 million
      debt from Yangpu Shengtong Investment to Tianjin Qiu Steel Investment’s former
      shareholders which is a related party.





***Financing
      activities***




Net
      cash
      provided by financing activities was $22.3 million for the six months ended
      June
      30, 2007 compared to $3.7 million in the same period of 2006. This increase
      was
      mainly to the increase in bank borrowings. Short term loans increased from
      $30.3
      million to $113.8 million and notes payable increased from $8.2 million to
      $43.4
      million since the beginning of the year. Due to the raw materials purchases
      and
      other investment needs, our notes payable increased from $8.2 million to $43.4
      million for the first half of 2007. Restricted cash associated with these notes
      also went up by $9.31 million.




45





***Compliance
      with environmental laws and regulations***





**Long
      Men Joint Venture:**





Since
      2002, our joint venture partner, Long Steel Group has invested RMB 580 million
      (approximate $76 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 RMB 33 million (approximate $4.3 million) on
      a
      comprehensive waste water recycling and water treatment system. The new
      2,000m 3 /h
      treatment capacity system was implemented at the end of 2005. As a result,
      in
      2006, new water consumption per ton of steel produced dropped by 77% to 1.09
      ton.





Long
      Steel Group has built one 10,000m 3 coke-oven gas tank and one 50,000m 3 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 built a
      thermal power plant with two 25 KW dynamos that uses the residual coal gas
      from
      the blast furnaces and converters as fuel to generate power.





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





**Daqiuzhuang
      Metal:**





Based
      on
      the equipment, technologies and measures adopted, Daqiuzhuang Metal is not
      considered a high-pollution 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,
      the Daqiuzhuang County ordered an environmental clean-up campaign and required
      harmless 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 tons of wastewater daily.
      We
      can realize approximately $10,000 savings per year using this
      system.




46





We
      believe that future costs relating to environmental compliance will not have
      a
      materially adverse effect on the Company’s 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
      are
      currently no off-balance sheet arrangements.





***New
      Accounting Pronouncements***





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No
      157, "Fair Value Measurements". This statement defines fair value, establishes
      a
      framework for measuring fair value under generally accepted accounting
      principles, and expands disclosures about fair value measurements. The statement
      is effective in the fiscal first quarter of 2008 and the Company will adopt
      the
      statement at that time. The Company is currently in the process of evaluating
      this pronouncement and the impact of the adoption of SFAS No. 159 would have
      on
      its results of operations, cash flows and financial position.





In
      June
      2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement No 109".
      This
      interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. The interpretation also provides guidance
      on derecognition, classification and other matters.





The
      statement was effective for the fiscal year 2007 and the Company adopted the
      Interpretation at that time. See Note 3 to the Unaudited Consolidated Financial
      Statements for more details.





In
      February 2007, the FASB issued Statement No. 159, "Fair Value Option for
      Financial Assets and Financial Liabilities", which permits an entity to measure
      certain financial assets and financial liabilities at fair value. Statement
      159
      is effective for fiscal year 2008 but early adoption is permitted. The Company
      is currently in the process of evaluating this pronouncement and the impact
      of
      the adoption of FASB 159 would have on its results of operations, cash flows
      and
      financial position.





ITEM
      3.
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





**Commodity
      Price Risk and Related Risks**





In
      the
      normal course of its business, General Steel is 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. General Steel does not use any derivative
      commodity instruments to manage the price risk. General Steel’s market risk
      strategy has generally been to obtain competitive prices for its products and
      allow operating results to reflect market price movements dictated by supply
      and
      demand. Based upon an assumed 2007 annual production capacity of 1.8 million
      tons, a $1 change in the annual average price would change annual pre-tax
      profits by approximately $1.8 million.





**Interest
      Rate Risk**





The
      Company is subject to interest rate risk since its 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.




47





**Foreign
      Currency Exchange Rate Risk**





General
      Steel’s operating units, Daqiuzhuang Metal and Long Men Joint Venture are both
      located in China. The operation purchase, produce and sell all of the steel
      products domestically. It is subject to the foreign currency exchange rate
      risk
      due to the effects of fluctuations in the Chinese Renminbi on revenues and
      operating cost and existing assets or liabilities. General Steel has not
      generally used derivative instruments to manage this risk. A 10 percent decrease
      in the average Renminbi exchange rate woul d
      result
      in a $0.4 million cha rge
      to
      income for the six months ended June 30, 2007.





ITEM
      4.
      CONTROLS AND PROCEDURES





As
      of the
      end of the period covered by this report, General Steel’s management carried out
      an evaluation, with the participation of General Steel’s principal executive
      officer and principal financial officer, of the effectiveness of General Steel’s
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      promulgated under the Securities Exchange Act of 1934). Based upon that
      evaluation, General Steel’s principal executive officer and principal financial
      officer concluded that General Steel’s disclosure controls and procedures were
      effective as of the end of the period covered by this report.





