UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549







FORM
      10-Q





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





For
      the
      quarterly period ended September 30, 2006





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





For
      the
      transition period from __________ to __________





GENERAL
      STEEL HOLDINGS, INC.


(Name
      of
      Issuer in Its Charter)




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





Incorp
      Services Inc.


6075
      S.
      Eastern Avenue


Suite
      1,
      Las Vegas, Nevada, 89119-3146


Tel:
      (702) 866-2500


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





+
      86 (10)
      58797346


(Issuer's
      telephone number)





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





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





Large
                accelerated filer o
            
            Accelerated
                filer o
            
            Non-accelerated
                filer x





Indicated
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act)


Yes o No x




The
      number of shares of Common Stock outstanding on September 30, 2006 was
      32,426,665.





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











GENERAL
                  STEEL HOLDINGS, INC.IndexPage
                  Number**Part
                  1.**
              **FINANCIALS**
              F-1Item
                  1.
              Financial
                  Statements
              F-1Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition or Plan of
                  Operations
              2Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risks
              8Item
                  4.
              Controls
                  and Procedures
              8**PART
                  II**
              **OTHER
                  INFORMATION**
              **9**Item
                  1.
              Legal
                  Proceedings
              9Item
                  1A.
              Risk
                  Factors
              9Item
                2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              14Item
                  3.
              Defaults
                    Upon Senior Securities
              14Item
                  4.
              Submission
                    Of Matters To A Vote Of Security Holders
              14Item
                  5.
              Other
                    Information
              14Item
                  6.
              Exhibits
              14





Certain
      financial information included in this quarterly report has been derived from
      data originally prepared in Renminbi ("RMB"), the currency of the People's
      Republic of China ("China" or "PRC"). For the purposes of this quarterly report,
      the balance sheet amounts with the exception of equity at September 30, 2006
      were translated at 7.90 RMB to $1.00 USD as compared to 8.06 RMB at December
      31,
      2005. The equity accounts were stated at their historical rate. The average
      translation rate of 8.00 RMB for the nine months ended September 30, 2006
      was applied to income statement accounts.





PART
      I.
      FINANCIAL INFORMATION




ITEM
      1.
      FINANCIAL STATEMENTS


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
  September
                  30,
              
              December
                  31,2006
              
              2005(Unaudited)
              
              (Restated)ASSETSCURRENT
                  ASSETS:Cash
              
              $
              4,009,089
              
              $
              8,648,373Restricted
                  cash
              
              
              2,874,199
              
              
              2,735,583Accounts
                  receivable, net of allowance for doubtful accounts of
                  $1,403and
                  $1,371 as of September 30, 2006 and December 31, 2005,
                  respectively
              
              
              11,071,790
              
              
              993,417Notes
                  receivable
              
              
              1,126,406
              
              
              4,960Note
                  receivable - related party
              
              
              280,480
              
              
              2,976,000Other
                  receivables
              
              
              119,644
              
              
              109,769Other
                  receivables - related parties
              
              
              850,400
              
              
              -Inventories
              
              
              15,698,156
              
              
              10,730,941Advances
                  on inventory purchases
              
              
              7,155,375
              
              
              10,716,293Short-term
                  investment
              
              
              -
              
              
              37,200Prepaid
                  expenses - current
              
              
              66,003
              
              
              64,647Total
                  current assets
              
              
              43,251,542
              
              
              37,017,183PLANT
                  AND EQUIPMENT, net
              
              
              22,914,574
              
              
              18,213,872OTHER
                  ASSETS:Advance
                  on equipment purchases
              
              
              -
              
              
              1,053,169Prepaid
                  Expenses - non current
              
              
              771,161
              
              
              669,460Intangible
                  assets - land use right, net of accumulated amortization
              
              
              1,857,014
              
              
              2,039,532Total
                  other assets
              
              
              2,628,175
              
              
              3,762,161Total
                  assets
              
              $
              68,794,291
              
              $
              58,993,216LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              664,699
              
