**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




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





**For
      the quarterly period ended March 31, 2008**





**Commission
      File Number 333-105903**




**General
      Steel Holdings, Inc.**


(Exact
      name of registrant as specified in its charter)




**Nevada**
              (State
                or other Jurisdiction of
              Incorporation
                or Organization)
            
            **412079252**
              (I.R.S.
                Employer Identification No.)




**Room
      2315, Kun Tai International Mansion Building, Yi No**


**12,
      Chao Yang Men Wai Ave.**


**Chao
      Yang District, Beijing, China 100020**


(Address
      of Principal Executive Office, Including Zip Code)




**+86(10)58797346**


(Registrant's
      Telephone Number, Including Area Code)




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




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




Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filerý
            Smaller
                reporting companyo





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




As
      of
      May 15, 2008, 34,948,765 shares
      of common stock, par value $ 0.001 per
      share, were issued and outstanding.













**Table
      of Contents**




**Page**Part
                I: FINANCIAL INFORMATION:Item
                1. Financial Statements.
            
            2Consolidated
                Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
                2007
            
            2Consolidated
                Statements of Income and Other Comprehensive Income (Unaudited) for
                the
                Three Months Ended March 31, 2008 and 2007
            
            3Consolidated
                Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended
                March 31, 2008 and 2007
            
            4Consolidated
                Statements of Cash Flows (Unaudited) for the Three Months Ended March
                31,
                2008 and 2007
            
            5Notes
                to Consolidated Financial Statements (Unaudited)
            
            6Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations.
            
            38Item
                3. Quantitative and Qualitative Disclosures About Market
                Risks.
            
            53Item
                4T. Controls and Procedures
            
            53Part
                II. OTHER INFORMATIONItem
                1. Legal Proceedings.
            
            54Item
                1A. Risk Factors
            
            54Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            63Item
                3. Defaults Upon Senior Securities
            
            64Item
                4. Submission of Matters to a Vote of Security Holders
            
            64Item
                5. Other Information
            
            64Item
                6—Exhibits
            
            65Signatures
            
            66





**PART
      I – FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**GENERAL
      STEEL HOLDINGS, INC** **.
      AND SUBSIDIARIES**




**CONSOLIDATED
      BALANCE SHEETS**


**MARCH
      31, 2008 AND DECEMBER 31, 2007**


ASSETSMarch
                  31,
              
              December
                  31,2008
              
              2007(Unaudited)CURRENT
                  ASSETS:Cash
              
              $
              13,247,096
              
              $
              43,713,346Restricted
                  cash
              
              
              47,482,412
              
              
              8,391,873Accounts
                  receivable, net of allowance for doubtful accounts of
                  $270,235and
                  $148,224 as of March 31, 2008 and December 31, 2007,
                  respectively
              
              
              13,079,339
              
              
              11,225,678Accounts
                  receivable - related parties
              
              
              14,682,192
              
              
              565,631Notes
                  receivable
              
              
              18,569,839
              
              
              4,216,678Notes
                  receivable - restricted
              
              
              4,359,863
              
              
              12,514,659Short
                  term loan receivable - related parties
              
              
              1,285,200
              
              
              1,233,900Other
                  receivables
              
              
              786,133
              
              
              1,280,853Other
                  receivables - related parties
              
              
              2,144,266
              
              
              1,913,448Dividend
                  receivable
              
              
              613,719
              
              
              -Inventories
              
              
              100,804,450
              
              
              77,928,925Advances
                  on inventory purchases
              
              
              57,775,966
              
              
              58,170,474Advances
                  on inventory purchases - related parties
              
              
              37,496,745
              
              
              9,944,012Prepaid
                  expenses - current
              
              
              1,239,190
              
              
              1,059,866Prepaid
                  expenses related party - current
              
              
              51,408
              
              
              49,356Deferred
                  tax assets
              
              
              637,598
              
              
              399,751Deferred
                  notes issuance cost
              
              
              5,120,152
              
              
              3,564,546319,375,568
              
              
              236,172,996PLANT
                  AND EQUIPMENT, net
              
              
              255,879,989
              
              
              218,263,367OTHER
                  ASSETS:Advances
                  on equipment purchases
              
              
              347,848
              
              
              742,061Investment
                  in unconsolidated subsidiaries
              
              
              9,666,132
              
              
              822,600Prepaid
                  expenses - non current
              
              
              522,193
              
              
              506,880Prepaid
                  expenses related party - non current
              
              
              244,188
              
              
              142,467Intangible
                  assets, net of accumulated amortization
              
              
              22,575,599
              
              
              21,756,709Total
                  other assets
              
              
              33,355,960
              
              
              23,970,717Total
                  assets
              
              $
              608,611,517
              
              $
              478,407,080LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              129,291,728
              
              $
              102,241,708Accounts
                  payable - related parties
              
              
              7,795,581
              
              
              14,302,738Short
                  term loans - bank
              
              
              93,131,304
              
              
              93,019,608Short
                  term loans - others
              
              
              34,896,184
              
              
              19,156,070Short
                  term loans - related parties
              
              
              -
              
              
              7,317,027Short
                  term notes payable
              
              
              75,327,000
              
              
              15,163,260Employee
                  loans
              
              
              2,356,200
              
              
              -Other
                  payables
              
              
              3,754,540
              
              
              3,343,684Other
                  payable - related parties
              
              
              21,171
              
              
              2,126,383Accrued
                  liabilities
              
              
              7,164,386
              
              
              5,248,863Customer
                  deposits
              
              
              60,883,030
              
              
              37,872,698Customer
                  deposits - related parties
              
              
              -
              
              
              9,211,736Deposits
                  due to sales representatives
              
              
              2,734,620
              
              
              3,068,298Taxes
                  payable
              
              
              22,404,489
              
              
              27,576,240Investment
                  payable
              
              
              6,854,400
              
              
              6,580,800Distribution
                  payable to minority shareholder
              
              
              2,330,858
              
              
              2,820,803Total
                  current liabilities
              
              
              448,945,491
              
              
              349,049,916NOTES
                  PAYABLE, net of debt discount $33,861,956
              
              
              6,138,044
              
              
              5,440,416DERIVATIVE
                  LIABILITIES
              
              
              25,812,545
              
              
              28,483,308MINORITY
                  INTEREST
              
              
              65,701,909
              
              
              42,044,266SHAREHOLDERS'
                  EQUITY:Preferred
                  stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899
                  sharesissued
                  and outstanding
              
              
              3,093
              
              
              3,093Common
                  Stock, $0.001 par value, 200,000,000 shares authorized, 34,861,365
                  and34,634,765
                  shares (including 1,176,665 redeemable shares) issued and outstandingas
                  of March 31, 2008 and December 31, 2007,
                  respectively
              
              
              34,861
              
              
              34,635Paid-in-capital
              
              
              25,541,882
              
              
              23,429,153Retained
                  earnings
              
              
              24,527,303
              
              
              22,686,590Statutory
                  reserves
              
              
              3,980,072
              
              
              3,632,325Contribution
                  receivable
              
              
              (959,700
              )
              
              (959,700
              )Accumulated
                  other comprehensive income
              
              
              8,886,017
              
              
              4,563,078Total
                  shareholders' equity
              
              
              62,013,528
              
              
              53,389,174Total
                  liabilities and shareholders' equity
              
              $
              608,611,517
              
              $
              478,407,080




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


2


**GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007****(UNAUDITED)**


2008
              
              2007REVENUES
              
              $
              178,492,167
              
              $
              37,607,971REVENUES
                  - RELATED PARTIES
              
              
              113,073,832
              
              
              -TOTAL
                  REVENUES
              
              
              291,565,999
              
              
              37,607,971COST
                  OF SALES
              
              
              166,714,663
              
              
              35,874,966COST
                  OF SALES - RELATED PARTIES
              
              
              111,869,221
              
              
              -TOTAL
                  COST OF SALES
              
              
              278,583,884
              
              
              35,874,966GROSS
                  PROFIT
              
              
              12,982,115
              
              
              1,733,005SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              6,532,821
              
              
              630,200INCOME
                  FROM OPERATIONS
              
              
              6,449,294
              
              
              1,102,805OTHER
                  EXPENSE, NET
              
              
              2,366,155
              
              
              220,676INCOME
                  BEFORE PROVISION FOR INCOME TAXESAND
                  MINORITY INTEREST
              
              
              4,083,139
              
              
              882,129PROVISION
                  FOR INCOME TAXESCurrent
              
              
              666,356
              
              
              127,270Deferred
              
              
              (216,533
              )
              
              -Total
                  provision for income taxes
              
              
              449,823
              
              
              127,270NET
                  INCOME BEFORE MINORITY INTEREST
              
              
              3,633,316
              
              
              754,859LESS
                  MINORITY INTEREST
              
              
              1,444,856
              
              
              279,994NET
                  INCOME
              
              
              2,188,460
              
              
              474,865OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustments
              
              
              4,322,939
              
              
              223,551COMPREHENSIVE
                  INCOME
              
              $
              6,511,399
              
              $
              698,416WEIGHTED
                  AVERAGE NUMBER OF SHARESBasic
              
              
              34,836,394
              
              
              31,320,251Diluted
              
              
              34,923,614
              
              
              31,320,251EARNING
                  PER SHAREBasic
              
              $
              0.063
              
              $
              0.015Diluted
              
              $
              0.063
              
              $
              0.015




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


3


**GENERAL
          STEEL HOLDINGS, INC.** **AND
          SUBSIDIARIES**
  **CONSOLIDATED
            STATEMENTS OF SHAREHOLDERS’ EQUITY**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


AccumulatedPreferred
                  stock
              
              Common
                  stock
              
              
              
              Retained
                  earnings
              
              
              
              otherPaid-in
              
              Statutory
              
              
              
              Subscriptions
              
              comprehensiveShares
              
              Par
                  value
              
              Shares
              
              Par
                  value
              
              capital
              
              reserves
              
              Unrestricted
              
              receivable
              
              income
              
              TotalsBALANCE,
                  January 1, 2007
              
              
              -
              
              $
              -
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              1,107,010
              
              $
              4,974,187
              
              $
              -
              
              $
              1,076,688
              
              $
              14,060,493Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              474,865
              
              
              
              
              
              
              
              
              474,865Common
                  stock issued for conversion ofredeemable
                  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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              223,551
              
              
              223,551BALANCE,
                  March 31, 2007, unaudited
              
              
              -
              
              $
              -
              
              
              31,444,665
              
              $
              31,445
              
              $
              7,239,428
              
              $
              1,107,010
              
              $
              5,449,052
              
              $
              -
              
              $
              1,300,239
              
              $
              15,127,174Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              21,951,056
              
              
              
              
              
              
              
              
              21,951,056Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,525,315
              
              
              (2,525,315
              )
              
              
              
              
              
              
              
              -Registered
                  Capital to be received from
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Baotou
                  Steel by 05/21/09
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (959,700
              )
              
              
              
              
              (959,700
              )Common
                  stock issued for acquisition net of dividend
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -distribution
                  to Tianjin Victory New
              
              
              3,092,899
              
              
              3,093
              
              
              
              
              
              
              
              
              8,370,907
              
              
              
              
              
              (2,188,203
              )
              
              
              
              
              
              
              
              6,185,797Conversion
                  of redeemable stock, $1.95
              
              
              
              
              
              
              
              
              1,000,000
              
              
              1,000
              
              
              1,948,992
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,949,992Conversion
                  of warrants, $2.50
              
              
              
              
              
              
              
              
              2,120,000
              
              
              2,120
              
              
              5,297,880
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,300,000Common
                  stock issued for compensation, $8.16
              
              
              
              
              
              
              
              
              70,100
              
              
              70
              
              
              571,946
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              572,016Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,262,839
              
              
              3,262,839BALANCE,
                  December 31, 2007
              
              
              3,092,899
              
              $
              3,093
              
              
              34,634,765
              
              $
              34,635
              
              $
              23,429,153
              
              $
              3,632,325
              
              $
              22,686,590
              
              $
              (959,700
              )
              $
              4,563,078
              
              $
              53,389,174Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,188,460
              
              
              
              
              
              
              
              
              2,188,460Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              347,747
              
              
              (347,747
              )
              
              
              
              
              
              
              
              -Common
                  stock issued for compensation, $8.16
              
              
              
              
              
              
              
              
              76,600
              
              
              77
              
              
              548,379
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              548,456Common
                  stock issued for compensation, $10.43
              
              
              
              
              
              
              
              
              150,000
              
              
              150
              
              
              1,564,350
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,564,500Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,322,939
              
              
              4,322,939BALANCE,
                  March 31, 2008, unaudited
              
              
              3,092,899
              
              $
              3,093
              
              
              34,861,365
              
              $
              34,861
              
              $
              25,541,882
              
              $
              3,980,072
              
              $
              24,527,303
              
              $
              (959,700
              )
              $
              8,886,017
              
              $
              62,013,528





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


4


**GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007****(UNAUDITED)**




2008
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              2,188,460
              
              $
              474,865Adjustments
                  to reconcile net income to cashprovided
                  by (used in) operating activities:Minority
                  interest
              
              
              1,444,856
              
              
              279,994Depreciation
              
              
              4,499,873
              
              
              561,709Amortization
              
              
              205,146
              
              
              76,524Loss
                  on disposal of equipment
              
              
              9,492
              
              
              -Stock
                  issued for services and compensation
              
              
              548,456
              
              
              23,760Interest
                  expense accrued on mandatory redeemable stock
              
              
              -
              
              
              114,726Amortization
                  of deferred note issuance cost
              
              
              8,894
              
              
              -Amortization
                  of discount on convertible notes
              
              
              697,628
              
              
              -Change
                  in fair value of derivative instrument
              
              
              (2,670,763
              )
              
              -Deferred
                  tax assets
              
              
              (216,533
              )
              
              -Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              (1,459,682
              )
              
              5,898,381Accounts
                  receivable - related parties
              
              
              7,631,355
              
              
              -Notes
                  receivable
              
              
              (13,832,292
              )
              
              (1,517,176
              )Notes
                  receivable- restricted
              
              
              8,491,027
              
              
              -Other
                  receivables
              
              
              1,533,823
              
              
              82,939Other
                  receivables - related parties
              
              
              (148,056
              )
              
              333,000Inventories
              
              
              (17,647,149
              )
              
              (1,760,231
              )Advances
                  on inventory purchases
              
              
              6,516,616
              
              
              (11,340,142
              )Advances
                  on inventory purchases - related parties
              
              
              (26,563,452
              )
              
              -Prepaid
                  expense - current
              
              
              (132,390
              )
              
              (123,161
              )Prepaid
                  expense - non current
              
              
              5,639
              
              
              -Prepaid
                  expense - non current - related parties
              
              
              (93,765
              )
              
              -Accounts
                  payable
              
              
              11,144,259
              
              
              1,951,381Accounts
                  payable - related parties
              
              
              (6,951,111
              )
              
              -Other
                  payables
              
              
              (2,579,136
              )
              
              (275,480
              )Other
                  payable - related parties
              
              
              (2,118,101
              )
              
              -Accrued
                  liabilities
              
              
              522,377
              
              
              (41,648
              )Customer
                  deposits
              
              
              20,885,570
              
              
              1,631,391Customer
                  deposits - related parties
              
              
              (9,391,133
              )
              
              -Taxes
                  payable
              
              
              (9,585,924
              )
              
              783,398Net
                  cash used in operating activities
              
              
              (27,056,016
              )
              
              (2,845,770
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Cash
                  acquired from subsidiary
              
              
              702,237
              
              
              -Deposits
                  due to sales representatives
              
              
              (451,457
              )
              
              (411,542
              )Advance
                  on equipment purchases
              
              
              416,045
              
              
              -Equipment
                  purchases
              
              
              (28,097,609
              )
              
              (126,928
              )Intangible
                  assets purchases
              
              
              143,465
              
              
              -Net
                  cash used in investing activities
              
              
              (27,287,319
              )
              
              (538,470
              )CASH
                  FLOWS FINANCING ACTIVITIES:Restricted
                  cash
              
              
              (33,726,504
              )
              
              (2
              )Borrowings
                  on short term loans - bank
              
              
              24,893,037
              
              
              8,785,581Payments
                  on short term loans - bank
              
              
              (28,568,988
              )
              
              (7,495,481
              )Borrowings
                  on short term loans - related parties
              
              
              6,168,050
              
              
              -Payments
                  on short term loans - related parties
              
              
              (5,153,320
              )
              
              -Borrowings
                  on short term loan - others
              
              
              23,147,344
              
              
              -Payments
                  on short term loans - others
              
              
              (16,733,731
              )
              
              -Borrowings
                  on short term notes payable
              
              
              62,896,500
              
              
              1,161,090Payments
                  on short term notes payable
              
              
              (11,614,887
              )
              
              (1,161,090
              )Borrowings
                  on employee loans
              
              
              2,306,205
              
              
              -Payment
                  to minority shareholders
              
              
              (594,336
              )
              
              -Net
                  cash provided by financing activities
              
              
              23,019,370
              
              
              1,290,098EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              857,715
              
              
              60,407DECREASE
                  IN CASH
              
              
              (30,466,250
              )
              
              (2,033,735
              )CASH,
                  beginning of year
              
              
              43,713,346
              
              
              6,831,550CASH,
                  end of year
              
              $
              13,247,096
              
              $
              4,797,815




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


5


**GENERAL
      STEEL HOLDINGS, INC.** **AND
      SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2008**


**(UNAUDITED)**




**Note
        1 - Background**
 
 General
        Steel Holdings, Inc. (the “Company”) was incorporated on August 5, 2002 in the
        state of Nevada. The Company through its 100% owned subsidiary, General Steel
        Investment operates a portfolio of Chinese steel companies serving various
        industries. The Company presently has three production subsidiaries: Daqiuzhuang
        Metal, Baotou Steel - General Steel Special Steel Pipe Joint Venture Co.,
        Ltd.,
        (“Baotou Steel Pipe Joint Venture”) and Shaanxi Longmen Iron and Steel Co., Ltd.
        (“Longmen Joint Venture”). The Company’s main products include rebar, hot-rolled
        carbon and silicon sheets and spiral-weld pipes.
 