There
      were no changes in General Steel’s internal controls over financial reporting
      that occurred during General Steel’s most recent fiscal quarter that have
      materially affected, or are reasonably likely to materially affect, General
      Steel’s internal control over financial reporting.





**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





There
      have been no legal proceedings issued against or commenced by the
      company.





**ITEM
      1A. RISK FACTORS**





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





In
      the
      sale of flat rolled carbon steel and silicon steel, 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
      for our customers include:





·
            Quality;


·
            Price/cost
                competitiveness;


·
            System
                and product performance;


·
            Reliability
                and timeliness of delivery;


48





·
            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 five major competitors of
      similar size, production capability and product line in the market place:





·
            At
                Daqiuzhuang Metal: Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze
                Metal
                Sheet Plant and Tangshan Fengrun Metal Sheet Plant.


·
            At
                Long Men Joint Venture: Shanxi Haixin Iron and Steel Co., Ltd. and
                Gansu
                Jiuquan 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 in the agricultural equipment market in China as
      a
      whole with the entry of foreign companies into this market. This may limit
      our
      opportunities for growth, lead to price pressure and reduce our profitability.
      We may not be able to compete favorably and this increased competition may
      harm
      our business, our business prospects and results of operations.





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





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





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


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


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


·
            Maintain
                adequate control of our expenses;


·
            Anticipate
                and adapt to changing conditions in the agricultural equipment 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
      business, business prospects and results of operations will be affected if
      we
      are not successful in addressing any or all of these risks and
      difficulties.




49





***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. We believe that in order to grow our company further, we intend
      to seize opportunities in Chinese SOEs’ privatization and set up strategic joint
      ventures with these SOEs. That 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 agricultural equipment industry
                in
                the PRC, and


·
            Conditions
                in relevant financial markets in the U.S., the PRC and elsewhere
                in the
                world.





***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 first six months of 2007, approximately
      37%
      of our sales were to five customers **.** We
      believe that revenue derived from our current and future large customers will
      continue to represent a significant portion of our total revenue. Our inability
      to continue to secure and maintain a sufficient number of large contracts or
      the
      loss of, or significant reduction in purchases by, one or more of our major
      customers would have the effect of reducing our revenues and profitability.





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





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





The
      major
      raw materials that we purchase for production are iron ore, steel slabs and
      strip steel. 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.




50





***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
      1,500 steel companies in China. Among those, only 15 companies have over 5
      million tons of production capacity. Each steel company has its own production
      plan. The Chinese government posted a new guidance on 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
      products 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.





***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, and our principal
      assets are our investments in Daqiuzhuang Metal. As a result, we are dependent
      upon the performance of Daqiuzhuang Metal and we will be subject to the
      financial, business and other factors affecting Daqiuzhuang Metal 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 the our and 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 amounting to approximately US$31.9 million, of
      which all 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.





***We
      rely on Yu, Zuo Sheng 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 Yu, Zuo Sheng,
      our
      chairman and chief executive officer, for the redirection of our business and
      leadership in our growth effort. The loss of the services of Yu, Zuo Sheng,
      for
      any reason, may have a material adverse effect on our business and prospects.
      We
      cannot be guarantee that Yu, Zuo Sheng will continue to be available to us,
      or
      that we will be able to find a suitable replacement for Yu, Zuo Sheng on a
      timely basis.




51





**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 at a transition 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 the PRC 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 by, 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.





***The
      PRC 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 PRC laws
      and
      regulations may have a material and adverse effect on our
      business.***





There
      are
      substantial uncertainties regarding the interpretation and application of PRC
      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. Our subsidiaries and we are considered
      foreign persons or foreign funded enterprises under PRC laws, and as a result,
      we are required to comply with PRC 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 PRC 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 treatments 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 PRC laws or regulations may have on our
      businesses. Such restructuring may not be effective or result in similar or
      other difficulties. We may be subject to sanctions, including fines, and could
      be required to restructure our operations. As a result of these substantial
      uncertainties, there is a risk that we may be found in violation of any current
      or future PRC laws or regulations.




52





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





All
      of
      our operations are conducted in the PRC and all of our revenues are generated
      from sales to businesses operating in the PRC. Although the PRC 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 PRC economy which may affect demand for agricultural equipment.
      A
      slowdown in overall economic growth, an economic downturn or recession or other
      adverse economic developments in the PRC may materially reduce the demand for
      our products and in turn reduce our results of operations and our
      productivity.





In
      China,
      farmers are key consumers for agricultural vehicles. The consumption is closely
      related to the economic developments in different regions and areas. With the
      continuous development of rural economy in central and western China, there
      is
      increasing demand for agricultural vehicles. In addition, the implementation
      of
      the “Go West” strategy and China’s entry into the World Trade Organization have
      prodded the government to increase investment in the agricultural sector in
      central and western China. China’s western areas will become a high growth
      market for agricultural vehicles. However the new government policies may as
      well bring competition to this market. More steel companies may turn their
      focus
      to the agricultural sector which will increase the supply of steel products
      used
      for agricultural vehicles. This new competition may force us to lower our
      product price or reduce the production volume.