              $
              823,760Short
                  term loans - bank
              
              
              31,548,720
              
              
              27,118,800Short
                  term notes payable
              
              
              5,519,760
              
              
              5,406,400Other
                  payables
              
              
              534,217
              
              
              69,667Other
                  payable - related party
              
              
              -
              
              
              980,000Accrued
                  liabilities
              
              
              1,768,695
              
              
              916,957Customer
                  deposits
              
              
              1,369,060
              
              
              1,276,536Deposits
                  due to sales representatives
              
              
              1,833,168
              
              
              1,261,080Taxes
                  payable
              
              
              4,363,420
              
              
              1,682,330Total
                  current liabilities
              
              
              47,601,739
              
              
              39,535,530SHARES
                  SUBJECT TO MANDATORY REDEMPTION
              
              
              2,065,053
              
              
              1,720,875Total
                  liabilities
              
              
              49,666,792
              
              
              41,256,405MINORITY
                  INTEREST
              
              
              5,853,861
              
              
              5,387,026SHAREHOLDERS'
                  EQUITY:Common
                  Stock, $0.01 par value, 75,000,000 shares authorized,32,426,665
                  shares issued and outstanding
              
              
              31,250
              
              
              31,250Paid-in-capital
              
              
              6,871,358
              
              
              6,871,358Retained
                  earnings
              
              
              4,726,036
              
              
              4,207,236Statutory
                  reserves
              
              
              840,753
              
              
              840,753Accumulated
                  other comprehensive income
              
              
              804,241
              
              
              399,188Total
                  shareholders' equity
              
              
              13,273,638
              
              
              12,349,785Total
                  liabilities and shareholders' equity
              
              $
              68,794,291
              
              $
              58,993,216
 The
          accompanying notes are an integral part of these statements.
  F-1
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
        STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
        THE
        THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
        (UNAUDITED)
  Three
                  months ended
              
              Nine
                  months endedSeptember
                  30
              
              September
                  302006
              
              2005
              
              2006
              
              2005REVENUES
              
              $
              46,957,797
              
              $
              26,032,015
              
              $
              96,998,657
              
              $
              72,021,091COST
                  OF SALES
              
              
              45,404,450
              
              
              23,379,706
              
              
              92,486,613
              
              
              63,656,562GROSS
                  PROFIT
              
              
              1,553,347
              
              
              2,652,309
              
              
              4,512,044
              
              
              8,364,529SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              605,801
              
              
              523,063
              
              
              2,155,612
              
              
              1,763,706INCOME
                  FROM OPERATIONS
              
              
              947,546
              
              
              2,129,246
              
              
              2,356,432
              
              
              6,600,823OTHER
                  EXPENSE, NET
              
              
              (623,105
              )
              
              (447,943
              )
              
              (1,370,798
              )
              
              (1,308,339
              )INCOME
                  BEFORE PROVISION FOR INCOMETAXES
                  AND MINORITY INTEREST
              
              
              324,441
              
              
              1,681,303
              
              
              985,634
              
              
              5,292,484PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              548,972
              
              
              -
              
              
              1,815,968NET
                  INCOME BEFORE MINORITY INTEREST
              
              
              324,441
              
              
              1,132,331
              
              
              985,634
              
              
              3,476,516LESS
                  MINORITY INTEREST
              
              
              144,644
              
              
              350,118
              
              
              466,834
              
              
              1,121,834NET
                  INCOME
              
              
              179,797
              
              
              782,213
              
              
              518,800
              
              
              2,354,682OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustment
              
              
              222,417
              
              
              374,857
              
              
              405,053
              
              
              374,857COMPREHENSIVE
                  INCOME
              
              $
              402,214
              
              $
              1,157,070
              
              $
              923,853
              
              $
              2,729,539WEIGHTED
                  AVERAGE NUMBER OF SHARES
              
              
              31,250,000
              
              
              31,250,000
              
              
              31,250,000
              
              
              31,250,000EARNING
                  PER SHARE, BASIC AND DILUTED
              
              $
              0.01
              
              $
              0.04
              
              $
              0.02
              
              $
              0.09
  The
        accompanying notes are an integral part of these statements.
  F-2
  GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
        THE
        NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
  Number
                of
                  shares
              
              Common
                stock
              
              Paid-in
                capital
              
              Statutory
                reserves
              
              Retained
                earnings
              
              Accumulated
                  other
                comprehensive
                income
              
              TotalsBALANCE,
                  January 1, 2005, restated
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              154,794
              
              $
              2,152,976
              
              $
              -
              
              $
              9,210,378Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,354,682
              
              
              
              
              
              2,354,682Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              374,857
              
              
              374,857BALANCE,
                  September 30, 2005, restated
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              154,794
              