 The
        following table reflects the Company’s current organization structure:
 
 
 
 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 September 28, 2005 Joint Venture Agreement ("Original
        Joint Venture Agreement") which established Baotou Steel Pipe Joint Venture,
        a
        PRC limited liability company. The Agreement increased Daqiuzhuang Metal's
        ownership interest in the Joint Venture to 80%. Baotou Steel Pipe Joint Venture
        obtained its business license from the PRC 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 in Kundulun District, Baotou city, Inner
        Mongolia, China. It produces and sells spiral welded steel pipes and primarily
        serves customers in the oil, gas and petrochemical markets.
  6
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 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,
        Zuosheng Yu (aka Henry Yu), to acquire Victory New’s 30% interest in Tianjin
        Daqiuzhuang Metal Sheet Co. Ltd. (“Daqiuzhuang Metal”). General Steel agreed to
        issue to Victory New an aggregate of 3,092,899 shares of Series A preferred
        stock with a fair value of $8,374,000, and voting power of 30% of the combined
        voting power of General Steel’s common and preferred stock while outstanding. As
        a result of the acquisition, Daqiuzhuang Metal is a wholly owned subsidiary
        of
        the Company. See details in Note 19 - Business combinations.
 
 On
        May
        18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co.,
        Ltd.
        (“Yangpu Investment”) and injected registered capital totaling RMB100,000,000,
        or approximately $13,030,000, into the investment. The total registered capital
        of Yangpu Investment is RMB110,000,000, or approximately $14,333,000, and
        Daqiuzhuang Metal has a 99.1% ownership interest in Yangpu Investment. The
        rest
        of Yangpu Investment is indirectly owned by Zuosheng Yu, our Chairman and
        CEO.
 
 Qiu
        Steel
        Investment Co., Ltd. (“Qiu Steel Investment”) was founded on June 1, 2006. In
        June 2007, Yangpu Investment agreed to invest RMB148,000,000, or approximately
        $19,284,400, through a capital injection and equity transfer with former
        shareholders. The total registered capital of Qiu Steel Investment is
        RMB150,000,000, or approximately $19,545,000. As a result of the above mentioned
        equity transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel
        Investment making Qiu Steel Investment a subsidiary of Yangpu Investment
        and
        Daqiuzhuang Metal. The rest of Qiu Steel Investment is indirectly owned by
        Zuosheng Yu, our Chairman and CEO.
 
 Yangpu
        Investment and Qiu Steel Investment are Chinese registered limited liability
        companies formed to acquire other businesses.
 
 On
        June
        15, 2007, General Steel and Shaanxi Longmen Iron and Steel (Group) Co., Ltd.,
        a
        PRC limited liability company (“Longmen Group”), formed Longmen Joint Venture
        effective June 1, 2007. General Steel contributed RMB300 million or
        approximately $39,450,000 through its subsidiaries, Daqiuzhuang Metal and
        Qiu
        Steel Investment, to the Longmen Joint Venture. General Steel and Longmen
        Group
        own a 60% and 40% ownership interest, respectively, in Longmen Joint Venture.
        The Longmen Joint Venture obtained its business license from the PRC on June
        22,
        2007. See more discussion in Note 19 - Business combinations.
 
 Longmen
        Joint Venture is located in Hancheng city, Shaanxi province, China. Longmen
        Joint Venture is the largest integrated steel producer in Shaanxi province
        that
        uses iron ore and coke as primary raw materials for steel production. Longmen
        Joint Venture produces pig iron, crude steel, reinforced bars and high-speed
        wire. Longmen 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 Hancheng city and primarily serve regional customers in
        the
        construction industry.
 
 On
        September 24, 2007, Longmen Joint Venture acquired 74.92% ownership interest
        in
        Environmental Protection Industry Development Co., Ltd., a PRC limited liability
        company (“EPID”) engaging in recycling steel production waste, for
        RMB18,080,930, approximately $2,380,000, and a 36% equity interest in Hualong
        Fire Retardant Materials Co., Ltd., a PRC limited liability company (“Hualong”)
        engaging in producing fire retardant material for steel production, for
        RMB3,287,980, approximately $430,000. The parties agreed to make the effective
        date of the transaction July 1, 2007.
  7
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 On
        January 14, 2008, the Company through Longmen Joint Venture, completed its
        acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co.,
        Ltd.
        (“Tongxing”). The joint venture contributed its land use right of 217,487 square
        meters (approximately 53 acres) with appraised value of approximately $4.1
        million (or RMB30,227,333). Pursuant to the agreement, the land will be
        converted into shares valued at approximately $3.1 million (RMB22,744,419),
        providing the Joint Venture stake of 22.76% ownership in Tongxing and making
        it
        Tongxing’s largest and controlling shareholder. The parties agreed to make the
        effective date of the transaction January 1, 2008. The acquisition is accounted
        for as acquisition under common control.  See
        more
        detail in Note 19 - Business combinations.
  **Note
        2 - Summary of significant accounting policies**
 
 Basis
        of presentation
 
 The
        consolidated financial statements of the Company reflect the activities of
        the
        following directly and indirectly owned subsidiaries:
 
 PercentageSubsidiary
              
              Of
                  OwnershipGeneral
                  Steel Investment Co., Ltd.
              
              
              British
                  Virgin Islands
              
              
              100.0
              %Tianjin
                  Daqiuzhuang Metal Sheet Co., Ltd
              
              
              P.R.C.
              
              
              100.0
              %Baotou
                  Steel - General Steel Special Steel Pipe Joint Venture Co.,
                  Ltd.
              
              
              P.R.C.
              
              
              80.0
              %Yangpu
                  Shengtong Investment Co., Ltd.
              
              
              P.R.C.
              
              
              99.1
              %Qiu
                  Steel Investment Co., Ltd.
              
              
              P.R.C.
              
              
              98.7
              %Shaanxi
                  Longmen Iron and Steel Co. Ltd.
              
              
              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.
 
 Management
        has included all normal recurring adjustments considered necessary to give
        a
        fair presentation of operating results for the periods presented. Interim
        results are not necessarily indicative of results for a full year. The
        information included in this Form 10-Q should be read in conjunction with
        information included in the 2007 annual report filed on Form 10-K.
 
 Use
        of
        estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles of the United States of America requires management
        to
        make estimates and assumptions that affect the amounts reported in the financial
        statements and accompanying notes. Significant accounting estimates reflected
        in
        the Company’s financial statements include the useful lives of and impairment
        for property, plant and equipment, potential losses on uncollectible receivables
        and the fair value of the conversion feature and warrants associated with
        the
        note payable. Actual results could differ from these estimates.
  8
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Concentration
        of risks
 
 The
        Company's operations are carried out in the PRC. Accordingly, the Company's
        business, financial condition and results of operations may be influenced
        by the
        political, economic and legal environment in the PRC, and by the general
        state
        of the PRC's economy. The Company's operations in the PRC are subject to
        specific considerations and significant risks not typically associated with
        companies in North America and Western Europe. The Company's results may
        be
        adversely affected by changes in governmental policies with respect to laws
        and
        regulations, anti-inflationary measures, currency conversion and remittance
        abroad, and rates and methods of taxation, among other things.
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with state
        owned banks within the People’s Republic of China and Hong Kong. Total cash
        (including restricted cash balances) in these banks on March
        31,
        2008 and December
        31, 2007 amounted
        to $ 59,957,897 and $53,817,485, 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.
  The
        Company had five major customers, which represented approximately 53%, and
        26%
        of the Company’s total sales for the three months ended March
        31,
        2008 and 2007 ,
        respectively. Five customers accounted for 39% and 0% of total accounts
        receivable as of March
        31,
        2008 ,
        and December
        31, 2007 ,
        respectively.
 
 For
        the
        three months ended March 31, 2008, and 2007, the Company purchased approximately
        40% an d
        93% ,
        respectively, of their raw materials from five major suppliers. Five vendors
        accounted for 67% and 11% of total accounts payable as of March
        31,
        2008 and December
        31, 2007 ,
        respectively.
 
 Revenue
        recognition
 
 The
        Company's revenue recognition policies are in compliance with Staff Accounting
        Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
        customers when a formal arrangement exists, the price is fixed or determinable,
        the delivery is completed, no other significant obligations of the Company
        exist
        and collectability is reasonably assured. Payments received before all of
        the
        relevant criteria for revenue recognition are recorded as customer deposits.
        Sales revenue represents the invoiced value of goods, net of value-added
        tax
        (VAT). All of the Company’s products sold in the PRC are subject to a Chinese
        value-added tax at a rate of 13% to 17% of the gross sales price. This VAT
        may
        be offset by VAT paid by the Company on raw materials and other materials
        included in the cost of producing the finished product.
 
 Foreign
        currency translation and other comprehensive income
 
 The
        reporting currency of the Company is the US dollar. The Company uses the
        local
        currency, Renminbi (RMB), as its functional currency. Assets and liabilities
        are
        translated at the unified exchange rate as quoted by the People’s Bank of China
        at the end of the period. Translation adjustments resulting from this process
        are included in accumulated other comprehensive income in the statement of
        shareholders’ equity. Transaction gains and losses that arise from exchange rate
        fluctuations on transactions denominated in a currency other than the functional
        currency are included in the results of operations as incurred.
  9
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Translation
        adjustments resulting from this process are included in accumulated other
        comprehensive income in the consolidated statement of shareholders' equity
        and
        amounted to $ 8,886,017 and $
        $4,563,078 as of March
        31,
        2008 and December
        31, 2007 ,
        respectively. The balance sheet amounts, with the exception of equity at March
        31,
        2008 and December
        31, 2007 were
        translated at 7.01 RMB and 7.30 RMB to $1.00 USD, respectively. The equity
        accounts were stated at their historical rate. The average translation rates
        applied to income statement accounts for the three months ended March
        31,
        2008 and 2007 were
        7.16 RMB, and 7.77 RMB, respectively. Cash flows are also translated at average
        translation rates for the period, therefore, amounts reported on the statement
        of cash flows will not necessarily agree with changes in the corresponding
        balances on the balance sheet.
 
 Financial
        instruments
 
 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 long term debts 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.
 
 The
        Company also analyzes all financial instruments with features of both
        liabilities and equity under SFAS 150, “Accounting for Certain Financial
        Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
        Settled in, a Company’s Own Stock.” The convertible preferred shares issued in
        2005 and the convertible note issued in 2007 did not require bifurcation
        or
        result in liability accounting. Additionally, the Company analyzes registration
        rights agreements associated with any equity instruments issued to determine
        if
        penalties triggered for late filing should be accrued under FSP EITF 00-19-2,
        “Accounting for Registration Payment Arrangements.”
 
 Derivative
        Instrument
 
 In
        December 2007, the Company issued convertible notes totaling $40,000,000
        (“Notes”) and 1,154,958 warrants. Both the warrants and the conversion option
        embedded in the Notes meet the definition of a derivative instrument in SFAS
        133, “Accounting for Derivative Instruments and Hedging Activities.” Therefore
        these instruments are accounted for as derivative liabilities and
        marked-to-market each reporting period. The change in the value of the
        derivative liabilities is charged against or credited to income.
  10
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Fair
        value measurements
 
 The
        Company adopted SFAS 157, “Fair Value Measurements” on January 1, 2008. SFAS 157
        defines fair value, establishes a three-level valuation hierarchy for
        disclosures of fair value measurement and enhances disclosures requirements
        for
        fair value measures. The three levels are defined as follow:
 
 Level
        1
        inputs to the valuation methodology are quoted prices (unadjusted) for identical
        assets or liabilities in active markets.
 
 Level
        2
        inputs to the valuation methodology include quoted prices for similar assets
        and
        liabilities in active markets, and inputs that are observable for the assets
        or
        liability, either directly or indirectly, for substantially the full term
        of the
        financial instruments.
 
 Level
        3
        inputs to the valuation methodology are unobservable and significant to the
        fair
        value.
 
 The
        Company’s investment in unconsolidated subsidiaries amounted to $ 9,666,132 as of March
        31,
        2008 .
        Since
        there is no quoted or observable market price for the fair value of similar
        long
        term investment, the Company then used the level 3 inputs for its valuation
        methodology. The determination of the fair value was based on the capital
        investment that the Company contributed.The carrying value of the long term
        investments approximated the fair value as of March 31, 2008.
 
 In
        2007,
        the Company issued convertible notes in the aggregate principal amount of
        $40,000,000 and warrants to purchase 1,154,958 shares of common stock of
        the
        Company. Pursuant to SFAS 133 and EITF 00-19, the Company determined that
        both
        the warrants and the conversion option embedded in the Notes meet the definition
        of a derivative instrument and must be carried as a liability and marked
        to
        market for each reporting period. As of March 31, 2008, the Company reevaluated
        the derivative liabilities using Binomial Model, defined in SFAS 157 as level
        3
        inputs, and recorded the changes in earnings. As a result, the derivative
        liability is carried on the balance sheet at its fair value.
 
 As
        of
        March 31, 2008, the carrying value of the convertible notes amounted to
        $6,138,044. The Company determined the fair value of the convertible notes
        using
        the level three inputs to the Binomial Model and determined that the fair
        value
        amounted to approximately $14 million due to the decrease in the Company’s
        common stock price.
 Carrying
                    Value as of
                  March
                    31, 2008
                
                Fair
                    Value Measurements at March 31, 2008
                  Using
                    Fair Value HierarchyAssets
                
                
                
                Level
                    1
                
                Level
                    2
                
                Level
                    3Long
                    term investments
                
                $
                9,666,132
                
                
                
                
                
                
                
                $
                9,666,132LiabilitiesDerivative
                    liabilities
                
                $
                25,812,545
                
                
                
                
                
                
                
                $
                25,812,545Convertible
                    notes payable
                
                $
                6,138,044
                
                
                
                
                
                
                
                $
                14,187,455
  Except
        for the derivative liabilities, the Company did not identify any other assets
        or
        liabilities that are required to be presented on the balance sheet at fair
        value
        in accordance with SFAS 157.
  11
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Cash
        and cash equivalents
 
 Cash
        and
        cash equivalents include cash on hand and demand deposits in banks with
        maturities of less than three months.
 
 Restricted
        cash
 
 The
        Company has notes payable outstanding with various banks and is required
        to keep
        certain amounts on deposit that are subject to withdrawal
        restrictions.
 
 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. An allowance
        for doubtful account is established and recorded based on managements’
assessment of the credit history and relationship with the customers. Management
        reviews its accounts receivable on a regular basis to determine if the bad
        debt
        allowance is adequate, and adjusts the allowance when necessary.
 
 Notes
        receivable
 
 Notes
        receivable represents trade accounts receivable due from various customers
        where
        the customers’ banks have guaranteed the payment of the receivables. This amount
        is non-interest bearing and is normally paid within three to six months.
        The
        Company has the ability to submit request for payment to the customer’s bank
        earlier than the scheduled payment date, but will incur an interest charge
        and a
        processing fee. The Company had $ 18,569,839 and
        $4,216,678 of notes receivable outstanding as of March
        31,
        2008 and December
        31, 2007 ,
        respectively.
 
 Restricted
        notes receivable represents notes pledged as collateral for short term loans
        from banks. As of March
        31,
        2008 and December
        31, 2007 ,
        restricted notes receivable amounted to $ 4,359,863 and
        $12,514,659, respectively.
 
 Inventories
 
 Inventories
        are stated at the lower of cost or market using weighted average
        method.
 
 Intangible
        assets
 
 All
        land
        in the People’s Republic of China is owned by the government and. However, the
        government grants “land use right” to use the land.
 
 Daqiuzhuang
        Metal acquired land use rights during the years ended 2000 and 2003 for a
        total
        of $3,167,483. These land use rights are for 50 years and expire in 2050
        and
        2053. However, Daqiuzhuang Metal's initial business license had a ten-year
        term.
        Therefore, management elected to amortize the land use rights over the ten-year
        business term. Daqiuzhuang Metal became a Sino-Foreign Joint Venture in 2004,
        and obtained a new business license for twenty years; however, the Company
        decided to continue amortizing the land use rights over the original ten-year
        business term.
  12
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Longmen
        Group contributed land use rights for a total amount of $19,823,885 to the
        Longmen Joint Venture. The land use rights are for 50 years and expire in
        2048
        to 2052.
 
 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.
 
 Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company’s plant facilities. No depreciation is
        provided for construction in progress until such time as the assets are
        completed and are placed into service. Maintenance, repairs and minor renewals
        are charged directly to expense as incurred. Major additions and betterment
        to
        buildings and equipment are capitalized. Interest incurred during construction
        is capitalized into construction in progress. All other interest is expensed
        as
        incurred.
 