***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. In October 2004, the People’s Bank of China,
      China’s central bank, raised interest rates for the first time in nearly a
      decade and indicated in a statement that the measure was prompted by
      inflationary concerns in the Chinese economy. Repeated increases in interest
      rates by the central bank will likely slow economic activity in China which
      could, in turn, materially increase our costs and also reduce demand for our
      products.





***If
      relations between the United States and China worsen, our stock price may
      decrease and we may experience difficulties accessing the U.S. 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 US capital markets.





***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.




53





***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 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
      PRC
      government imposes controls on the convertibility of Renminbi into foreign
      currencies and, in certain cases, the remittance of currency out of the PRC.
      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
      PRC 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 the PRC 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.





The
      PRC
      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.




54





***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 the PRC’s political and economic
      conditions. As we rely entirely on revenues earned in the PRC, 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 the PRC has 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 PRC 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 PRC government revalued
      the Renminbi by 2.1% against the U.S. dollar, moving from Renminbi 8.28 to
      Renminbi 8.11 per dollar. Because of 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.





***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.





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





The
      PRC
      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, the PRC legislative bodies have promulgated laws and
      regulations dealing with economic matters such as foreign investment, corporate
      organization and governance, commerce, taxation and trade. However, the PRC
      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
      the PRC. 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 the PRC 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.




55





**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 96% of our
      common stock. Mr. Yu, Zuo Sheng our major shareholder, beneficially owns
      approximately 76.5% of our common stock. Mr. Yu can effectively control us
      and
      his interests may differ from other stockholders.




Because
      our principal assets are located outside of the United States and all of our
      directors and officers reside outside of the United States, it may be difficult
      for you to enforce your rights based on U.S. federal securities laws against
      us
      and our officers and directors in the U.S. or enforce U.S. court judgments
      against us or them in the PRC.




All
      our
      directors reside outside of the United States. In addition, Daqiuzhuang, our
      operating subsidiary, is located in China and substantially all of its assets
      are located outside of 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 U.S. and the PRC and, even if civil judgments are obtained
      in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear
      if extradition treaties now in effect between the United States and the PRC
      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.





***There
      is only a limited trading market for our common
      stock.***





Our
      common stock is now listed on the over-the-counter Bulletin Board. There is
      currently limited trading market for our common stock and we do not know if
      any
      trading market will ever develop. You may be unable to sell your shares due
      to
      the absence of a trading market.





In
      addition, broker-dealers who recommend our common stock to people who are not
      established customers or qualifying investors must follow special sales
      procedures, including getting the purchaser’s written consent prior to the sale.
      We are currently subject to the “penny stock” rules promulgated under the
      Securities Exchange Act of 1934. During the period(s) that our stock trades
      below $5.00 per share, as it currently does, trading in our common stock is
      subject to the requirements of the “penny stock” rules. These rules require
      additional disclosure by broker dealers in connection with any trades generally
      involving any non-NASDAQ equity security that has a market price of less than
      $5.00 per share, subject to certain exceptions. Such rules require the delivery,
      before any “penny stock” transaction, of a disclosure schedule explaining the
      penny stock market and the risks associated therewith, and impose various sales
      practice requirements on broker dealers who sell penny stocks to persons other
      than established customers and accredited investors (generally institutions).
      For these types of transactions, the broker-dealer must determine the
      suitability of the penny stock for the purchaser and receive the purchaser’s
      written consent to the transaction before sale. The additional burdens imposed
      upon broker dealers by such requirements may discourage broker-dealers from
      effecting transactions in our common stock affected. As a consequence, the
      market liquidity of General Steel’s common stock could be severely limited by
      these regulatory requirements.




56





***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.




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





None
      for
      the period covered by this report.





ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES





None
      for
      the period covered by this report.





ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





The
      Company has filed a definitive information statement on Schedule 14C on June
      25,
      2007 and distributed such an Information Statement to its public stockholders
      in
      connection with the amendment to the Company’s Certificate of Incorporation to
      increase of the number of authorized common stock thereunder and to create
      the
      preferred stock of the Company.





ITEM
      5.
      OTHER INFORMATION





None
      for
      the period covered by this report.





ITEM
      6.
      EXHIBITS





(a)
      Exhibits





31.1
            Certification
                of Chief Executive Officer;




31.2
            Certification
                of Chief Financial Officer;




32.1
            Certification
                of Chief Executive Officer;




32.2
            Certification
                of Chief Financial Officer.




57





SIGNATURES





In
      accordance with the requirements of the Exchange Act, the Registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




General
                Steel Holdings, Inc.(Registrant)Date:
              August 20, 2007
            By:
            /s/
              Zuo
              Sheng YuZuo
                Sheng YuChief
                Executive Officer and Chairman




Date:
              August 20, 2007
            By:
            /s/
              John
              ChenJohn
                  ChenDirector
                  and Chief Financial
                  Officer


58