              $
              4,507,658
              
              $
              374,857
              
              $
              11,939,917Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              385,537
              
              
              
              
              
              385,537Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              685,959
              
              
              (685,959
              )
              
              
              
              
              -Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              24,331
              
              
              24,331-BALANCE,
                  December 31, 2005, restated
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              840,753
              
              $
              4,207,236
              
              $
              399,188
              
              $
              12,349,785Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              518,800
              
              
              
              
              
              518,800Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              405,053
              
              
              405,053BALANCE,
                  September 30, 2006
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              840,753
              
              $
              4,726,036
              
              $
              804,241
              
              $
              13,273,638
  The
          accompanying notes are an integral part of these statements.
  F-3
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
          STATEMENTS OF CASH FLOWS FOR
            THE
            NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)
 September
                  30
              
              September
                  302006
              
              2005(Restated)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              518,800
              
              $
              2,354,682Adjustments
                  to reconcile net income to cashprovided
                  by (used in) operating activities:Minority
                  Interest
              
              
              466,834
              
              
              1,121,834Depreciation
              
              
              1,008,036
              
              
              789,131Amortization
              
              
              222,400
              
              
              216,528Loss
                  on disposal of equipment
              
              
              28,005
              
              
              34,399Interest
                  expense accrued on mandatory redeemable stock
              
              
              344,178
              
              
              -(Increase)
                  decrease in assets:Accounts
                  receivable
              
              
              (9,928,845
              )
              
              23,126Increase
                  in notes receivable
              
              
              (1,106,993
              )
              
              (2,501,624
              )Other
                  receivables
              
              
              (7,476
              )
              
              (570,252
              )Other
                  receivables - related parties
              
              
              (850,400
              )
              
              -Inventories
              
              
              (4,681,528
              )
              
              (716,098
              )Advances
                  on inventory purchases
              
              
              3,737,173
              
              
              310,518Prepaid
                  expense - non current
              
              
              (86,541
              )
              
              -Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              145,602
              
              
              (28,184
              )Other
                  payables
              
              
              137,713
              
              
              (189,561
              )Other
                  payable - related party
              
              
              (980,000
              )
              
              190,000Accrued
                  liabilities
              
              
              821,858
              
              
              12,034Customer
                  deposits
              
              
              64,917
              
              
              2,297,519Taxes
                  payable
              
              
              2,611,959
              
              
              1,518,804Net
                  cash (used in) provided by operating activities
              
              
              (7,534,308
              )
              
              4,862,856CASH
                  FLOWS FROM INVESTING ACTIVITIES:Restriced
                  cash
              
              
              (80,218
              )
              
              1,544,990Notes
                  receivable - related party
              
              
              2,722,629
              
              
              -Increase
                  in short term investment
              
              
              37,494
              
              
              -Deposits
                  due to sales representatives
              
              
              538,664
              
              
              120,463Advance
                  on equipment purchases
              
              
              1,061,493Additions
                  to equipment
              
              
              (5,299,576
              )
              
              (1,588,947
              )Net
                  cash (used in) provided by investing activities
              
              
              (1,019,514
              )
              
              76,506CASH
                  FLOWS FINANCING ACTIVITIES:Borrowings
                  on short term loans - bank
              
              
              21,309,090
              
              
              31,819,320Payments
                  on short term loans - bank
              
              
              (17,497,200
              )
              
              (31,916,664
              )Borrowings
                  on short term notes payable
              
              
              6,074,028
              
              
              6,522,048Payments
                  on short term notes payable
              
              
              (6,074,028
              )
              
              (9,126,000
              )Cash
                  received on issuance of mandatory redeemable stock
              
              
              
              
              
              1,606,150Net
                  cash provided by (used in) financing activities
              
              
              3,811,890
              
              
              (1,095,146
              )EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              102,648
              
              
              149,047(DECREASE)
                  INCREASE IN CASH
              
              
              (4,639,284
              )
              
              3,993,263CASH,
                  beginning of period
              
              
              8,648,373
              
              
              5,547,810CASH,
                  end of period
              
              $
              4,009,089
              
              $
              9,541,073
  The
        accompanying notes are an integral part of these statements.
  F-4
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        1 - Background**
 
 The
        Company (formerly known as American Construction Company) was established
        on
        August 5, 2002 for the purpose of commencing the business of general
        construction contracting. It was the Company's objective to provide to its
        customers timely and durable construction for their residential and commercial
        needs.
 