 Long
        lived assets
 
 Long
        lived assets, including plant, equipment and intangible assets are reviewed
        annually or more often if necessary, to determine whether their carrying
        value
        has become impaired. The Company considers assets to be impaired if the carrying
        value exceeds the future projected cash flows from related operations. The
        Company also re-evaluates the periods of depreciation and amortization to
        determine whether subsequent events and circumstances warrant revised estimates
        of useful lives. As of March
        31,
        2008 ,
        the
        Company expects these assets to be fully recoverable.
 
 Investments
        in unconsolidated subsidiaries
 
 Investee
        companies over which the Company has the ability to exercise significant
        influence, but does not have a controlling interest is accounted for using
        the
        equity method. Significant influence is generally considered to exist when
        the
        Company has an ownership interest in the voting stock of the investee of
        between
        20% and 50%, and other factors, such as representation on the investee's
        Board
        of Directors, voting rights and the impact of commercial arrangements, are
        considered in determining whether the equity method of accounting is
        appropriate. In December 2007, the Company acquired 27% of ownership interest
        in
        Xian Delong Powder Engineering Materials Co., Ltd., through its 74.92% owned
        subsidiary, Environmental Protection Industry Development Co., Ltd., for
        $822,600. This investment is accounted for by the equity method.
 
 The
        Company’s newly acquired subsidiary, Hancheng Tongxing Metallurgy Co., Ltd. has
        invested in several companies from 2004- 2007 amounted to $8,809,332 as of
        March
        31, 2008. Since Tongxing does not have the ability to exercise control or
        has
        significant influence of the investee companies and the investments have
        been
        recorded under the cost method.
 
 13
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Investees
              
              Years
                  invested
              
              Amount
                  invested
              
              %
                  ownedShanxi
                  Daxigou Mining Co.,Ltd
              
              
              2004
              
              
              714,000.00
              
              
              11Shanxi
                  Xinglong Thermoelectric Co.,Ltd
              
              
              2004-2007
              
              
              4,729,536.00
              
              
              37.6Shanxi
                  Longgang Group Baoji roll-forming steel Co.,Ltd
              
              
              2005
              
              
              599,760.00
              
              
              23.81Shanxi
                  Longgang Group Xian steel Co.,Ltd
              
              
              2005
              
              
              142,800.00
              
              
              10Shanxi
                  Longgang Group Co.,Ltd
              
              
              2003-2004
              
              
              1,849,260.00
              
              
              3.8Huashan
                  Metallurgical Equipment Co. Ltd.
              
              
              2003
              
              
              71,400.00
              
              
              25Hejin
                  Liyuan Washing Coal Co.Ltd.
              
              
              2006
              
              
              214,200.00
              
              
              38Hancheng
                  Jinma Coking Co.Ltd.
              
              
              2006
              
              
              488,376.00
              
              
              40Total
              
              8,809,332.00
 
 Total
        investment in unconsolidated subsidiaries amounted to $9,666,132 and $822,600
        as
        of March 31, 2008 and December 31, 2007, respectively.
 
 Short-term
        notes payable
 
 Short-term
        notes payable are lines of credit extended by banks. When purchasing raw
        materials, the Company often issues a short-term note payable to the vendor.
        This short-term note payable 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 total outstanding amounts of short-term notes payable
        were
        $ 75,327,000 and
        $15,163,260 as of March
        31,
        2008 and December
        31, 2007 ,
        respectively.
 
 Shares
        subject to mandatory redemption
 
 The
        Company adopted SFAS 150, “Accounting for Certain Financial Instruments with
        Characteristics of both Liabilities and Equity”. SFAS 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 SFAS 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 was 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.
        As of December 31, 2007, redemption fe ature
        on
        all the shares issued was expired and subsequently the shares were reclassified
        from liability to equity. See note 13 for details.
 
 Earnings
        per share
 
 The
        Company reports earnings per share in accordance with the provisions of SFAS
        128, "Earnings Per Share." SFAS 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.
 
 Basic
        earnings per share are computed by dividing income available to common
        stockholders by the weighted average common shares outstanding during the
        period. Diluted earnings per share takes into account the potential dilution
        that could occur if securities or other contracts to issue common stock were
        exercised and converted into common stock.
  14
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
  Income
            taxes
 
 Deferred
        income taxes are recognized for temporary differences between the tax bases
        of
        assets and liabilities and their reported amounts in the financial statements,
        net operating loss carry forwards and credits, by applying enacted statutory
        tax
        rates applicable to future years. Deferred tax assets are reduced by a valuation
        allowance when, in the opinion of management, it is more likely than not
        that
        some portion or all of the deferred tax assets will not be realized. Current
        income taxes are provided for in accordance with the laws of the relevant
        taxing
        authorities.
 
 The
        Company adopted SFAS 109, “Accounting for Income Taxes”. 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
        consists of taxes currently due plus deferred taxes. 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 effect on the
        Company’s financial statements.
 
 The
        charge for taxation is based on the results for the year as adjusted for
        items,
        which are non-assessable or disallowed. It is calculated using tax rates
        that
        have been enacted or substantively enacted by the balance sheet
        date.
 
 Deferred
        tax is accounted for using the balance sheet liability method in respect
        of
        temporary differences arising from differences between the carrying amount
        of
        assets and liabilities in the financial statements and the corresponding
        tax
        basis used in the computation of assessable tax profit. In principle, deferred
        tax liabilities are recognized for all taxable temporary differences. Deferred
        tax assets are recognized to the extent that it is probable that taxable
        profit
        will be available against which deductible temporary differences can be
        utilized. Deferred tax is calculated using tax rates that are expected to
        apply
        to the period when the asset is realized or the liability is settled. Deferred
        tax is charged or credited in the income statement, except when it is related
        to
        items credited or charged directly to equity, in which case the deferred
        tax is
        also dealt with in equity. Deferred tax assets and liabilities are offset
        when
        they relate to income taxes levied by the same taxation authority and the
        Company intends to settle its current tax assets and liabilities on a net
        basis.
 
 Share-based
        compensation
 
 The
        Company records stock-based compensation pursuant to SFAS 123R, "Share-Based
        Payments," which established standards for the accounting for transactions
        in
        which an entity exchanges 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.
  15
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Shipping
        and handling
 
 Shipping
        and handling for raw materials purchased are included in cost of goods sold.
        Shipping and handling cost incurred for shipping of finished products to
        customers are included in selling expenses. Shipping and handling expenses
        for
        purchases of material and sales of finished goods for the three months ended March
        31,
        2008 and 2007 amounted
        to $ 703,072 and
        $19,825, respectively.
 
 Minority
        interest
 
 Minority
        interest consists of the interest of minority shareholders in the subsidiaries
        of the Company. As of March
        31,
        2008 and December
        31, 2007 ,
        minority interest amounted to $ 65,701,909 and
        $42,044,266, respectively.
 
 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.
 
 Recently
        issued accounting pronouncements
 
 In
        February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
        Assets and Financial Liabilities—including an amendment of FASB Statement No.
        115 (“FAS 159”). SFAS 159 permits companies to choose to measure many financial
        instruments and certain other items at fair value that  are
        not
        currently required to be measured at fair value. The objective of SFAS 159
        is to
        provide opportunities to mitigate volatility in reported earnings caused
        by  measuring
        related assets and liabilities differently without having to apply hedge
        accounting provisions. SFAS 159 also establishes presentation and
        disclosure  requirements
        designed to facilitate comparisons between companies that choose different
        measurement attributes for similar types of assets and liabilities.
        SFAS  159
        will
        be effective in the first quarter of fiscal 2009. The Company chose not to
        elect
        the option to measure the fair value of eligible financial assets and
        liabilities
 
 In
        December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of Accounting Research Bulletin
        No. 51”, which establishes accounting and reporting standards for ownership
        interests in subsidiaries held by parties other than the parent, the amount
        of
        consolidated net income attributable to the parent and to the noncontrolling
        interest, changes in a parent’s ownership interest and the valuation of retained
        non-controlling equity investments when a subsidiary is deconsolidated. The
        Statement also establishes reporting requirements that provide sufficient
        disclosures that clearly identify and distinguish between the interests of
        the
        parent and the interests of the non-controlling owners. SFAS 160 is effective
        for fiscal years beginning after December 15, 2008. The Company has not
        determined the effect that the application of SFAS 160 will have on its
        consolidated financial statements.
 
 In
        December 2007, Statement of Financial Accounting Standards 141(R), *Business
        Combinations* ,
        was
        issued. SFAS 141R replaces SFAS 141, *Business
        Combinations.* SFAS
        141R
        retains the fundamental requirements in SFAS 141 that the acquisition method
        of
        accounting (which SFAS 141 called the *purchase
        method* )
        be used
        for all business combinations and for an acquirer to be identified for each
        business combination. SFAS 141R requires an acquirer to recognize the assets
        acquired, the liabilities assumed, and any noncontrolling interest in the
        acquiree at the acquisition date, measured at their fair values as of that
        date,
        with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
        required the cost of an acquisition to be allocated to the individual assets
        acquired and liabilities assumed based on their estimated fair values. SFAS
        141R
        also requires the acquirer in a business combination achieved in stages
        (sometimes referred to as a step acquisition) to recognize the identifiable
        assets and liabilities, as well as the noncontrolling interest in the acquiree,
        at the full amounts of their fair values (or other amounts determined in
        accordance with SFAS 141R). SFAS 141R applies prospectively to business
        combinations for which the acquisition date is on or after the beginning
        of the
        first annual reporting period beginning on or after December 15, 2008. An
        entity
        may not apply it before that date. The Company is currently evaluating the
        impact that adopting SFAS No. 141R will have on its financial
        statements.
  16
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 In
        March
        2008, the
        FASB
        issued SFAS 161, “Disclosures about Derivative Instruments and Hedging
        Activities - an amendment of FASB Statement No. 133”, which changes the
        disclosure requirements for derivative instruments and hedging activities.
        Entities are required to provide enhanced disclosures about (a) how and why
        an
        entity uses derivative instruments, (b) how derivative instruments and related
        hedged items are accounted for under Statement 133 and its related
        interpretations, and (c) how derivative instruments and related hedged items
        affect an entity’s financial position, financial performance and cash flows.
        SFAS 161 is effective for financial statements issued for fiscal years and
        interim periods beginning after November 15, 2008. The Company has not
        determined the effect that the application of SFAS 161 will have on its
        consolidated financial statements.
 
 **Note
        3 - Accounts receivable and allowance for doubtful
        accounts**
 
 Accounts
        receivable, including related party receivables, net of allowance for doubtful
        accounts consists of the following:
 
 March
                  31, 2008
                (Unaudited)
              
              December
                  31,2007Accounts
                  receivable
              
              $
              28,031,766
              
              $
              11,939,533Less:
                  allowance for doubtful accounts
              
              
              270,235
              
              
              148,224Net
                  accounts receivable
              
              $
              27,761,531
              
              $
              11,791,309
 
 Movement
        of allowance for doubtful accounts is as follows:
 
 March
                  31, 2008
                (Unaudited)
              
              December
                  31,2007Beginning
                  balance
              
              $
              148,224
              
              $
              137,132Charge
                  to expense
              
              
              -
              
              
              751Balance
                  from acquisition of Tongxing
              
              
              118,680
              
              
              -Exchange
                  rate effect
              
              
              3,331
              
              
              10,341Ending
                  balance
              
              $
              270,235
              
              $
              148,224
  17
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
  **Note
            4 - Inventory**
 
 Inventory
        consists of the following:
 
 March
                  31, 2008
                (Unaudited)
              
              December
                  31,2007Supplies
              
              $
              2,248,911
              
              $
              1,829,551Raw
                  materials
              
              
              52,202,026
              
              
              42,919,783Work
                  in process
              
              
              21,946
              
              
              82,439Finished
                  goods
              
              
              46,331,567
              
              
              33,097,152Total
              
              $
              100,804,450
              
              $
              77,928,925
  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. The Company reviews its
        inventory periodically for possible obsolete goods and to determine if any
        reserves are necessary for potential obsolescence. As of March
        31,
        2008 and December
        31, 2007 ,
        the
        Company believes no reserves are necessary.
 
 **Note
        5 - 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 its purchases
        on a timely basis.
 
 This
        amount is refundable and bears no interest. The Company has legally binding
        contracts with its vendors, which required the deposit to be returned to
        the
        Company when the contract ends. The inventory is normally delivered within
        one
        month after the monies have been advanced. The total outstanding amount,
        including advances to related parties, was $ 95,272,711 and
        $68,114,486 as of March
        31,
        2008 and December
        31, 2007 ,
        respectively.
 
 **Note
        6 - Plant and equipment, net**
 
 Plant
        and
        equipment consist of the following:
 
 March
                  31, 2008
              
              December
                  31, 2007(Unaudited)Buildings
                  and improvements
              
              $
              83,617,658
              
              $
              71,265,004Machinery
              
              
              144,236,255
              
              
              134,716,437Transportation
                  equipment
              
              
              5,304,733
              
              
              4,232,556Other
                  equipment
              
              
              1,406,789
              
              
              1,310,489Construction
                  in process
              
              
              52,170,402
              
              
              24,574,027Totals
              
              
              286,735,837
              
              
              236,098,513Less
                  accumulated depreciation
              
              
              (30,855,848
              )
              
              (17,835,146
              )Totals
              
              $
              255,879,989
              
              $
              218,263,367
  18
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Depreciation,
        including amounts in cost of sales, for the three months ended March
        31,
        2008 and 2007 amounted to
        $
        4,499,873 and $561,709, respe ctively.
 
 **Note
        7 - Intangible assets**
 
 The
        Company’s intangible assets are as follows:
 
 March
                  31, 2008
              
              December
                  31, 2007(Unaudited)Land
                  use right
              
              $
              24,611,449
              
              $
              23,629,059Software
              
              
              211,116
              
              
              71,978Accumulated
                  Amortization
              
              
              (2,246,966
              )
              
              (1,944,328
              )Total
              
              $
              22,575,599
              
              $
              21,756,709
 
 Total
        amortization expense for the three months ended March
        31,
        2008 and 2007 ,
        amounted to
        $205,146 and $76,524, respectively.
 
 **Note
        8 - Debt**
 
 Short
        term loans
 
 Short
        term loans represent amounts due to various banks, other companies and
        individuals, normally due within one year. The loans due to banks can be
        renewed
        with the banks. The Company had short term loans from related parties totaling
        $7,317,027 as of December
        31, 2007 .
        No
        short term loans from related parties were outstanding as of March
        31,
        2008 .
 
 The
        loans
        due to banks consisted of the following:
 
 DAQIUZHUANG
                  METALMarch
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Loan
                  from China Bank, JingHai Branch, dueSeptember
                  2008. Quarterly interest only payment at7.29%
                  per annum, secured by equipment
              
              $
              999,600.
              
              $
              959,700Loans
                  from Agriculture Bank, DaQiuZhuang Branch, duevarious
                  dates from September 2008 to February 2009.Quarterly
                  interest only payments ranging from8.424%
                  to 8.964% per annum, guaranteed by anrelated
                  third party and secured by equipment
              
              
              10,721,424
              
              
              10,293,468Loan
                  from Construction Bank of China, JinHai Branch, dueAugust
                  2008. Monthly interest only payment at 8.55%per
                  annum, guaranteed by an unrelated third party and
                secured
                  by equipment
              
              
              1,570,800
              
              
              1,508,100Loans
                  from ShangHai PuFa Bank, due various dates fromJuly
                  2008 to March 2009. Quarterly interest only paymentsranging
                  from 7.22% to 8.964% per annum, guaranteedby
                  an unrelated third party
              
              
              4,284,000
              
              
              4,113,000Loan
                  from China Merchants Bank, dueNovember
                  2008. Quarterly interest only paymentsat
                  floating interest rate,105% of People's Bank base rateof
                  7.29% to 7.85%, guaranteed by an unrelated third party.
              
              
              8,568,000
              
              
              8,226,000Loan
                  from ShenZhen Development Bank, duedates
                  in January 2009. Monthly interest only paymentat
                  7.47% per annum, secured byinventory
                  and guaranteed by CEO of the Company.
              
              
              7,140,000
              
              
              6,855,000Total
                  Daqiuzhuang Metal
              
              $
              33,283,824
              
              $
              31,955,268
  19
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 LONG
                    MEN JOINT VENTUREMarch
                    31, 2008
                  (Unaudited)
                
                December
                    31, 2007Loans
                    from Construction Bank, due various
                  dates
                    from Mayto
                    October 2008.Monthly interest only
                  payments
                    ranging from 7.22% to 8.424% per annum,
                  guaranteed
                    by equipment and Bankers’ Acceptance Bill.
                
                $
                13,851,600
                
                $
                20,633,550Loans
                    from Agriculture Bank, due various dates
                  in
                    May 2008. Monthly interest only payments at 7.12%
                  guaranteed
                    by Bankers’ Acceptance Bill.
                
                
                2,441,880
                
                
                3,989,610Loans
                    from Bank of China,HanCheng Branch, due various
                  datesfrom
                    May 2008 to July 2008. Monthly interest
                  payments
                    ranging from 6.71% to 6.90% per annum,
                  guaranteed
                    by unrelated third parties .
                
                
                9,996,000
                
                
                9,597,000Loans
                    from Credit Cooperatives, due various dates
                  from
                    July 2008 to February 2009. Monthly interest
                  payments
                    by 11.02% per annum, guaranteed
                  by
                    an related third party.
                
                
                2,856,000
                
                
                2,742,000Loans
                    from HuaXia Bank, due various dates in
                  November
                    2008. Monthly interest payment
                  at
                    8.74% per annum, guaranteed by equipment.
                
                
                5,712,000
                
                
                13,819,680Loan
                    from Communication Bank, due October 2008,Quarterly
                  interest
                    only payments, annual interest rate of 8.02%,
                  guaranteed
                    by equipment.
                
                
                3,570,000
                
                
                3,427,500Loan
                    from China Merchants Bank, due September 2008,
                  Monthly
                    interest payments, annual interest rate of 9.13%,
                  guaranteed
                    by an related third party and secured by land
                  use
                    rights and buildings.
                
                
                7,140,000
                
                
                6,855,000Loan
                    from China Minsheng Bank,due February 2009,
                  Quarterly
                    interest payments, annual interest rate of
                  7.47%,
                    guaranteed by a related third party and secured
                  by
                    equipment.
                
                
                14,280,000Total
                    Longmen Joint Venture
                
                $
                59,847,480
                
                $
                61,064,340Grand
                    totals
                
                $
                93,131,304
                
                $
                93,019,608
  20
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Long
        Men
        Joint Venture also has various loans from unrelated companies and individuals
        which are due within one year. The loans are unsecured with annual interest
        rates ranging from 8% to 12%. As of March
        31,
        2008 and December
        31, 2007 ,
        these
        loans outstanding amounted to $ 34,896,184 and
        $19,156,070, respectively.
 
 Short
        term notes payable
 
 Short-term
        notes payable are lines of credit extended by the banks. When purchasing
        raw
        materials, the Company often issues a short term note payable to the vendor
        funded with draws on the lines of credit. This short term note payable is
        guaranteed by the bank for its complete face value. The banks usually do
        not
        charge interest on these notes but require the Company to deposit a certain
        amount of cash at the bank as a guarantee deposit which is classified on
        the
        balance sheet as restricted cash.
 
 The
        Company had the following short term notes payable:
 DAQIUZHUANG
                    METALMarch
                    31, 2008
                
                December
                    31, 2007(Unaudited)China
                    Bank, Jing Hai Branch, due March 2008,restricted
                    cash required of 50%of
                    loan amount, guaranteed by the Company
                
                $
                -
                
                $
                1,588,040Agricultural
                    Bank of China, various amounts, due March
                  2008,
                    restricted cash required of 60% of loan amount,guaranteed
                    by the Company and an unrelated third party
                
                
                -
                
                
                1,232,100ShangHai
                    PuFa Bank, various amounts,due
                    date ranging between April and May 2008,restricted
                    cash required of 50% of loan balance,guaranteed
                    by an unrelated third party
                
                
                5,712,000
                
                
                5,488,120Total
                    Daqiuzhuang Metal
                
                $
                5,712,000
                
                $
                8,308,260
  21
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 LONGMEN
                        JOINT VENTUREMarch
                        31, 2008
                    
                    December
                        31, 2007(Unaudited)Agricultural
                        Bank of China, various amounts, due August
                      2008,
                        restricted cash required of 100% of loan amount.
                    
                    
                    4,998,000
                    
                    
                    -China
                        Bank, various amounts, due July 2008,
                      restricted
                        cash required of 100% of loan amount.
                    
                    
                    714,000
                    
                    
                    -Credit
                        Cooperatives, due August 2008,
                      restricted
                        cash required of 100% of loan amount.
                    
                    
                    1,428,000
                    
                    
                    -ShangHai
                        Pudong Development Bank, various amounts, due datesranging
                        between January to May 2008,restricted
                        cash required of 60% of loan amount,guaranteed
                        by equipment.
                    
                    
                    7,140,000
                    
                    
                    6,855,000China
                        Minsheng Bank, various amounts, due datesranging
                        between June to September 2008,restricted
                        cash required of 60% of loan amount,guaranteed
                        by equipment and related third parties..
                    
                    
                    28,560,000
                    
                    
                    -China
                        Minsheng Bank, various amounts, due dates in August 2008,restricted
                        cash required of 100% of loan amount.
                    
                    
                    7,140,000
                    
                    
                    -ShangHai
                        PuFa Bank, various amounts, due datesranging
                        between April to September 2008,restricted
                        cash required of 60% of loan amount.guaranteed
                        by equipment and related third parties.
                    
                    
                    19,635,000
                    
                    
                    -Total
                        Longmen Joint Venture
                    
                    
                    69,615,000
                    
                    
                    6,855,000Grand
                        totals
                    
                    $
                    75,327,000
                    
                    $
                    15,163,260
 Total
        interest expense for the three months ended March
        31,
        2008 and 2007 on the
        debt listed above amounted to $ 2,872,865 and $623,155 ,
        respectively. Capitalized interest amounted to $811,505 and $0 for the three
        months ended March
        31,
        2008 ,
        and 2007 ,
        respectively.
  22
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 **Note
        9 - 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 March
        31,
        2008 and December
        31, 2007 ,
        customer deposits amounted to $ 60,883,030 and
        $47,084,434, including related parties deposits $0, and $9,211,736,
        respectively.
 
 **Note
        10 - Deposits due to sales representatives**
 
 Daqiuzhuang
        Metal and one of Longmen Joint Venture’s subsidiaries, Yuxin Trading, entered
        into agreements with various entities to act as the Company’s exclusive sales
        agent in a specified area. These exclusive sales agents must meet certain
        criteria and are required to deposit a certain amount of money with the Company.
        In return the sales agents receive exclusive sales rights to a specified
        area
        and discounted prices on products they order. These deposits bear no interest
        and are required to be returned to the sales agent once the agreement has
        been
        terminated. The Company had $ 2,734,620 and
        $3,068,298 in deposits due to sales representatives outstanding as of March
        31,
        2008 and December
        31, 2007 ,
        respectively.
 
 **Note
        11 - 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
        received 98.7% of the total equity of Qiu Steel Investment for RMB148,000,000
        or
        approximately $19,284,400. As of March
        31,
        2008 ,
        Yangpu
        Investment had payable amounted to RMB48,000,000 or approximately
        $6,854,400.
 
 **Note
        12 - Distribution payable to minority shareholder**
 
 Distribution
        payable represents dividends owed to the minority owners of EPID and Hualong
        for
        retained earnings prior to the acquisition date. As of March
        31,
        2008 and December
        31, 2007 ,
        Distribution payable amounted to $2,330,858 and $2,820,803,
        respectively.
 
 **Note
        13 - 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 giving the warrant holders the right to purchase
        2,353,330 shares of common stock. The warrants can be exercised on the second
        anniversary of the subscription date at $2.50 per share and through the third
        anniversary date at $5.00 per share. At the option of the holder, 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 SFAS 150, The Company recorded the stock as a liability due
        to
        the mandatory redemption provision. The shares were recorded at fair value
        on
        the date of issuance, which was 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, totaling $688,346, was accrued and amortized
        as interest expense.
  23
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 As
        of
        December 31, 2007, the put option on all the redeemable shares had expired
        and
        all the shares were reclassified into equity.
 
 **Note
        14 - Convertible notes**
 
 On
        December 13, 2007, the Company entered into a Securities Purchase Agreement
        (the
“Agreement”) with certain institutional investors (the “Buyers”). Pursuant
        to the Agreement, the Company agreed to sell to the Buyers (i) senior
        convertible notes totaling $40,000,000 (“Notes”) and (ii) warrants to purchase
        1,154,958 shares of common stock (the “Warrants”).
  The
        Notes
        bear initial interest at 3% per annum, which will be increased each year
        as
        specified in the Notes, payable semi-annually in cash or shares of the Company’s
        common stock. The Notes have a five year term through December 12, 2012. They
        are convertible into shares of the common stock, subject to customary
        anti-dilution adjustments. The initial conversion price is $12.47. The Company
        may redeem the Notes at 100% of the principal amount, plus any accrued and
        unpaid interest, beginning December 13, 2008, provided the market price of
        the
        common stock is at least 150% of the then applicable conversion price for
        30
        consecutive trading days prior to the redemption.
 
 The
        Notes
        are secured by a first priority, perfected security interest in certain shares
        of common stock of Zuo Sheng Yu, as evidenced by the pledge agreement. The
        Notes
        are subject to events of default customary for convertible securities and
        for a
        secured financing.
  The
        Warrants grant the Buyers the right to acquire shares of common stock at
        $13.51
        per share, subject to customary anti-dilution adjustments. The Warrants may
        be
        exercised May 13, 2008 through May 13, 2013.
  In
        connection with this transaction, the Company and the Buyers entered into
        a
        registration rights agreement (the “Registration Rights Agreement”). Pursuant to
        the terms and conditions of the Registration Rights Agreement, the Company
        agreed to register within 60 calendar days common stock issuable to the Buyers
        for resale on a registration statement to be effective by 90 calendar days
        or
        120 days if the registration statement is subject to a full review by the
        U.S.
        Securities and Exchange Commission. The Company is required to register at
        least
        120% of the sum of shares issuable upon conversion of the Notes, the exercise
        of
        the Warrants and the payment of interest accrued on the Notes. The registration
        rights granted under the Registration Rights Agreement are subject to customary
        exceptions and qualifications and compliance with certain registration
        procedures.
  In
        addition, certain management members of the Company also entered into a lock-up
        agreement with the Company pursuant to which each person agreed not to sell
        any
        personally owned shares one year after the initial effective date of the
        resale
        registration statement described above.
 
 Pursuant
        to the Registration Rights Agreement, the Company was required to file the
        registration statement on February 11, 2008. The Company filed the registration
        statement on February 13, 2008, which was two days after the required filing
        date. As of the date of this report, the Company reached an agreement with
        all
        note holders to waive the related penalty of $427,000.
  24
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Pursuant
        to APB 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase
        Warrants, the Company discounted the Notes equal to the fair value of the
        warrants. The Notes were further discounted for the fair value of the conversion
        option. The combined discount is being amortized to interest expense over
        the
        life of the Notes using the effective interest method.
 
 The
        fair
        value of conversion option and the warrants were calculated using the Binomial
        model based on the following variables:
 
 ·
              Expected
                  volatility of 105% calculated using the Company’s historical price of its
                  common stock
 ·
              Expected
                  dividend yield of 0%
 ·
              Risk-free
                  interest rate of 2.46% for the conversion option and the
                  warrants
 ·
              Expected
                  lives of five years
 ·
              Market
                  price at issuance date of $10.43
 ·
              Strike
                  price of $12.47 and $13.51, for the conversion option and the warrants,
                  respectively
 
 Pursuant
        to SFAS 133 and EITF 00-19, the Company determined that both the warrants
        and
        the conversion option embedded in the Notes meet the definition of a derivative
        instrument and must be carried as a liability and marked to market each
        reporting period.
 
 On
        December 13, 2007, the Company recorded $34,719,062 as derivative liability,
        including $9,298,044 for the fair value of the warrants and $25,421,018 for
        fair
        value of the conversion option. The initial carrying value of the Notes was
        $5,280,938. The financing cost of $3,594,500 was recorded as deferred note
        issuance cost and is being amortized to interest expense over the term of
        the
        Notes using the effective interest method.
 
 On
        March
        31, 2008, in accordance with SFAS 133, the fair value of derivative liabilities
        was recalculated and decreased by $2,670,764 during the period, including
        $719,580 for the decrease in fair value of the warrants and $1,951,184 for
        the
        decrease in fair value of the conversion option. The decrease was recorded
        as a
        gain and included in other income.
 
 As
        of
        March 31, 2008, the balance of derivative liabilities was $25,812,545, which
        consisted of $6,918,882 for the warrants and $18,893,663 for the conversion
        option, and the carrying value of the Notes was $6,138,044. Amortization
        of the
        debt discount totaled $804,295 and was recorded as interest expense for the
        period ended March 31, 2008. As of March 31, 2008, the unamortized financing
        cost was $5,120,152, including $1,564,500 for additional issuance of 150,000
        shares of the common stock to the placement agent in January 2008. For the
        period ended March 31, 2008, $8,894 of deferred note issuance cost was amortized
        to interest expense for the period using the effective interest
        method.
  25
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 **Note
        15 -** **Other
        expenses and income, net**
 
 Other
        income and expense consist of the following:
 
 March
                  31, 2008
                (Unaudited)
              
              March
                  31, 2007
                (Unaudited)Finance/interest
                  expense
              
              $
              (5,986,507
              )
              $
              (640,857
              )Interest
                  income
              
              
              580,318
              
              
              31,654Change
                  in fair value of derivative liabilities
              
              
              2,670,764
              
              
              -Other
                  non-operating income
              
              
              432,050
              
              
              388,527Other
                  non-operating expense
              
              
              (62,780
              )
              
              -Total
                  other (expense) income
              
              $
              (2,366,155
              )
              $
              (220,676
              )
 
 **Note
        16 -** **Taxes**
 
 **Income
        tax**
 
 Beginning
        January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the
        existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
        (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate currently
        applicable to both DES and FIEs. The two-year tax exemption and three-year
        50%
        tax reduction tax holiday for production-oriented FIEs will not be eliminated
        for certain entities incorporated on or after March 16, 2007.
 
 Significant
        components of the provision for income taxes on earnings from operation for
        the
        three months ended March
        31,
        2008 and 2007 are as
        follows:
 
 March
                  31, 2008
                (Unaudited)
              
              March
                  31, 2007
                (Unaudited)Current
              
              $
              666,357
              
              $
              -Deferred
              
              
              (216,534
              )
              
              -Total
                  provision for income taxes
              
              $
              449,823
              
              $
              -
 
 The
        principal component of the deferred income tax assets is as
        follows:
 
 March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Net
                  operating loss carry-forward
              
              $
              2,483,130
              
              $
              1,599,004Effective
                  tax rate
              
              
              25.00
              %
              
              25.0
              %Deferred
                  tax asset
              
              $
              637,598
              
              $
              399,751
 
 According
        to Chinese tax regulations, the net operating loss can be carried forward
        to
        offset with operating income for the next five years. Management believes
        the
        deferred tax asset is fully realizable.
  26
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate:
 
 March
                  31, 2008
                (Unaudited)
              
              March
                  31, 2007
                (Unaudited)U.S.
                  Statutory rates
              
              
              34.00
              %
              
              34
              %Foreign
                  income not recognized in USA
              
              
              (34.00
              %)
              
              (34
              %)China
                  income taxes
              
              
              25.00
              %
              
              -Tax
                  effect of income not taxable for tax purpose
              
              
              (3.86
              %)
              
              -Effect
                  of different tax rate of subsidiaries operating in other
                  jurisdictions
              
              
              (10.12
              %)
              
              -Total
                  provision for income taxes
              
              
              11.02
              %
              
              -
 
 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. The
        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 for the
        tax
        benefit. Daqiuzhuang Metal is
        located in Tianjin
        Costal Economic Development Zone and under
        the
        Income Tax Laws of Tianjin City of PRC, it i s
        eligible for an income tax rate of 24%. Therefore, Daqiuzhuang
        Metal is
        exempt from income taxes for the years ended December 31, 2005 and 2006 and
        is
        entitled to 50% income tax reduction of the special income tax rate of 24%,
        which is a rate of 12% for the years ended December 31, 2007, 2008 and 2009.
 
 The
        Company’s subsidiary, Longmen Joint Venture, is located in the mid-west region
        of China. It qualifies for the “Go-West” tax rebate of 15% tax rate promulgated
        by the government; therefore income tax is accrued at 15%.
 
 Baotou
        Steel Pipe Joint Venture is located in Inner Mongolia, is subject
        to an income tax at an effective rate of 25%
 
 **Value
        added Tax**
 
 Enterprises
        or individuals who sell commodities, engage in repair and maintenance or
        import
        and export goods in the PRC are subject to a value added tax in accordance
        with
        Chinese laws. The value added tax standard rate is 17% of the gross sales
        price.
        A credit is available whereby VAT paid on the purchases of semi-finished
        products or raw materials used in the production of the Company’s finished
        products can be used to offset the VAT due on sales of the finished product.
 
 VAT
        on
        sales and VAT on purchases amounted to $70,973,599 and $65,859,199 for the
        three
        months ended March
        31,
        2008 ,
        $5,830,751 and $5,574,487 for the three months ended March
        31,
        2007 ,
        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.
  27
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 Taxes
          payable consisted of the following:
 
 March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007VAT
                  taxes payable
              
              $
              13,529,046
              
              $
              20,320,241Income
                  taxes payable
              
              
              6,843,222
              
              
              5,112,876Misc
                  taxes
              
              
              2,032,221
              
              
              2,143,123Totals
              
              $
              22,404,489
              
              $
              27,576,240
  **Note
        17 -** **Earnings per share**
 
 The
        calculation of earnings per share is as follows:
 
 March
                  31, 2008
                (Unaudited)
              
              March
                  31, 2007
                (Unaudited)Income
                  attributable to holders of common shares
              
              $
              2,188,460
              
              $
              474,865Basic
                  weighted average number of common shares outstanding
              
              
              34,836,394
              
              
              31,320,251Add:
                  dilution effect of warrants
              
              
              87,220
              
              
              -Diluted
                  weighted average number of common shares outstanding
              
              
              34,923,614
              
              
              31,320,251Net
                  income per shareBasic
              
              $
              0.063
              
              $
              0.015Diluted
              
              $
              0.063
              
              $
              0.015
 
 Under
        SFAS 128 " Earnings
        per Share", paragraph 24, mandatory
        redeemable shares are excluded from the shares outstanding for both basic
        and
        diluted earnings per share. Thus, the 1,176,665 shares described in Note
        13 have
        been excluded from the earnings per share calculation for the basic and diluted
        EPS for the period ended March 31,2007. In connection to the redeemable
        preferred stocks, the Company issued 2,353,330 warrants to the shareholders.
        As
        of December 31, 2007, the number of unexercised warrants was 233,330, which
        the
        dilution effect was calculated to be 87,220 shares by using the treasury
        method.
 