 On
        October 14, 2004, American Construction Company and General Steel Investment
        Co., Ltd. (referred to as General Steel) and Northwest Steel Company, a Nevada
        corporation, entered into an Agreement and Plan of Merger (the "Agreement")
        pursuant to which American Construction Company acquired General Steel, and
        it’s
        70% ownership in its subsidiary Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang
        Metal) in exchange for shares of the Company’s common stock, of which 22,040,000
        shares was a new issuance by the Company, and 7,960,000 shares are from certain
        shareholders of the Company, which in aggregate, constituted 96% of the total
        issued and outstanding shares of the Company.
 
 Under
        the
        terms of the Agreement, General Steel will remain a 100% owned subsidiary
        of the
        Company. The transaction contemplated by the Agreement was intended to be
        a
“tax-free" reorganization pursuant to the provisions of Section 351 and 368(a)
        (1) (A) of the Internal Revenue Code of 1986, as amended. The stockholders
        of
        General Steel, as of the closing date of the merger own approximately 96%
        of the
        Company's common stock outstanding as of October 15, 2004 (excluding any
        additional shares to be issued on outstanding options, warrants and other
        securities convertible into common stock).
 
 The
        accounting for these transactions is identical to that resulting from a
        reverse-acquisition, except that no goodwill or other intangible assets is
        recorded. Accordingly, the financial statements of General Steel Investment
        Co.,
        Ltd. are the historical financial statements of the Company, formerly the
        operations of Daqiuzhuang Metal Sheet Co., Ltd.
 
 Based
        on
        the Company's Plan of Merger with General Steel Investment Co., Ltd., the
        Board
        of Directors determined to change the Registrant's fiscal year end from January
        31 to December 31.
 
 The
        Company through its subsidiary Daqiuzhuang Metal principally engages in the
        manufacturing of hot rolled carbon and silicon steel sheets which are mainly
        used on tractors, agricultural vehicles and in other specialty markets. The
        Company sells its products through both retailers and wholesalers.
 
 Daqiuzhuang
        Metal Sheet Co., Ltd. (referred to as Daqiuzhuang Metal) was established
        on
        August 18, 2000 in
        Jinghai county, Tianjin city, Hebei province, the People’s Republic of China
        (PRC). The Articles of Corporation provides for a 10 year operating term
        beginning on August 18, 2000 with registered capital of $ 9,583,200. The
        Company is a Chinese registered limited liability company with a legal structure
        similar to a limited liability company organized under state laws in the
        United
        States of America. There is no discriminatory provision for the minority
        shareholders and the 30% shareholders will receive their distribution of
        retained earnings according to their ownership percentage in Daqiuzhuang
        Metal.
 
 F-5
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          2 - Summary of significant accounting policies**
 
 Basis
        of presentation
  The
        consolidated financial statements of General Steel Holdings, Inc. reflect
        the
        activities of the following subsidiaries:
 Subsidiary
                
                %
                    OwnershipGeneral
                    Steel Investment Co., Ltd.
                
                
                British
                    Virgin Islands
                
                
                100.0
                %Tianjin
                    Daqiuzhuang Metal Sheet Co., Ltd.
                
                
                P.R.C.
                
                
                70.0
                %
  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 General
        Steel Investment Co., Ltd. and Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
        (collectively the “Company”). All material intercompany transactions and
        balances have been eliminated in the consolidation.
 
 Revenue
        recognition
 
 The
        Company recognizes revenue when the goods are delivered and title has passed.
        Sales revenue represents the invoiced value of goods, net of a value-added
        tax
        (VAT). All of the Company’s products that are sold in the PRC are subject to a
        Chinese value-added tax at a rate of 17% of the gross sales price. This VAT
        may
        be offset by VAT paid by the Company on raw materials and other materials
        included in the cost of producing their finished product.
 
 Foreign
        currency translation
 
 The
        reporting currency of the Company is the US dollar. The Company uses their
        local
        currency, Renminbi (RMB), as their functional currency. Results of operations
        and cash flow are translated at average exchange rates during the period,
        and
        assets and liabilities are translated at the unified exchange rate as quoted
        by
        the People’s Bank of China at the end of the period.
 
 Translation
        adjustments resulting from this process are included in accumulated other
        comprehensive income in the statement of shareholders’ equity. Transaction gains
        and losses that arise from exchange rate fluctuations on transactions
        denominated in a currency other than the functional currency are included
        in the
        results of operations as incurred.
 
 Translation
        adjustments resulting from this process are included in accumulated other
        comprehensive income in the consolidated statement of shareholders' equity
        and
        amounted to $405,053
        an d
        $374,857 as of September 30, 2006 and 2005, respectively. The balance sheet
        amounts with the exception of equity at September 30, 2006 were translated
        at
        7.90 RMB to $1.00 USD as compared to 8.06 RMB at December 31, 2005. The equity
        accounts were stated at their historical rate. The average translation rate
        of
        8.00 RMB for the nine months ended September 30, 2006 was applied to income
        statement accounts.
 F-6
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 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% residual value. The depreciation expense for the nine months
        ended September 30, 2006 and 2005 amounted to
        $1,008,036 and $789,131, respe ctively.
 
 Estimated
        useful lives of the assets are as follows:
 EstimatedUseful
                    LifeBuildings
                
                10-30
                    yearsMachinery
                    and equipment
                
                8-15
                    yearsOther
                    equipment
                
                5-8
                    yearsTransportation
                    equipment
                
                10-15
                    years
 
 Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company’s plant facilities. No depreciation is
        provided for construction in progress until such time as the assets are
        completed and are placed into service.
 
 The
        cost
        and related accumulated depreciation of assets sold or otherwise retired
        are
        eliminated from the accounts and any gain or loss is included in the statements
        of operations. Maintenance, repairs and minor renewals are charged directly
        to
        expenses as incurred. Major additions and betterment to buildings and equipment
        are capitalized.
 
 Long-term
        assets of the Company are reviewed annually as to whether their carrying
        value
        has become impaired. The Company considers assets to be impaired if the carrying
        value exceeds the future projected cash flows from related operations. The
        Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of September 30, 2006, the Company expects these assets to be fully
        recoverable.
 
 Plant
        and
        equipment consisted of the following:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedBuildings
                    and improvements
                
                $
                8,474,423
                
                $
                5,391,378Transportation
                    equipment
                
                
                882,941
                
                
                485,699Machinery
                
                
                19,263,323
                
                
                12,752,995Construction
                    in progress
                
                
                29,553
                
                
                4,231,318Totals
                
                
                28,650,240
                
                
                22,861,390Less
                    accumulated depreciation
                
                
                5,735,666
                
                
                4,647,518Totals
                
                $
                22,914,574
                
                $
                18,213,872
 F-7
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 Use
        of
        estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles of the United States of America requires management
        to
        make estimates and assumptions that affect the amounts reported in the combined
        financial statements and accompanying notes. Management believes that the
        estimates utilized in preparing its financial statements are reasonable and
        prudent. Actual results could differ from these estimates.
 
 Cash
        and concentration of risk
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with
        state **** owned
        banks within the People’s Republic of China and Hong Kong. Total cash (including
        restricted cash balances) in these banks at September 30, 2006 and December
        31,
        2005, amounted to $6,905,104 and $11,446,120, respectively of which no deposits
        are covered by insurance. The Company has not experienced any losses in such
        accounts and believes it is not exposed to any risks on its cash in bank
        accounts.
 
 Restricted
        cash
 
 The
        Company through its bank agreements is required to keep certain amounts on
        deposit that are subject to withdrawal restrictions and these amoun ts
        are
        $2,874,199 and
        $2,735,583 as of September 30, 2006 and December 31, 2005,
        respectively.
 
 Inventories
 
 Inventories
        are stated at the lower of cost or market using the weighted average method.
        Inventories consisted of the following:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedSupplies
                
                $
                1,186,486
                
                $
                1,524,332Raw
                    materials
                
                
                2,142,447
                
                
                1,195,022Finished
                    goods
                
                
                12,369,223
                
                
                8,011,587Totals
                
                $
                15,698,156
                
                $
                10,730,941
 F-8
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 Inventories,
        (continued)
 
 Inventories
        consist of supplies, raw materials and finished goods. Raw materials consist
        primarily of iron and steel used in production. The cost of finished goods
        included 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. No work in process inventory existed at
        September 30, 2006 and December 31, 2005, as all inventory in process was
        completed and transferred to finished goods prior to the physical inventory
        count. The Company reviews its inventory annually for possible obsolete goods
        or
        to determine if any reserves are necessary for potential obsolescence. As
        of
        September 30, 2006 and December 31, 2005, the Company has determined that
        no
        reserves are necessary.
 