 As
        described in Note 1, the Company issued Victory
        New an aggregate of 3,092,899 shares of the Company’s Series A Preferred
        Stock to
        purchase 30% minority ownership of Daqiuzhuang Metal. The preferred stock
        can
        not be converted to common stock. Thus, the 3,092,899 shares of Series A
        Preferred Stock have been excluded from the earnings per share calculation.
 
 On
        December 13, 2007, the Company issued $40 million of convertible notes,
        convertible into 3,207,698 shares of common stock, and warrants to purchase
        1,154,958 shares of common stock. Since the note conversion price of $12.47
        and
        the warrant exercise price of $13.51 were higher than $7.98, the average
        market
        price of the common stock for the period from the issuance date to March
        31,
        2008, the convertible notes and warrants were determined to be anti dilutive,
        and thus have been excluded from the earnings per share calculation.
  28
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
  **Note
          18 -** **Related party balances and transactions**
 
 The
        Company subleased a portion of its land use rights to Tianjin Jing Qiu Steel
        Market Company, a related party under common control. The Company’s Chairman,
        CEO and majority shareholder, Yu Zuo Sheng (aka Henry Yu), is the chairman
        and
        the largest shareholder of Jing Qiu Steel Market Company. Total rental income
        for the three months ended March
        31,
        2008 and 2007 was
        $419,310 and $387,030, respectively.
 
 The
        Company’s short term loan of $7,140,000 from Shenzhen Development Bank is
        personally guaranteed by the Company’s Chairman, CEO, and majority shareholder
        Yu Zuo Sheng (aka Henry Yu).
 
 Tianjin
        Dazhan Industry Co., Ltd. (“Dazhan”) and Tianjin Hengying Trading Co., Ltd.
        (“Hengying”) are steel trading companies controlled by the Company’s Chairman,
        CEO and majority shareholder, Yu Zuo Sheng (aka Henry Yu). Dazhan and Hengying
        acted as trading agents of the Company to make purchases and sales for the
        Company. For the three months ended March
        31,
        2008 and 2007 ,
        through
        Dazhan and Hengying, the Company purchased total of $28,434,046 and $19,589,989
        of material from these entities, and sold $1,279,813.27 and $7,840,501 of
        finished products to these entities, respectively.
 
 The
        Longmen Joint Venture did not 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. In addition to the VAT status issue, the Longmen
        Joint
        Venture also made sales through Long Men Group for outstanding sales contracts
        signed before June 2007. Also some sales through Long Men Group were made
        due to
        the established market share and its long term relationship with the customers.
        All the sales proceeds and purchase payments were recorded as receivables
        from
        or payables to Long Men Group. Total related party sales amounted to
        $ 113,073,832 for the
        three months ended March
        31,
        2008 .
 
 All
        transactions with related parties are for normal business activities and
        are
        short term in nature. Settlements for the balances are usually in cash. The
        following charts summarize the related party transactions as of the three
        months
        ended March
        31,
        2008 and the
        year ended December
        31, 2007 :
 
 a.
              Accounts
                  receivable -related parties
   Name
                  of related parties
              
              March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Long
                  Men Group
              
              $
              14,493,163
              
              $
              565,631Jin
                Qui
              
              
              189,029
              
              
              -Total
              
              $
              14,682,192
              
              $
              565,631
 
 b.
              Short
                  term loan receivable - related
                  parties
 
 As
        of March
        31,
        2008 ,
        the
        Company had a short term loan receivable from Tianjin Jing Qiu amounted to
        $ 1,285,200 .
        This
        loan was made for short term cash flow needs and will be repaid upon request.
  29
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
  c.
              Other
                  receivables - related parties
 
 Name
                  of related parties
              
              March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Beijing
                  Wendlar
              
              $
              182,641
              
              $
              1,033,713Yang
                  Pu Capital Automobile
              
              
              -
              
              
              616,950Tianjin
                  Jin Qiu Steel Market
              
              
              -
              
              
              137,100Tong
                  Xin Ye Jin
              
              
              -
              
              
              48,830Yang
                  Pu Sheng Xin
              
              
              -
              
              
              74,113Officers
                  of Hua Long
              
              
              48,362
              
              
              -Yang
                  Pu Sheng Hua
              
              
              -
              
              
              2,742Long
                  Men Group
              
              
              1,913,263
              
              
              -$
              2,144,266
              
              $
              1,913,448
 
 d.
              Advances
                  on inventory purchases - related
                  parties
 
 Name
                  of related parties
              
              March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Hengying
              
              $
              7,457,477
              
              $
              8,014,211Dazhan
              
              
              2,848,605
              
              
              1,929,801Long
                  Men Group
              
              
              27,190,663
              
              
              -$
              37,496,745
              
              $
              9,944,012
 
 e.
              Prepaid
                  expenses - related parties
 
 The
        Company prepaid rental fee for employee dormitory to a related party, Beijing
        Wendlar, a company controlled by Mr. Yu Zuo Sheng (aka Henry Yu). As of March
        31,
        2008 ,
        the
        Company had a balance of the prepayment of $ 295,596 ,
        in
        which $ 51,408 was
        current and $ 244,188 was
        classified as non current.
 
 f.
              Accounts
                  payable due to related parties
 
 Name
                  of related parties
              
              March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Long
                  Men Group
              
              $
              -
              
              $
              7,954,189Dazhan
              
              
              -
              
              
              4,249,395Henan
                  Xinmi Kanghua
              
              
              417,716
              
              
              356,567Zhengzhou
                  Shenglong
              
              
              281,139
              
              
              269,917Baotou
                  Shengda Steel Pipe
              
              
              1,098,650
              
              
              1,472,670ShanXi
                  Fangxing
              
              
              1,805,438
              
              
              -Jian
                  An
              
              
              9,997
              
              
              -Jin
                  Ma Coking Company
              
              
              4,134,303
              
              
              -Ping
                  He Lu Liao
              
              
              558,371
              
              
              -Fang
                  Xin
              
              
              1,295,405
              
              
              -$
              7,795,581
              
              $
              14,302,738
  30
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 g.
              Short
                  term loan due to related parties
 
 Name
                  of related parties
              
              March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007HanCheng
                  TongXing
              
              $
              -
              
              $
              7,317,027
 
 h.
              Other
                  payables due to related parties
 
 Name
                  of related parties
              
              March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Beijing
                  Wandler
              
              $
              -
              
              $
              34,275Tianjin
                  Jin Qiu Steel Market
              
              
              -
              
              
              1,487,600Hengying
              
              
              -
              
              
              563,816Baotou
                  Shengda Steel Pipe
              
              
              16,887
              
              
              31,095Baogang
                  Jian An
              
              
              4,284
              
              
              9,597$
              21,171
              
              $
              2,126,383
 
 i.
              Customer
                  deposits - related parties
  Name
                  of related parties
              
              March
                  31, 2008
                (Unaudited)
              
              December
                  31, 2007Hengying
              
              $
              -
              
              $
              6,855,000Haiyan
              
              
              -
              
              
              2,356,736$
              -
              
              $
              9,211,736
 
 Transactions
        with related parties are as follows:
 
 (a)
              Sales
                  of goods
 
 Name
                  of related parties
              
              Three
                  months endedMarch
                  31, 2008
                (Unaudited)
              
              Three
                  months endedMarch
                  31, 2007
                (Unaudited)Long
                  Men Group
              
              $
              113,073,832
              
              $
              -$
              113,073,832
              
              $
              -
  31
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 (b)
              Purchase
                  of goods
 
 Name
                  of related parties
              
              Three
                  months endedMarch
                  31, 2008(Unaudited)
              
              Three
                  months endedMarch
                  31, 2007(Unaudited)Long
                  Men Group
              
              $
              103,134,608
              
              $
              -$
              103,134,608
              
              $
              -
 
 (c)
              Rental
                  income
 
 Name
                  of related parties
              
              Three
                  months endedMarch
                  31, 2008
                (Unaudited)
              
              Three
                  months endedMarch
                  31, 2007
                (Unaudited)Tianjin
                  Jing Qiu Steel Market Co., Ltd.
              
              $
              419,310
              
              $
              387,030$
              419,310
              
              $
              387,030
  **Note
        19 -** **Business
        combinations**
 
 **a.
        Acquisition of 30% minority interest of Daqiuzhuang Metal**
 
 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 3,092,899 shares of Series A Preferred
        Stock
        which have a voting power of 30% of the combined voting power of the Company’s
        common and preferred stock for the life of the Company. As a result of the
        acquisition, the Company increased its equity interest in Daqiuzhuang Metal
        from
        70% to 100%. On May 23, 2007, the Company transferred its 30% interest in
        Daqiuzhuang Metal to General Steel Investment (BVI). As a result of this
        transfer, General Steel Investment (BVI) holds 100% of equity interest of
        Daqiuzhuang Metal.
 
 Victory
        New Holdings Ltd. was a newly formed entity under the control of the Company’s
        Chairman, CEO and majority shareholder Zuosheng Yu (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 SFAS
        141,
        "Business Combinations", a cquisition
        of minority interests 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
        transaction ,
        which
        was $8,374,000. The premium over book value of $2,188,203 was accounted for
        as
        dividend distribution to the shareholder of Victory New.
 
 **b.
        Joint venture agreement with Baotou Steel**
 
 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 increased Daqiuzhuang Metal's
        ownership interest in the Joint Venture from 20% to 80%.
  32
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 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 RMB10,000,000, or approximately $1,270,000, and Daqiuzhuang
        Metal will contribute RMB40,000,000, or approximately $5,130,000. Daqiuzhuang
        Metal and Baotou Steel each contributed 30% of their portion of the registered
        capital to commence the business. This joint venture obtained its business
        license on  May
        25,
        2007. Operations began in the third quarter of 2007.
 
 The
        joint
        venture’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture
        Company Limited, a limited liability company formed under the laws of the
        PRC.
        Baotou Steel Pipe Joint Venture is located at Kundulun District, Baotou city,
        Inner Mongolia, China. It produces and sells spiral-weld steel
        pipes.
 
 The
        ownership is as follows:
  %
                    OwnershipBaotou
                    Iron and Steel (Group) Co., Ltd.
                20%Daqiuzhuang
                    Metal Sheet Co., Ltd
                80%
 
 **c.
        Shaanxi Longmen Iron and Steel Co., Ltd** **Joint Venture**
 
 On
        June
        15, 2007, General Steel Holdings Inc. and Shaanxi Longmen Iron and Steel
        (Group)
        Co., Ltd. (”Longmen Group”) signed an agreement to form Shaanxi Longmen Iron and
        Steel Co., Ltd. (“Longmen Joint Venture”). Longmen Group contributed the
        operating facility and corresponding debt with an appraised net asset value
        of
        RMB200 million. General Steel Holdings, Inc. contributed RMB300 million to
        the
        Longmen Joint Venture through its subsidiaries Daqiuzhuang Metal and Qiu
        Steel
        Investment. Daqiuzhuang Metal and Qiu Steel Investment contributed
        RMB160,000,000 and RMB140,000,000 in cash, respectively, and hold 32% and
        28%
        ownership, respectively, or 60% collectively. Longmen Group owns 40% of the
        Longmen Joint Venture. The Longmen Joint Venture obtained the business license
        on June 22, 2007.
 
 Assets
        acquired and debts assumed in the transaction are listed as below:
 
 Item
              
              Fair
                  Value
              
              Assumed
                  by
                Longmen
                  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
              
              
              99,604,841
              
              
              -Total
                  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
  33
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 On
        September 24, 2007, Longmen Joint Venture acquired 74.92% ownership interest
        in
        Environmental Protection Industry Development Co., Ltd. (“EPID)” for RMB18.0
        million or $2.4 million and a 36% equity interest in Hualong Fire Retardant
        Materials Co., Ltd., (“Hualong”) for RMB3.3 million or $0.4 million. The parties
        agreed to make the effective date of the transaction July 1, 2007. Due to
        EPID,
        Hualong, and Longmen Joint Venture being under common management control,
        this
        transaction was recorded at the book value as of the effective date.
 
 Assets
        acquired and debts assumed in the transaction are listed as below:
 
 EPID
              
              Fair
                  Value
              
              Assumed
                  by
                Longmen
                  Joint
                Venture
                  (74.92%)Current
                  assets
              
              $
              2,609,601
              
              $
              1,955,113Property,
                  plant, and equipment
              
              
              5,619,646
              
              
              4,210,239Total
                  assets
              
              
              8,229,247
              
              
              6,165,352Total
                  liabilities
              
              
              5,055,550
              
              
              3,787,618Net
                  assets
              
              $
              3,173,697
              
              $
              2,377,734
  Hualong
              
              Fair
                  Value
              
              Assumed
                  by
                Longmen
                  Joint
                Venture
                  (36%)Current
                  assets
              
              $
              3,905,068
              
              $
              1,405,824Property,
                  plant, and equipment
              
              
              1,653,693
              
              
              595,330Total
                  assets
              
              
              5,558,761
              
              
              2,001,154Total
                  liabilities
              
              
              4,357,736
              
              
              1,568,785Net
                  assets
              
              $
              1,201,025
              
              $
              432,369
 
 On
        January 14, 2008, the Company through Longmen Joint Venture, completed its
        acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co.,
        Ltd.
        (“Tongxing”). Tongxing contributed its land use right of 217,487 square meters
        (approximately 53 acres) with an the appraised value of approximately $4.1
        million (or RMB30,227,333). Pursuant to the agreement, the land will be
        converted into shares valued at approximately $3.1 million (RMB22,744,419),
        providing the Joint Venture stake of 22.76% ownership in Tongxing and making
        it
        Tongxing’s largest and controlling shareholder. The parties agreed to make the
        effective date of the transaction January 1, 2008. The acquisition is accounted
        for as acquisition under common control.
  34
 
 **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
  Tongxing
              
              Fair
                  Value
              
              Assumed
                  by
                Longmen
                  Joint
                Venture
                  (22.76%)Current
                  assets
              
              $
              55,504,572
              
              $
              12,632,840Non
                  current assets
              
              
              8,088,884
              
              
              1,841,030Total
                  assets
              
              
              63,593,456
              
              
              14,473,870Total
                  liabilities
              
              
              50,782,229
              
              
              11,558,035Net
                  assets
              
              $
              12,811,227
              
              $
              2,915,835
 
 **d.
        Pro Forma**
 
 The
        following unaudited pro forma condensed income statements for the years ended
        March 31, 2007 was prepared under generally accepted accounting principles
        as if
        the Longmen Joint Venture transactions had occurred on January 1, 2007. The
        pro
        forma information may not be indicative of the results that 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 three monthsendedMarch
                  31, 2007(In
                  Million $)Sales
              
              $
              170.45Cost
                  of sales
              
              
              150.79Gross
                  Profit
              
              
              19.66SG&A
                  expenses
              
              
              7.78Other
                  expense
              
              
              4.06Income
                  before income tax and minority interest
              
              
              7.82Income
                  tax
              
              
              1.27Net
                  income before minority interest
              
              
              6.55Minority
                  interest
              
              
              0.38Net
                  income
              
              $
              6.17
 
 **Note
        20 - Supplemental disclosure of cash flow information**
 
 Interest
        paid amounted to $3,038,348 and $523,307 for the three months ended March
        31,
        2008 and 2007 ,
        respectively.
 
 Income
        tax payments amounted to $1,105,053 and $0 for  the
        three
        months ended March
        31,
        2008 and 2007 ,
        respectively.
  35
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
  On
        March
        1, 2007, 176,665 shares of redeemable stock were converted at $1.95 resulting
        in
        a reclassification of the shares from liabilities to equity.
 
 .On
        January 8, 2008 the Company issued 150,000 shares of common stock at $10.43
        per
        share as additional note issuance cost totaled $1,564,500.
 
 On
        January 14, 2008, the Company issued senior management and directors 76,600
        shares of common stock at $7.16 per share, as compensation. The shares were
        valued at the market price on the grant date. The Company recorded compensation
        expense of $548,456 for the three months ended March 31, 2008.
 
 **Note
        21- Shareholder’s equity**
 
 On
        February 12, 2007, the Company issued to Aurelius Consulting Group, Inc.
        (also
        known as RedChip Companies, Inc.) 18,000 shares of common stock in the amount
        of
        $23,742 as a portion of its compensation for investor relations services
        rendered. Those shares were valued at the market price at the date of the
        agreement.
 
 In
        2007,
        as discussed in Note 13, 1,176,665 shares of redeemable stock were reclassified
        from liabilities to common stock upon expiration of the redemption
        feature.
 