 Financial
        instruments
 
 Statement
        of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
        Value of Financial Instruments” requires disclosure of the fair value of
        financial instruments held by the Company. SFAS 107 defines the fair value
        of
        financial instruments as the amount at which the instrument could be exchanged
        in a current transaction between willing parties. The Company considers the
        carrying amount of cash, accounts receivable, other **** receivables,
        accounts payable, accrued liabilities and other payables to approximate their
        fair values because of the short period of time between the origination of
        such
        instruments and their expected realization and their current market rate
        of
        interest.
 
 Intangible
        assets
 
 All
        land
        in the People’s Republic of China is owned by the government and cannot be sold
        to any individual or company. However, the government grants the user a “land
        use right” (the Right) to use the land. Daqiuzhuang Metal acquired land use
        rights during the years ended in 2000 and 2003 for a total amo unt
        of
        $2,870,902. The
        land
        use rights have a 50 year term. However, Daqiuzhuang Metal's initial business
        license had a ten-year term. Management elected to amortize the land use
        rights
        over the ten-year business term. Daqiuzhuang Metal became Sino Joint Venture
        in
        2004 as discussed in Note 1 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.
 
 As
        of
        September 30, 2006 and December 31, 2005, accumulated amortization amounted
        to
        $1,146,757 and $902,550. The costs of these rights are being amortized over
        ten
        years using the straight-line method.
 F-9
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 Intangible
        assets, (continued)
 
 Intangible
        assets of the Company are reviewed annually as to whether their carrying
        value
        has become impaired. The Company considers assets to be impaired if the carrying
        value exceeds the future projected cash flows from related operations. The
        Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of September 30, 2006, the Company expects these assets to be fully
        recoverable.
 
 Total
        amortization expense for the nine months ended September 30, 2006 and 2005,
        amounted to $222,400 and $216,528, respectively.
 
 Shares
        subject to mandatory redemption
 
 The
        Company has adopted Statement of Financial Accounting Standards No. 150, “Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity”. FAS 150 established classification and measurement standards for three
        types of freestanding financial instruments that have characteristics of
        both
        liabilities and equity. Instruments within the scope of FAS 150 must be
        classified as liabilities within the Company’s Consolidated Financial Statements
        and be reported at settlement date value. The provisions of FAS 150 are
        effective for (1) instruments entered into or modified after May 31, 2003,
        and
        (2) pre-existing instruments as of July 1, 2003. In November 2003, through
        the
        issuance of FSP 150-3, the FASB indefinitely deferred the effective date
        of
        certain provisions of FAS 150, including mandatory redeemable instruments
        as
        they relate to minority interests in consolidated finite-lived
        entities.
 
 The
        Company issued new redeemable stock in September, 2005. The amount is presented
        as a liability on balance sheet at the fair market value on the date of issuance
        plus any interest amortized to the balance sheet date, see note 19.
 
 Income
        taxes
 
 The
        Company has adopted Statement of Financial Accounting Standards No. 109,
        “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of
        deferred income tax liabilities and assets for the expected future tax
        consequences of temporary differences between income tax basis and financial
        reporting basis of assets and liabilities. Provision for income taxes consist
        of
        taxes currently due plus deferred taxes. There are no deferred tax amounts
        at
        September 30, 2006 and December 31, 2005.
 
 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.
 F-10
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 Income
        taxes, (continued)
 
 Deferred
        tax is accounted for using the balance sheet liability method in respect
        of
        temporary differences arising from differences between the carrying amount
        of
        assets and liabilities in the financial statements and the corresponding
        tax
        basis used in the computation of assessable tax profit.
 
 In
        principle, deferred tax liabilities are recognized for all taxable temporary
        differences, and deferred tax assets are recognized to the extent that it
        is
        probably that taxable profit will be available against which deductible
        temporary differences can be utilized.
 
 Deferred
        tax is calculated at the 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 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.
 