 2,120,000
        warrants were converted to common stock at $2.50 per share in September,
        2007
        for $5,300,000 in cash.
  On
        October 1, 2007, the Company issued senior management and directors 70,100
        shares of common stock at $8.16 per share, as compensation. The shares were
        valued at the market price on the date granted. The Company recorded
        compensation expense of $572,016 for the year ended December 31,
        2007.
 
 On
        January 8, 2008 the Company issued 150,000 shares of common stock at $10.43
        per
        share as additional note issuance cost totaled $1,564,500. The shares price
        is
        determined as the market price on the date granted.
 
 On
        January 14, 2008, the Company issued senior management and directors 76,600
        shares of common stock at $7.16 per share, as compensation. The shares were
        valued at the market price on the date granted. The Company recorded
        compensation expense of $548,456 for the three months ended March
        31,
        2008 .
 
 **Note
        22 - 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 $512,966 and $60,704 for the
        three months end ended March
        31,
        2008 and 2007 ,
        respectively.
  36
 
  **GENERAL
            STEEL HOLDINGS, INC.** **AND
            SUBSIDIARIES**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2008**
 **(UNAUDITED)**
 **Note
        23 - Statutory reserves**
 
 The
        laws
        and regulations of the People’s Republic of China require that before an
        enterprise distributes profits to its partners, it must first satisfy all
        tax
        liabilities, provide for losses in previous years, and make allocations,
        in
        proportions determined at the discretion of the board of directors, to the
        statutory reserves. The statutory reserves include the surplus reserve funds
        and
        the enterprise fund and 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
        three months ended March
        31,
        2008  and 2007 ,
        the
        Company transferred $347,747 and $0 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.
 
 **Note
        24 - Commitment and contingencies**
 
 The
        Company is obligated to contribute RMB40,000,000, or approximately $5,130,000,
        as registered capital to Baotou Steel Pipe Joint Venture. The Company has
        already made a capital contribution of approximately $1,734,200 through December
        31, 2007, and the balance will be contributed in 2008, from the operating
        cash
        flow of 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 expense for the three months ended March
        31,
        2008 and 2007 amounted
        to $12,579 and $11,611, respectively.
 
 Daqiuzhuang
        Metal rented land for 50 years starting September 2005. The agreement called
        for
        Daqiuzhuang Metal to pay the first three years’ rent payments upon signing the
        agreement. The balance due for the remaining 47 years payment is due in
        September 2008, after the lessor has assisted Daqiuzhuang Metal in obtaining
        the
        appropriate land use rights. Total amount of the rent over the 50 years period
        is approximately $1,044,728 (or RMB8,067,400).
 
 As
        of March
        31,
        2008 ,
        total
        future minimum lease payments for the unpaid portion under an operating lease
        were as follows:
 
 Year
                  ended December 31,
              
              Amount2008
              
              
              424,909Thereafter
              
              $
              -
 
 Total
        rental expense of the land use right for the three months ended March
        31,
        2008 and 2007 amounted
        to $21,351 and $5,204, respectively.


37





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




**Forward-Looking
      Statements:**





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





**Company
      Overview**





General
      Steel Holdings, Inc. (“General Steel”), headquartered in Beijing China, operates
      a diverse portfolio of Chinese steel companies. Our companies serve various
      industries and produce a variety of steel products including: 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.





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. We have 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:





•
Tianjin
      Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal);


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


•
Shaanxi
      Longmen Iron and Steel Co., Ltd. (Longmen Joint Venture).


38





**Steel
      Operating Companies**





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





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, we estimate
      that 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. 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.





• *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 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 (“Baotou Steel Pipe Joint
      Venture”). Baotou Steel initially contributed RMB 10,000,000, or approximately
      $1,270,000 taking a 20% ownership interest in the Baotou Steel Pipe Joint
      Venture. Daqiuzhuang Metal initially contributed RMB 40,000,000, or
      approximately $5,130,000 taking an 80% ownership interest in the Baotou Steel
      Pipe Joint Venture.





We
      have
      invested $1.56 million cash into this joint venture with the rest of the
      required registered capital is required to be invested within two years. 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 of 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 the
      Inner Mongolia Autonomous Region and the northwest region of China.





This
      joint venture started production and testing operations in the second quarter
      2007 and began to generate revenue in the third quarter 2007.





• *Shaanxi
      Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”)*





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





Long
      Steel Group, located in Hancheng city, Shaanxi province, in China’s central
      region, was founded in 1958 and incorporated in 2002.


39





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. Less than 10% of steel companies in China have fully-integrated steel
      production capacity.





Our
      Longmen Joint Venture, assumed existing operating units of the Long Steel Group.
      The Long Steel Group contributed most of its working assets to the Longmen
      Joint
      Venture. Key units of the Longmen Joint Venture include:


•
Shaanxi
      Longmen Iron and Steel Group Co., Ltd., (“Base Steel Operations”): Includes 8
      blast furnaces (total volume of 1749 cubic meters), 4 converters (total load
      of
      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;


•
Shaanxi
      Longmen Iron and Steel Group Co., Ltd., Hancheng Yulong Hotel: A 1 25
      room
      hotel and recreation complex catering to the regional construction and steel
      support industries;


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


•
Shaanxi
      Yuteng Commercial Trading Co., Ltd.





Longmen
      Joint Venture employs approximately 5,000 full-time and 2,000 part-time
      workers.





The
      annual capacity at Longmen Joint Venture is 2.5 million tons of crude steel.
      It
      is the largest steel producer in Shaanxi province. Approximately 94% of its
      total production is devoted to reinforced bar steel (rebar - a commodity grade
      steel product used to reinforce the concrete), with the remainder being
      roundbar, wire rod and related products. These products are primarily used
      in
      building and infrastructure construction.





Longmen
      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 Longmen Joint
      Venture main site. We estimate in Xi’an we have a 72% market share.





An
      established regional network of 24 agents and 2 sales offices sell the Longemn
      Joint Venture’s products. Agents account for approximately 68% 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.





On
      September 24, 2007, Longmen Joint Venture acquired controlling interest in
      two
      subsidiaries of Long Steel Group.


40





The
      Longmen Joint Venture entered into an equity transfer agreement with Long Steel
      Group to acquire its 74.92% ownership interest in its subsidiary, Longmen Iron
      and Steel Group Co., Ltd. Environmental Protection Industry Development Co.,
      Ltd. (“EPID”). The Joint Venture paid RMB 18,080,930 (approximately $2,380,000)
      in exchange for the ownership interest. The facility utilizes solid waste
      generated from the steel making process to produce products such as construction
      materials, building blocks, landscape tiles, curb tops, ornamental tiles,
      etc.





At
      the
      same time, the Longmen Joint Venture also entered into a second equity agreement
      with the Long Steel Group to acquire its 36% ownership interest in its
      subsidiary, Longmen Iron and Steel Group Co., Ltd. Hualong Fire Retardant
      Materials Co., Ltd. (“Hualong”). The Joint Venture paid RMB 3,287,980
      (approximately $430,000) in exchange for the ownership interest. The Joint
      Venture is the largest shareholder in the company. The facility produces
      fire-retardant materials used in various processes in the production of
      steel.





On
      January 11, 2008, Longmen Joint Venture completed its acquisition of a
      controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”).
      Tongxing contributed its land use right of 217,487 square meters (approximately
      53 acres) with an appraised value of approximately $4.1 million (or RMB
      30,227,333). Pursuant to the agreement, the land will be converted into shares
      valued at approximately $3.1 million (RMB 22,744,419), providing the Joint
      Venture a stake of 22.76% ownership in Tongxing and making it Tongxing’s largest
      and controlling shareholder. Tongxing has two core operating areas: coking
      coal
      production and rebar processing. Its coking coal operations have an annual
      production capacity of 250,000 tons. Its rebar processing facility has an
      annualized rolling capacity of 300,000 tons.





**Summary
      of Significant Growth and Change as of March 31, 2008 comparing with March
      31,
      2007:**





As of March 31, 2007
            
            As of March 31, 2008Number
                of Main Subsidiaries
            
            
            1
            
            
            3Production
                Capacity (ton)
            
            
            400,000
            
            
            3
                millionMain
                Product Categories
            
            
            1
            
            
            3Number
                of Sales Offices
            
            
            3
            
            
            6Number
                of Full-time Employees
            
            
            1,250
            
            
            6,200Exchange
                Listing
            
            
            OTCBB
            
            
            NYSE
                Arca





**Stock
      listing**





We
      obtained listing approval from American Stock Exchange (AMEX) on September
      28,
      2007. The stock officially started to trade on AMEX on October 3, 2007 under
      the
      ticker symbol, “GSI”. On March 6, 2008, we migrated from the AMEX to the NYSE
      Arca and officially started to trade under the same ticker symbol,
“GSI”.





**Factors
      affecting our operating results**





Demand
      for our products





Overall,
      domestic economic growth is an important demand driver for our products.
      According to estimates by various international sources, China’s economy will
      grow by approximately 10% in 2008. Industry demand drivers for our products
      include construction and infrastructure growth, rural income growth and energy
      demand.





At
      Longmen Joint Venture, growth in regional construction and infrastructure
      projects drives demand for our products. According to the 11 th Five-Year National Economic and Social Plan (the “NESDP”)(2006-2010),
      development of China’s western region is one of the top-five economic priorities
      of the nation. Shaanxi, the province where Longmen Joint Venture is located,
      has
      been designated as the bridgehead for development into the western region,
      and
      Xi’an, the provincial capital, has been designated as the focal point for this
      development. Our Longmen Joint Venture is 180 km from Xi’an and does not have
      another major competitor within a 250 km radius. According to a Shaanxi
      provincial government report issued on January 16, 2008, there are 150
      construction and infrastructure projects scheduled to begin in the province
      in
      2008. Major projects include six new highways, one new airport, the expansion
      of
      the Xi’an airport, a new ring subway system and three new dams. We see strong
      demand for our products driven by these and many other construction and
      infrastructure projects. We believe that there will be sustained regional demand
      for several years ahead as the government continues to strengthen its western
      region development efforts.


41





At
      Daqiuzhuang Metal, rural income growth drives demand for our hot-rolled carbon
      sheets. According to the Asian Development Bank statistics, well over 60% of
      the
      nation’s 1.3 billion total population is comprised of low-income, rural farmers.
      Our steel sheets are used in the construction of light agricultural vehicles
      targeted for sale to low-income, rural farmers. We believe our sheets are
      lighter and of greater ductility than those of our competitors and are preferred
      by manufacturers of light agricultural vehicles. According to the 11 th Five-Year NESDP (2006-2010), raising the level of rural income is a top economic
      and social goal for the country. Many government initiatives, including removal
      of certain agricultural and local product taxes, have been implemented to spur
      rural income development. The government expects annual rural income to grow
      between 5% and 10% through 2010. Transportation asset growth slightly lags
      behind the growth in rural net income, so we anticipate demand for light
      agricultural vehicles to continue to grow between 4.7% and 9.6% throughout
      2010.





At
      Baotou
      Steel Pipe Joint Venture, the need to transport oil, natural gas and steam
      drives demand for spiral-weld steel pipe. The West-East pipeline that will
      bring
      oil and natural gas from the Xinjiang Uyghur Autonomous Region to large eastern
      coastal cities will be the largest single demand driver for our pipes. This
      pipeline starts in China’s far western Xinjiang Uyghur Autonomous Region and
      stretches 4000 km through ten regions, provinces and municipalities before
      it
      ends in Zhejiang province. Construction on the pipeline commenced in the first
      quarter of 2008. Lesser demand is fueled by smaller pipeline projects and
      municipal energy infrastructure projects.





Supply
      of
      raw materials





Our
      primary raw materials consist of iron-ore and hot-rolled steel coil. Longmen
      Joint Venture uses iron-ore as its main raw material; Daqiuzhuang Metal and
      Baotou Steel Pipe Joint Venture use hot-rolled steel coil as their main raw
      material. Iron-ore is the main raw material used to produce hot-rolled steel
      coil. As a result, the price of iron-ore is the primary raw material cost for
      our products.





Longmen
      Joint Venture produces 2.5 million tons of our aggregate 3 million ton annual
      production. At Longmen Joint Venture, approximately 90% of the production costs
      are attributable to the purchase of raw materials, with iron-ore being the
      largest component of the purchase.





Nationwide
      the price of iron ore has been in an upward swing. During the first quarter
      of
      2008, the average price per ton of domestic iron-ore increased from
      approximately RMB 1,350 per ton to RMB 1,550. This price was only approximately
      RMB 700 per ton during the first quarter of 2007. We expect the overall cost
      of
      iron-ore will continue to fluctuate at this level through the end of
      2008.





According
      to the China Iron and Steel Association, approximately 60% of the China domestic
      steel industry demand for iron-ore will have to be filled by imports. At Longmen
      Joint Venture, we purchase iron-ore from four primary sources: the Mulonggou
      mine (owned by the Longmen Joint Venture), the Daxigou mine (owned by our joint
      venture partner), small local-area mines and from abroad. The Daxigou mine
      has
      300 million tons of proven iron-ore reserves, of which only less than one
      million tons have been excavated. According to the terms of our Joint Venture
      agreement with the strategic partner, we have first rights of refusal for sales
      and development from this mine.





We
      source
      approximately 15% of our iron-ore from the Mulonggou and Daxigou mines, 70%-75%
      from local mines and only 10-15% of our iron-ore from abroad. The iron-ore
      from
      the Mulonggou and Daxigou mines is approximately 10% below the market price
      as a
      part of the Longmen Joint Venture agreement. In 2008, we aim to increase the
      percentage of iron-ore sourced from Mulonggou and Daxigou mines from
      approximately 15% to 30%. We anticipate this will increase our gross margin
      between 1.5% and 2.0%. We believe gaining greater direct control over our key
      raw material supply is important for margin and secured source protection.
      We
      expect to begin to see increased gross margin in the third quarter of this
      year.


42





Industry
      consolidation





In
      2007,
      the government held firm on its resolve to consolidate the highly fragmented
      domestic steel industry through coerced mergers and heightened operating
      requirements. In November 2007, the National Development and Reform Commission
      (NDRC), the nation’s top economic planner, reported that to date 29.4 million
      tons of outdated iron smelting capacity and 15.21 million tons of outdated
      steel
      smelting capacity had been eliminated. It also announced later
      obligation letter with 18 provinces, autonomous regions and municipalities
      to eliminate 49.31 million tons of outdated iron smelting capacity and 36.1
      million tons of outdated steel smelting capacity. The obligation letters
      involved 573 enterprises. It is the government’s goal to consolidate 50% of
      domestic production among the top 10 steel companies by 2010 and 70% by
      2020.





We
      believe that the government will continue to strengthen its industry
      consolidation effort. As excess capacity from weaker market players is removed,
      the eliminated capacity will be reassigned to steel companies which have gained
      government approval for expansion.





Environmental
      controls for the Olympic Games





This
      summer, Beijing will host the Olympic and Paralympic Games. In an effort to
      improve the air quality in and around Beijing, Interfax China has reported
      that
      Hebei Development and Reform Commission plans to suspend production at 42
      polluting enterprises in the province, including small scale steel mills. The
      closure period will be between July 17 and September 20, 2008. The enterprises
      are scattered through seven cities surrounding Beijing: Shijiazhuang, Chengde,
      Zhangjiakou, Qinhuangdao, Tangshan, Langfang and Baoding. Our facilities are
      not
      included in this list. Based on currently available information, we do not
      anticipate any disruption in production capabilities at any of our facilities
      or
      significant market impact as a result of this intended action. We are monitoring
      the situation for any changes.





Winter
      storm in southern China





In
      early
      February, around the period of Chinese New Year, a severe and atypical winter
      storm hit China’s southern region. All of our facilities are located in the
      northern half of the country. As a direct result of the storm, we did not
      sustain any damages, deaths, power outages or production stoppages at any of
      our
      facilities. However, we did experience negative indirect impact brought about
      by
      the effects of government intervention to bring relief to the storm affected
      areas.





Owing
      to
      the unusual large-scale heating needs, during this period the government
      redirected coal mine production in the northern part of the country from
      production of coal for coking to production of coal for heat and power needed
      in
      the south. This caused a sudden scarcity of coking coal and sharp increase
      in
      price. This spike came on the back of a growing shortage of coking coal brought
      about by the National Development and Reform Commission mandate to close many
      small, unsafe mining operations and local government pressure to close
      high-pollutant coking operations. From the end of 2007 to March 2008, the price
      of coking coal increased almost 200%, from approximately RMB 800 to RMB 1600.
      The price of coking coal has fluctuated at the higher end of this range since
      March. Coking coal is a primary raw material in steel production.





Additionally,
      during this period, to transport the coal from the north to the south for heat
      and power, the government moved to secure many of the transportation resources
      in the market place. Many rail and truck transportation resources that
      supplement our own transportation resources for coal, coke and billets became
      unavailable. This caused a spike in freight transportation rental costs. As
      of
      the second quarter of this year, transportation costs have returned to normal
      levels.





The
      combination of above two factors caused unusual margin compression for us in
      the
      first quarter of 2008. The winter storm and the severity of its impact in the
      southern region of China are very atypical. As such, we do not view the
      ramifications of the storm’s impact on our operations in the first quarter in
      any way as regular, usual or recurring.