 Under
        the
        Income Tax Laws of PRC, the Company 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 Sheet Co., Ltd., became a Chinese
        Sino-foreign joint venture at the time of the merger on October 14, 2004
        and it
        became eligible to receive a tax benefit. The Company is exempt from income
        taxes for the years ended December 31, 2005
        and
        2006 and 50% income tax reduction for the years ended December 31, 2007,
        2008
        and 2009. The Company received the tax exemption approval from the local
        tax
        authorities during the last quarter of 2005 and the Company had been recording
        a
        provision for income taxes for the first three quarters of 2005. During the
        last
        quarter of 2005 the Company reversed the provision for income taxes once
        they
        received the approval from the local tax authorities. The local Chinese tax
        authority waived the previously accrued tax accumulated prior to January
        1, 2005
        in the amount of $253,250 which was recorded as other nonoperating income
        for
        the nine months ended September 30, 2006 for previously accrued income taxes.
 F-11
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 Income
        taxes, (continued)
 
 The
        provision for income taxes for the period ended September 30 consisted of
        the
        following
 2006
                
                2005Unaudited
                
                RestatedProvision
                    for China Income Tax
                
                $
                -
                
                $
                1,634,371Provision
                    for China Local Tax
                
                
                -
                
                
                181,597Total
                    provision for income taxes
                
                $
                -
                
                $
                1,815,968
  The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate for the nine months ended September 30:
 2006
                
                2005U.S.
                    statutory rates
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recoginized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                -
                
                
                33.0Effective
                    tax rate
                
                
                -
                %
                
                33.0
                %
 The
        estimated tax savings for the nine months ended September 30, 2006 amounted
        to
        $513,518. The net effect on earnings per share had the income tax been applied
        would decrease earnings per share from $0.02 t o
        $0.005.
 
 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.
 
 Taxes
        payable consisted of the followings:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedVAT
                    taxes payable
                
                $
                4,362,558
                
                $
                1,290,982Income
                    taxes payable
                
                
                -
                
                
                385,510Misc
                    taxes
                
                
                862
                
                
                5,838Totals
                
                $
                4,363,420
                
                $
                1,682,330
 F-12
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 Recently
        issued accounting pronouncements
 
 In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
        for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
        No. 140, “Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
        simplify the accounting for certain hybrid instruments by permitting fair
        value
        remeasurement for any hybrid financial instrument that contains an embedded
        derivative, as well as, clarifies that beneficial interests in securitized
        financial assets are subject to FAS 133. In addition, FAS 155 eliminates
        a
        restriction on the passive derivative instruments that a qualifying
        special-purpose entity may hold under FAS 140. FAS 155 is effective for all
        financial instruments acquired, issued or subject to a new basis occurring
        after
        the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The adoption of SFAS No. 155 is not expected to have a
        material effect on the Company’s financial position or results of
        operations.
 
 In
        March
        2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
        Assets” (“FAS 156”), which amends SFAS No. 140. FAS 156 specifically
        provides guidance addressing the recognition and measurement of separately
        recognized servicing assets and liabilities, common with mortgage securitization
        activities, and provides an approach to simplify efforts to obtain hedge
        accounting treatment. FAS 156 is effective for all separately recognized
        servicing assets and liabilities acquired or issued after the beginning of
        an
        entity’s fiscal year that begins after September 15, 2006, with early
        adoption being permitted. The adoption of SFAS No. 156 is not expected to
        have a
        material effect on the Company’s financial position or results of
        operations.
 
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in a company’s financial statements in accordance with FAS 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
        measurement attribute for the financial statement recognition and measurement
        of
        a tax position taken or expected to be taken in a tax return. FIN 48 also
        provides guidance on derecognition, classification, interest and penalties,
        accounting in interim periods, disclosure and transition. The requirements
        of
        FIN 48 are effective for our fiscal year beginning January 1, 2007. The
        adoption of this interpretation is not expected to have a material effect
        on the
        Company’s financial position or results of operations.
 F-13
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 - Summary of significant accounting policies,
            (continued)**
 
 Recently
        issued accounting pronouncements, (continued)
 
 In
        September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
        which
        addresses the measurement of fair value by companies when they are required
        to
        use a fair value measure for recognition or disclosure purposes under GAAP.
        SFAS
        No. 157 provides a common definition of fair value to be used throughout
        GAAP
        which is intended to make the measurement of fair value more consistent and
        comparable and improve disclosures about those measures. SFAS No. 157 will
        be
        effective for an entity's financial statements issued for fiscal years beginning
        after November 15, 2007. The Company is currently evaluating the effect SFAS
        No.
        157 will have on its consolidated financial position, liquidity, or results
        of
        operations.
 