43





Iron-Ore
      Price Increase




International
      iron-ore contract price went up 65% in the middle of the first quarter of this
      year. This international contract rate is available only to large-scale
      purchasers, of which we are not yet one. Our Longmen facility pays spot price
      for iron ore which went up by approximately 10% in the first quarter of this
      year. The increase also put some pressure on our gross margin. While we are
      the
      largest integrated producer of steel in the region and have a greater ability
      than non-integrated producers to pass higher production cost on to our
      customers, there exists a lag time between the time when the production cost
      goes up and the time when the selling price can be raised to cover the cost.
      This is the reason we were unable to immediately pass the costs on. The selling
      price has already caught up in the second quarter.





Seasonality
      - Chinese New Year





The
      first
      quarter of the year is always the weakest quarter in terms of the construction
      steel market in China. This seasonality is caused by the Chinese New Year,
      a
      national holiday period during which migrant workers take vacations from work
      to
      return to their villages. The winter weather also slows the pace of construction
      projects which reduces the demand for our main products. Conversely, the summer
      months with no holidays and a minimal risk of inclement weather are usually
      the
      strongest months for the construction steel industry.


Sichuan
        Earthquake
 
 On
        May
        1 2 ,
        2008, a
        7.8 magnitude earthquake hit Sichuan province causing large scale destruction
        and personal injury. Because of its severity, the earthquake was felt many
        thousand miles away from the epicenter. None of our three operating subsidiaries
        sustained damage from this earthquake. As of May 15, 2008, we do not see
        any
        adverse impact on our operations as a result of this
        earthquake.




**Operating
      Results**





***Sales
      Revenue and Gross Profit***





***Three
      months ended March 31, 2008 compared with three months ended March 31,
      2007***





Overall,
      net sales for the three months ended March 31, 2008 were approximately $291.6
      million compared to $37.6 million in the same period of 2007, an increase of
      675%. The sharp increase in net sales is a result of our acquiring a controlling
      interest position in the Longmen Joint Venture in June 2007, and to a lesser
      extent the starting of our Baotou Steel Pipe Joint Venture which began sales
      in
      July 2007.





At
      Daqiuzhuang Metal, shipments for the three months ended March 31, 2008 decreased
      39% to 53,739 tons in the first quarter of 2008 from 87,786 tons in the same
      period of 2007, due to the change in product mix. In the first quarter of 2008,
      we shifted our product mix to include more silicon sheets which have a longer
      processing time than carbon sheets. The average selling price per ton was $633
      for the first quarter of 2008 as compared to $428 for the first quarter of
      2007.
      This increase in selling price can be traced to both higher input costs as
      well
      as a greater percentage of the production volume devoted to silicon sheets
      which
      have a higher selling price than carbon sheets.





At
      our
      Baotou Steel Pipe Joint Venture, shipments for the three months ended March
      31,
      2008 were 1,832 tons. The average selling price per ton was $599.





At
      our
      Longmen Joint Venture, shipments for the three months ended March 31, 2008
      were
      469,600 tons. The average selling price per ton was $546.





The
      following table displays sales and steel shipment data for General Steel by
      operating unit for the three months ended March 31, 2008 and 2007,
      respectively.




44





1stquarter 2008
            
            1stquarter 2007Operating Unit
            
            Shipment
              Volume
            
            Sales Amount
            
            Shipment
              Volume
            
            Sales Amount(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            $
            53,739
            
            $
            34,017,390
            
            $
            87,786
            
            $
            37,607,971Baotou Steel Pipe Joint Venture     (a)
            
            
            1,832
            
            
            1,096,797
            
            
            -
            
            
            -Longmen Joint Venture                  (b)
            
            
            469,600
            
            
            256,451,812
            
            
            -
            
            
            -Totals
            
            $
            525,171
            
            $
            291,565,999
            
            $
            87,786
            
            $
            37,607,971




(a)
        Sales
        and shipment data reflected 100% of the Baotou Steel Pipe Joint Venture.
        General
        Steel, through its subsidiary, owns 80% of the Baotou Steel Pipe Joint
        Venture.
  (b)
        Sales
        and shipment data reflected 100% of the Longmen Joint Venture. General Steel,
        through its subsidiaries, owns 60% of the Longmen Joint Venture.
  Gross
        profit for the three months ended March 31, 2008 was approximately $13.0
        million, an increase of 649% or $11.3 million from $1.7 million for the same
        period of 2007. Gross profit margin decreased to 4.5% for the three months
        ended
        March 31, 2008 from 4.6% for the same period of 2007.
  The
        following table displays gross profit and gross margin data for General Steel
        by
        operating unit for the three months ended March 31, 2008 and 2007,
        respectively.


1stquarter 2008
            
            1stquarter 2007Operating Unit
            
            Gross Profit
            
            GrossMargin
            
            Gross Profit
            
            GrossMarginDaqiuzhuang
                Metal
            
            $
            1,924,305
            
            
            5.7
            %
            $
            1,733,005
            
            
            4.6
            %Baotou Steel Pipe Joint Venture
            
            
            33,657
            
            
            3.1
            %
            
            -
            
            
            -Longmen Joint Venture
            
            
            11,024,153
            
            
            4.3
            %
            
            -
            
            
            -Totals
            
            $
            12,982,115
            
            
            4.5
            %
            $
            1,733,005
            
            
            4.6
            %





However,
        our first quarter gross margin dropped significantly compar ed
        to the
        4 th quarter
        in 2007. The following chart illustrated this:
  1st
                  Quarter 2008
              
              
              4th
                  Quarter 2007Operating
                  Unit
              
              
              Gross
                  Profit
              
              
              Gross
                Margin
              
              
              Gross
                  Profit
              
              
              Gross
                MarginDaqiuzhuang
                  Metal
              
              $
              1,924,305
              
              
              5.66
              %
              $
              1,582,393
              
              
              6.02
              %Baotou
                  Steel Pipe Joint Venture
              
              
              33,657
              
              
              3.07
              %
              
              246,821
              
              
              9.31
              %Longmen
                  Joint Venture
              
              
              11,024,153
              
              
              4.30
              %
              
              19,123,423
              
              
              7.99
              %Totals
              
              $
              12,982,115
              
              
              4.46
              %
              $
              20,952,637
              
              
              7.81
              %
  Our
        overall gross profit margin was squeezed to 4.46% from the 1 st quarter
        of 2008 compared with 7.81% for the 4 th quarter
        of 2007. Reasons attributed to this decrease are explained as
        follows:
 
 Winter
        Storm:
 
 Ramification
        from a winter storm in early February hitting Southern China put significant
        cost pressure on our operation. This is mainly reflected in a price hike
        of
        coking coal and coke: a primary raw material in steel production at Longmen
        Joint Venture. Due to the unusually large-scale heating needs in the southern
        region of China, during this period the government redirected coal mine
        production in the northern part of the country from production of coal for
        coking to production of coal for heat and power needed in the south. This
        caused
        a scarcity of coking coal and coke and sharp increase in price. This spike
        came
        on the back of a growing shortage of coking coal and coke brought about by
        the
        National Development and Reform Commission mandate to close many small, unsafe
        mining operations, and local government effort to close high-pollutant coking
        operations. From the end of 2007 to March 2008, the price of coke increased
        almost 200%, from approximately RMB 800 to RMB 1600. Although Daqiuzhuang
        Metal
        and Baotou Steel Pipe Joint Venture don’t use coke directly in their production,
        this coke price increase indirectly impacted their gross margin since they
        purchased their feedstock ultimately from integrated steel
        producers.
 
 Additionally,
        during this period, freight cost went up with the government’s effort to secure
        transportation resources to transport heating coal to the southern cities.
        Many
        rail and truck transportation resources that supplement our own transportation
        resources for coal, coke and billets became unavailable. We had to pay more
        to
        ship in and out our raw materials and finished products. This affected our
        operation at all three subsidiaries.
 
 The
        combination of above two factors caused unusual margin compression for us
        in the
        first quarter of 2008. The winter storm and the severity of its impact in
        the
        southern region of China are very atypical. As such, we do not view the
        ramifications of the storm’s impact on our operations in the first quarter in
        any way as regular, usual or recurring.
 
 Iron-Ore
        Price Increase
  International
        iron-ore contract price went up 65% in the middle of the first quarter of
        this
        year. This international contract rate is available only to large-scale
        purchasers, of which we are not yet one. Our Longmen facility pays spot price
        for iron ore which went up by approximately 10% in the first quarter of this
        year. The increase also put additional pressure on our gross margin. While
        we
        are the largest integrated producer of steel in the region and have a greater
        ability than non-integrated producers to pass higher production cost on to
        our
        customers, there exists a lag time between the time when the production cost
        goes up and the time when the selling price can be raised to cover the cost.
        This is the reason we were unable to immediately pass the costs on. The selling
        price has already caught up in the second quarter.
 
 Seasonality
        - Chinese New Year
 
 The
        first
        quarter of the year is always the weakest quarter in terms of the construction
        steel market in China. This seasonality is caused by the Chinese New Year,
        a
        national holiday period during which migrant workers take vacation from work
        to
        return to their villages. The winter weather also slows the pace of construction
        which reduces the demand for our main products.
 Baotou
        Steel Pipe Joint Venture operates in Baotou City, Inner Mongolia Autonomous
        Region. Due to the severe temperatures here and wide-spread permafrost, demand
        for our pipes in this season drops considerably compared to the other three
        quarters of the year.




***Cost
      of Sales***





***Three
      months ended March 31, 2008 compared with three months ended March 31,
      2007***





Overall
      cost of sales increased to $278.6 million for the three months ended March
      31,
      2008 from $35.9 million for the same period of 2007, an increase of 676%. The
      sharp increase in cost of sales reflects our acquiring controlling interest
      position in the Longmen Joint Venture in June 2007, and to a lesser extent,
      the
      starting of our Baotou Steel Pipe Joint Venture which began sales operations
      in
      July 2007.





At
      Daqiuzhuang Metal, average cost per ton was $597 and $409, respectively for
      the
      three months ended March 31, 2008 and 2007. Cost of sales went up mainly due
      to
      the price increase in raw materials. Overall, our raw material feedstock costs
      were driven up by an increase in iron-ore prices. Additionally, we shifted
      our
      product mix to include a higher percentage of silicon sheets which have higher
      feedstock and processing costs than carbon steel sheets. For the quarter, 17.23%
      of the product mix was silicon sheets.


45





At
      our
      Baotou Steel Pipe Joint Venture, average cost per ton was $580 for the three
      months ended March 31, 2008.





At
      our
      Longmen Joint Venture, average cost per ton was $523 for the three months ended
      March 31, 2008.





The
      following table displays cost of sales and steel shipment data for General
      Steel
      by operating unit for the three months ended March 31, 2008 and 2007,
      respectively.





1stquarter 2008
            
            1stquarter 2007Operating Unit
            
            ShipmentVolume
            
            Cost of Sales
            
            ShipmentVolume
            
            Cost of Sales(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            53,739
            
            $
            32,093,085
            
            
            87,786
            
            $
            35,874,966Baotou Steel Pipe Joint Venture
            
            
            1,832
            
            
            1,063,140
            
            
            -
            
            
            -Longmen Joint Venture
            
            
            469,600
            
            
            245,427,659
            
            
            -
            
            
            -Totals
            
            
            525,171
            
            $
            278,583,884
            
            
            87,786
            
            $
            35,874,966




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





***Three
      months ended March 31, 2008 compared with three months ended March 31,
      2007***





Selling,
      general and administrative expenses were $6.5 million for the three months
      ended
      March 31, 2008, compared to $0.6 million for the same period of 2007. This
      increase is largely attributable to the operations of the Longmen Joint Venture,
      which began in June, and alone accounted for approximately $4.4 million in
      selling, general and administrative expenses in the first quarter
      2008.





***Other
      income (expense)***





***Three
      months ended March 31, 2008 compared with three months ended March 31,
      2007***





Finance
      and interest expenses were $6.0  million
      for the three months ended March 31, 2008, a 900% increase from $0.6 million
      for
      the same period of 2007. The increase is traced to an increase in short term
      borrowings largely associated with the Longmen Joint Venture
      operations.





Income
      from derivative instrument was $2.7 million for the three months ended March
      31,
      2008, there was no derivative instrument for the same period of 2007. See more
      detail information in our footnote, Note 14 –
      Convertible notes.


46





***Net
      income***





***Three
      months ended March 31, 2008 compared with three months ended March 31,
      2007***





Net
      income was $2.2 million for the three months ended March 31, 2008, compared
      to
      $0.47 million for the same period of 2007, an increase of 361%. The increase
      is
      largely attributable to the contributions from the Longmen Joint Venture which
      began in June 2007 and the income of $2.7 million recorded for the change in
      fair value of the derivative instrument in connection with the issuance of
      the
      convertible notes in the first quarter of 2008.





***Earnings
      per share***





Earnings
      per share was $0.063 for the three months ended March 31, 2008. Earnings per
      share are calculated as follows:





1stquarter 2008
            
            1stquarter 2007Income
                attributable to holders of common shares
            
            $
            2,188,460
            
            $
            474,865Basic
                weighted average number of common shares outstanding
            
            
            34,836,394
            
            
            31,320,251Add:
                dilution effect of warrants
            
            
            87,220
            
            
            -Diluted
                weighted average number of common shares outstanding
            
            
            34,923,614
            
            
            31,320,251Earnings
                per shareBasic
            
            $
            0.063
            
            $
            0.015Diluted
            
            $
            0.063
            
            $
            0.015





***Income
      taxes***





***Three
      months ended March 31, 2008 compared with three months ended March 31,
      2007***





The
      Company did not carry on any business and did not maintain any branch office
      in
      the United States during the three months ended March 31, 2008 and 2007.
      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 was exempt from income tax for the years
      ended
      December 31, 2005 and 2006 and is eligible for a 50% income tax reduction for
      the years ended December 31, 2007, 2008 and 2009. The current effective income
      tax rate is 12%.





The
      effective income tax rate at our Baotou Steel Pipe Joint Venture is 25%. The
      new
      Enterprise Income Tax Law became effective January 1, 2008, reducing the income
      tax rate for Baotou Steel Pipe Joint Venture from 33% to 25%.





Our
      Longmen Joint Venture is located in the mid-west region of China. The National
      Development and Reform Commission (NDRC) granted it qualification approval
      to
      attain the “Go West” special tax treatment. This national tax treatment rewards
      companies contributing to the economic development of the Western Region by
      lowering their effective corporate tax rate from 33 percent to 15 percent.
      This
      change is effective July 1, 2007 and is reflected from our financial
      results.


47





For
      the
      three months ended March 31, 2008, we had a tax expense of $0.45
      million.





***Minority
      Interest***





Minority
      interest mainly consists of Long Steel Group’s 40% interest in Longmen Joint
      Venture, Baotou Iron and Steel Group’s 20% interest in Baotou Steel Pipe Joint
      Venture, and 77.24% interest of Tongxing which was owned by other
      shareholders.





***Accounts
      Receivable***





Accounts
      receivable and accounts receivable-related party were $27.8 million as of March
      31, 2008 compared to $11.8 million on December 31, 2007.





We
      recognize revenue when we ship out products and pass the titles of the products
      to our customers and distributors. We extended short-term credit to our
      customers and distributors with good reputations and long-term business
      relationships. We have not experienced any bad debt in these accounts. Also,
      we
      review our accounts receivable on a regular basis to determine if the bad debt
      allowance is adequate and adjust the allowance amount if needed. We believe
      the
      accounts receivable amount is collectible. Nevertheless, to be conservative
      and
      prudent in our management practice, as of March 31, 2008, we reserved $270,235
      for bad debt allowance based on our reasonable estimate.





***Liquidity
      and capital resources***





Due
      to
      the strong market demand for our products and our new Longmen Joint Venture,
      we
      plan to maintain a higher-than-average debt to equity ratio to better position
      ourselves in this fast growing market. Our 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 including restricted cash
      amounted to $60.7 million and $52.1 million as of March 31, 2008 and December
      31, 2007, respectively.





***Operating
      activities***





Net
      cash
      used by operating activities for the first quarter of 2008 was $27.1 million
      compared to $2.8 million used in the same period of 2007. This change was mainly
      due to the combination of the following factors:





Net
      cash
      generated in the first quarter of 2008 was primarily attributable to net income
      of $2.2 million adjusted by depreciation and amortization, minority interest
      and
      gain on derivative instrument, total of $4.2 million. Cash received from
      accounts receivable and accounts receivable-related party was $6.2 million
      in
      the first quarter of 2008 compared to $5.9 million in the same period of 2007.
      Notes receivable and other receivable in total had a cash outflow of $4.0
      million in the first quarter of 2008 compared to an outflow of $1.1 million
      in
      the same period of 2007. Increase in inventory and advances on inventory
      purchases resulted in a cash outflow of $37.7 million compared to $13.1 million
      in the same period of 2007.





Accounts
      payable, other payables, accrued liabilities, customer deposits and tax payable
      decreased by $1.9 million compared to $4.0 million in the same period of 2007.





Changes
      in these accounts have mainly resulted from the acquisitions of the Boutou
      Steel
      Pipe Joint Venture and Longmen Joint Venture.





***Investing
      activities***





Net
      cash
      used by investing activities was $27.3 million for the first quarter of 2008
      compared to $0.5 million used in the same period of 2007. This increase in
      cash
      used in investing activities mainly resulted from a $28.0 million on equipment
      purchase.


48





***Financing
      activities***





Net
      cash
      provided by financing activities was $23.0 million for the first quarter of
      2008
      compared to $1.3 million in the same period of 2007. This was mainly
      attributable to a net cash inflow of $51.3 million on short term notes
      payable.




***Impact
      of inflation***




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




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





**Longmen
      Joint Venture:**





Since
      2002, our joint venture partner, Long Steel Group, has invested RMB 580 million
      (approximately $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 (approximately $4.3 million)
      on a
      comprehensive waste water recycling and water treatment system. The 2,000m3/h
      treatment capacity system was implemented at the end of 2005. In the first
      quarter of 2008, new water consumption per ton of steel produced was 1.1
      ton.





Long
      Steel Group has built one 10,000m3 coke-oven gas tank and one 50,000m3 blast
      furnace coal gas tank to collect the residual coal gas produced from its own
      facility and that of surrounding enterprises. Long Steel Group also 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, building 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,
      Daqiuzhuang County ordered an environmental clean-up campaign and required
      harmful waste water discharge to be reduced. In order to meet these
      requirements, we invested $94,190 to remodel our industrial water recycling
      system to reduce new water consumption and industrial water
      discharge.





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


49





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
      ware no off-balance sheet arrangements in the first quarter of
      2008.





***Critical
      Accounting Policies***





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




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





Revenue
      recognition





The
      Company's revenue recognition policies are in compliance with Staff Accounting
      Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectability is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are recorded as customer deposits.
      Sales revenue represents the invoiced value of goods, net of value-added tax
      (VAT). All of the Company’s products sold in the PRC are subject to a Chinese
      value-added tax at a rate of 13% to 17% of the gross sales price. This VAT
      may
      be offset by VAT paid by the Company on raw materials and other materials
      included in the cost of producing the finished product.





Use
      of
      estimates





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





Derivative
      Instrument





The
      Company entered into a Securities Purchase Agreement (the “Agreement”) with
      certain institutional investors (the “Buyers”). Pursuant to the Agreement, the
      Company agreed to sell to the Buyers (i) senior convertible notes in the
      aggregate principal amount of $40,000,000 (“Notes”) and (ii) warrants to
      purchase an additional aggregate amount of 1,154,958 shares of Common Stock
      of
      the Company (the “Warrants”). Both the Warrants and the conversion option
      embedded in the Notes meet the definition of a derivative instrument in SFAS
      133, Accounting for Derivative Instruments and Hedging Activities. Therefore
      these instruments are accounted for as derivative liabilities and periodically
      marked-to-market. The change in the value of the derivative liabilities is
      charged against or credited to income.


50





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 long term debts 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.





The
      Company also analyzes all financial instruments with features of both
      liabilities and equity under SFAS 150, “Accounting for Certain Financial
      Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company’s Own Stock.” The convertible preferred shares issued in
      2005 and the convertible note issued in 2007 did not require bifurcation or
      result in liability accounting. Additionally, the Company analyzes registration
      rights agreements associated with any equity instruments issued to determine
      if
      penalties triggered for late filing should be accrued under FSP EITF 00-19-2,
      “Accounting for Registration Payment Arrangements.”


Fair
        value measurements
 
 The
        Company adopted SFAS 157, “Fair Value Measurements” on January 1, 2008. SFAS 157
        defines fair value, establishes a three-level valuation hierarchy for
        disclosures of fair value measurement and enhances disclosures requirements
        for
        fair value measures. The three levels are defined as follow:
 
 Level
        1
        inputs to the valuation methodology are quoted prices (unadjusted) for identical
        assets or liabilities in active markets.
 
 Level
        2
        inputs to the valuation methodology include quoted prices for similar assets
        and
        liabilities in active markets, and inputs that are observable for the assets
        or
        liability, either directly or indirectly, for substantially the full term
        of the
        financial instruments.
 
 Level
        3
        inputs to the valuation methodology are unobservable and significant to the
        fair
        value.


***New
      Accounting Pronouncements***




In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities—including an amendment of FASB Statement No.
      115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value that are not currently
      required to be measured at fair value. The objective of FAS 159 is to provide
      opportunities to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply hedge
      accounting provisions. FAS 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between companies that choose
      different measurement attributes for similar types of assets and liabilities.
      The Company chose not to elect the option to measure the fair value of eligible
      financial assets and liabilities.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest and the
      valuation of retained non-controlling equity investments when a subsidiary
      is
      deconsolidated. The Statement also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the non-controlling owners. SFAS
      160 is effective for fiscal years beginning after December 15, 2008. The Company
      has not determined the effect that the application of SFAS 160 will have on
      its
      consolidated financial statements.


51





In
      December 2007, Statement of Financial Accounting Standards No. 141(R), Business
      Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business
      Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that
      the acquisition method of accounting (which SFAS 141 called the purchase method)
      be used for all business combinations and for an acquirer to be identified
      for
      each business combination. SFAS 141R requires an acquirer to recognize the
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      the
      acquiree at the acquisition date, measured at their fair values as of that
      date,
      with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
      required the cost of an acquisition to be allocated to the individual assets
      acquired and liabilities assumed based on their estimated fair values. SFAS
      141R
      also requires the acquirer in a business combination achieved in stages
      (sometimes referred to as a step acquisition) to recognize the identifiable
      assets and liabilities, as well as the noncontrolling interest in the acquiree,
      at the full amounts of their fair values (or other amounts determined in
      accordance with SFAS 141R). SFAS 141R applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. An entity
      may not apply it before that date. The Company is currently evaluating the
      impact that adopting SFAS No. 141R will have on its financial
      statements.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS 161”),
      which changes the disclosure requirements for derivative instruments and hedging
      activities. Entities are required to provide enhanced disclosures about (a)
      how
      and why an entity uses derivative instruments, (b) how derivative instruments
      and related hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance and cash flows.
      SFAS 161 is effective for financial statements issued for fiscal years and
      interim periods beginning after November 15, 2008. The Company has not
      determined the effect that the application of SFAS 161 will have on its
      consolidated financial statements.





**Contractual
      obligations and commercial commitments**




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





The
      following tables summarize our contractual obligations as of March 31, 2008,
      and
      the effect these obligations are expected to have on our liquidity and cash
      flows in future periods.





Payment due by periodContractual obligations
            
            Total
            
            Less than 1 year
            
            1-3 years
            
            3-5 yearsDollars amounts in thousandsBank loans
                (1)
            
            $
            128,027
            
            $
            128,027
            
            $
            
            
            $Notes
                payable
            
            
            75,327
            
            
            75,327Deposits
                due to customers and sales representatives
            
            
            63,618
            
            
            63,618Convertible
                notes ( Principal plus Interest )
            
            
            54,000
            
            
            1,200
            
            
            4,800
            
            
            48,000Total
            
            $
            320,972
            
            $
            268,172
            
            $
            4,800
            
            $
            48,000




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


52




**ITEM
      3.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





Commodity
      Price Risk and Related Risks





In
      the
      normal course of our business, we are exposed to market risk or price
      fluctuations related to the purchase, production or sale of steel products
      over
      which we have little or no control. We do not use any derivative commodity
      instruments to manage the price risk. Our market risk strategy has generally
      been to obtain competitive prices for our products and allow operating results
      to reflect market price movements dictated by supply and demand. Based upon
      an
      assumed 2008 annual production capacity of 2 million tons of steel, a $1 change
      in the annual average price would change annual pre-tax profits by approximately
      $2 million.





Interest
      Rate Risk





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





Foreign
      Currency Exchange Rate Risk





Our
      operating units, Daqiuzhuang Metal, Longmen Joint Venture and Baotou Steel
      Pipe
      Joint Venture, are all located in China. They produce and sell all of their
      products domestically in the P.R.C. They are subject to the foreign currency
      exchange rate risks due to the effects of fluctuations in the Chinese Renminbi
      on revenues and operating costs and existing assets or liabilities. We have
      not
      generally used derivative instruments to manage this risk. Generally, a ten
      percent (10%) decrease in Renminbi exchange rate would result in a $237,000
      decrease to income.





**ITEM
      4T. CONTROLS AND PROCEDURES**





Disclosure
      Controls and Procedures




Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures as of March 31, 2008. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
      controls and other procedures of a company that are designed to ensure that
      information required to be disclosed by a company in the reports that it files
      or submits under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by a company in the reports that it files or submits
      under the Exchange Act is accumulated and communicated to the company’s
      management, including its principal executive and principal financial officers,
      as appropriate to allow timely decisions regarding required disclosure.
      Management recognizes that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving their
      objectives and management necessarily applies its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures. Based on the
      evaluation of our disclosure controls and procedures as of March 31, 2008,
      our
      chief executive officer and chief financial officer concluded that, as of such
      date, our disclosure controls and procedures were effective.


53





Changes
      in Internal Control Over Financial Reporting




The
      Baotou Steel Pipe JV and Longmen JV formed during the year ended December 31,
      2007 increased the burden of employing adequate controls over financial
      reporting. We believe that the controls over financial reporting in place at
      the
      two acquired operations at the time of acquisition were and remained adequate.
      Management has reviewed these controls and believes that there was no condition
      with the internal control of General Steel Holdings, Inc. over financial
      reporting that materially affected, or was reasonably likely to materially
      affect, the internal control of General Steel Holdings, Inc.





**PART
      II – OTHER INFORMATION**





ITEM
      1.
      LEGAL PROCEEDINGS





None
      for
      the period covered by this report.





ITEM
      1A.
      RISK FACTORS




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





**Risks
      Related to Our Business**





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





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





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





· Quality;





· Price/cost competitiveness;





· System
      and product performance;





· Reliability and timeliness of delivery;





· New
      product and technology development capability;





· Excellence and flexibility in operations;





· Degree
      of global and local presence;


54





· Effectiveness of customer service; and





· Overall
      management capability.




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





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





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





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





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





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





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





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





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





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





· Maintain
      adequate control of our expenses;





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


55





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





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





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





· Our
      financial condition and results of operations;




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





· Conditions in relevant financial markets in the 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 three months ended March 31, 2008,
      approximately 53% of our sales were to five customers and these customers
      accounted for 39% of total account receivables.  We
      believe that revenue derived from our current and future large customers will
      continue to represent a significant portion of our total revenue. Our inability
      to continue to secure and maintain a sufficient number of large contracts or
      the
      loss of, or significant reduction in purchases by, one or more of our major
      customers would have the effect of reducing our revenues and profitability.





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





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





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


56





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





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





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





According
      to the survey conducted by the China Iron and Steel Association, there are
      more
      than 1,100 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 this guidance on the steel industry to
      encourage consolidation within the fragmented steel sector to mitigate problems
      of low-end repetitive production and inefficient use of resources. The current
      situation of overproduction may not be solved by these measures posted by the
      Chinese government and result in consolidation within the fragmented steel
      sector. If the current state of overproduction continues, our product shipments
      could decline, our inventory could build up and eventually we may be required
      to
      decrease our sales price, which may eventually decrease our
      profitability.




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




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




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





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





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


57





***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,
      acquiring and 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 acquired businesses, 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 $205.9 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 Mr. Zuosheng Yu for important business
      leadership.***





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





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





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




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





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


58





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





**Risks
      Related to Operating Our Business in China**





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





The
      economy of China is transitioning from a planned economy to a market oriented
      economy subject to five-year and annual plans adopted by the government that
      set
      down national economic development goals. Policies of the Chinese government
      can
      have significant effects on the economic conditions of China. The Chinese
      government has confirmed that economic development will follow a model of market
      economy under socialism. Under this direction, we believe that 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 through, among other factors: changes in laws, regulations
      or the interpretation thereof; confiscatory taxation; restrictions on currency
      conversion, imports or sources of supplies; or the expropriation or
      nationalization of private enterprises. Although the Chinese government has
      been
      pursuing economic reform policies for approximately two decades, the Chinese
      government may significantly alter such policies, especially in the event of
      a
      change in leadership, social or political disruption, or other circumstances
      affecting China’s political, economic and social life.





***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. Along with our subsidiaries, 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 treatment issued or granted to
      us
      by relevant governmental bodies may be revoked at a later time under contrary
      findings of higher regulatory bodies. We cannot predict what effect the
      interpretation of existing or new PRC laws or regulations may have on our
      businesses. We may be subject to sanctions, including fines, and could be
      required to restructure our operations. Such restructuring may not be deemed
      effective or encounter similar or other difficulties. As a result of these
      substantial uncertainties, there is a risk that we may be found in violation
      of
      any current or future PRC laws or regulations.


59





***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 adversely effect our results of operations and our
      productivity.





***Inflation
      in China could negatively affect our profitability and
      growth.***





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





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





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


60





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





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





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





The
      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.




***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.


61





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. If the pegging of the Renminbi to the U.S. dollar
      is
      loosened, we anticipate that the value of the Renminbi will appreciate against
      the dollar with the consequences discussed above. As of March 31, 2008, the
      exchange rate of the RMB to the U.S. dollar was 7.01 yuan to 1
      dollar.





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





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





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





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





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





The
      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.


62





**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 70% of our
      common stock. Mr. Zuosheng Yu our major shareholder, beneficially owns
      approximately 69% of our common stock. Mr. Yu can effectively control us and
      his
      interests may differ from other stockholders.





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





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





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





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




We
      are
      registering the shares of our common stock issuable upon conversion
      approximately $40,000,000 worth of senior convertible notes convertible into
      4,170,009 shares of our common stock assuming a conversion price of $12.47
      per
      share and applicable interest rates and upon the exercise warrants to purchase
      an additional aggregate amount of 1,154,958 shares of our common stock at an
      exercise price of $13.51 per share that we issued in December 2007. The issuance
      of shares of our common stock upon conversion of the notes and exercise of
      the
      warrants will dilute current shareholders’ holdings in our company. The senior
      convertible notes have a five year term through December 12, 2012 and the
      warrants are exercisable from May 13, 2008 to May 13, 2013.





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





On
      December 13, 2007, we entered into a Securities Purchase Agreement (the
“Agreement”) with certain institutional investors (the “Buyers”). Pursuant to
      the Agreement, we agreed to sell to the Buyers (i) senior convertible notes
      in
      the aggregate principal amount of $40,000,000 (“Notes”) and (ii) warrants to
      purchase an additional aggregate amount of 1,154,958 shares of our Common Stock
      (the “Warrants”).


63





The
      Notes
      bear initial interest at 3% per annum, which will be increased each year as
      specified in the Notes, payable semi-annually in cash or shares of our common
      stock, par value $0.001 per share (the “Common Stock”). The Notes have a five
      year term through December 12, 2012. They are convertible into shares of the
      Common Stock, subject to customary anti-dilution adjustments. The initial
      conversion price is $12.47. We may redeem the Notes at 100% of the principal
      amount, plus any accrued and unpaid interest, beginning December 13, 2008,
      provided the market price of the Common Stock is at least 150% of the then
      applicable conversion price for 30 consecutive trading days prior to the
      redemption. The Notes are secured by a first priority, perfected security
      interest in certain shares of Common Stock of Zuosheng Yu, as evidenced by
      the
      pledge agreement (the “Pledge Agreement”). The Notes are subject to events of
      default customary for convertible securities and for a secured financing.




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





In
      connection with this transaction, the Buyers and we entered into a registration
      rights agreement (the “Registration Rights Agreement”). Pursuant to the terms
      and conditions of the Registration Rights Agreement, we have agreed to register
      within 60 calendar days after closing shares of Common Stock issuable to the
      Buyers for resale on a Form S-1 Registration Statement to be effective by 90
      calendar days or 120 days if the registration statement is subject to a full
      review by the U.S. Securities and Exchange Commission. We shall register an
      amount of Common Stock for resale that equals at least 120% of the sum of shares
      issuable upon conversion of the Notes, the exercise of the Warrants and the
      payment of interest accrued on the Notes. The registration rights granted under
      the Registration Rights Agreement are subject to customary exceptions and
      qualifications and compliance with certain registration procedures.




We
        registered 3,590,822 shares of common stock underlying the Notes and Warrants
        to
        meet the amount restriction under Rule 415 of the Securities Act after a
        proportionate deduction of all selling shareholders ’ shares
        underlying the Notes and Warrants eligible for registration.
  **150,000
        share issuance of common stock to Marriman Curhan Ford & Co. and Jian
        Ke**
 
 In
        associated with the Security Purchase Agreement we entered into on December
        13,
        2007, we issued 150,000 shares of common stock, on January 8, 2008, to Merriman
        Curhan Ford & Co. and Jian Ke for investment banking related services
        provided to us in the facilitation of this Security Purchase Agreement. The
        total cost of the stock issuance was $1,564,500. We based the market price
        for
        our common shares on the date they were granted.
 
 **76,600
        share issuance of common stock as interim incentives to senior and mid-level
        management**
 
 On
        January 14, 2008, we issued to senior and mid-level management and directors
        76,600 shares of our common stock as compensation. We valued the shares at
        the
        market price as of the date they were granted. We recorded $548,456 as
        compensation expense.




ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES





Not
      applicable.





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





Not
      applicable.





ITEM
      5.
      OTHER INFORMATION





Not
      applicable.




64


ITEM
        6.
        EXHIBITS
 
 (a)
              Exhibits


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




65





SIGNATURES





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





General
                Steel Holdings, Inc.Date:
                May 15, 2008
            By:
                /s/ Zuosheng YuZuosheng
                YuChief
                Executive Officer and ChairmanDate:
                May 15, 2008
            By:
                /s/ John ChenJohn
                ChenDirector
                and Chief Financial Officer


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