 In
        September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
        Defined
        Benefit Pension and Other Postretirement Plans−−an amendment of FASB Statements
        No. 87, 88, 106, and 132(R)". One objective of this standard is to make it
        easier for investors, employees, retirees and other parties to understand
        and
        assess an employer's financial position and its ability to fulfill the
        obligations under its benefit plans. SFAS No. 158 requires employers to fully
        recognize in their financial statements the obligations associated with
        single−employer defined benefit pension plans, retiree healthcare plans, and
        other postretirement plans. SFAS No. 158 requires an employer to fully recognize
        in its statement of financial position the overfunded or under funded status
        of
        a defined benefit postretirement plan (other than a multiemployer plan) as
        an
        asset or liability and to recognize changes in that funded status in the
        year in
        which the changes occur through comprehensive income. This Statement also
        requires an employer to measure the funded status of a plan as of the date
        of
        its year-end statement of financial position, with limited exceptions. SFAS
        No.
        158 requires an entity to recognize as a component of other comprehensive
        income, net of tax, the gains or losses and prior service costs or credits
        that
        arise during the period but are not recognized as components of net periodic
        benefit cost pursuant to SFAS No. 87.
 
 This
        Statement requires an entity to disclose in the notes to financial statements
        additional information about certain effects on net periodic benefit cost
        for
        the next fiscal year that arise from delayed recognition of the gains or
        losses,
        prior service costs or credits, and transition asset or obligation. Management
        does not currently believe adoption will have a material impact on the Company's
        financial position or results of operations.
 
 **Note
        3 - Consolidated financial statements and condensed
        footnotes**
 
 The
        interim consolidated financial statements presented herein have been prepared
        by
        the Company and include the unaudited accounts of the Company and its
        subsidiaries. All significant inter-company accounts and transactions have
        been
        eliminated in the consolidation.
 F-14
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            3 - Consolidated financial statements and condensed footnotes,
            (continued)**
 
 These
        consolidated financial statements have been prepared in accordance with
        generally accepted accounting principles in the United States for interim
        financial information and the instructions for Form 10-Q and Article 10 of
        Regulation S-X.
 
 Certain
        information and footnote disclosures that are normally included in financial
        statements presented in accordance with generally accepted accounting principles
        have been condensed or omitted. Management of the Company believes the
        disclosures made are adequate to make the information presented not misleading.
        The condensed consolidated financial statements should be read in conjunction
        with the Company’s audited financial statements included in its Annual Report on
        Form 10-K dated March 31, 2006.
 
 In
        the
        opinion of management, the unaudited consolidated financial statements reflect
        all adjustments (which include only normal recurring adjustments) necessary
        to
        present fairly the financial position of the Company as of September 30,
        2006
        and December 31, 2005, and the results of operations, changes in shareholders’
equity and cash flows for the nine months ended September 30, 2006 and 2005.
        Interim results are not necessarily indicative of full year performance because
        of the impact of seasonal and short-term variations.
 
 **Note
        4 - Earnings per share**
 
 The
        Company reports earnings per share in accordance with the provisions of SFAS
        No.
        128, "Earnings Per Share." SFAS No. 128 requires presentation of basic and
        diluted earnings per share in conjunction with the disclosure of the methodology
        used in computing such earnings per share. Basic earnings per share excludes
        dilution and is computed by dividing income available to common stockholders
        by
        the weighted average common shares outstanding during the period. Diluted
        earnings per share takes into account the potential dilution that could occur
        if
        securities or other contracts to issue common stock were exercised and converted
        into common stock.
  Under
        SFAS 150 " Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity", entities
        that have issued mandatory redeemable shares of common stock or entered into
        forward contracts that require physical settlement by repurchase of a fixed
        number of the issuer’s equity shares of common stock in exchange for cash shall
        exclude the common shares that are to be redeemed or repurchased in calculating
        basic and diluted earnings per share. Thus the 1,176,665 shares described
        in
        no te
        19
        have been excluded from the earnings per share calculation.
  The
        weighted average number of shares used to calculate EPS for the nine months
        ended September 30, 2006 (31,250,000), 2005 (31,250,000) reflect only the
        shares
        outstanding for those periods.
 F-15
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            5 - Supplemental disclosure of cash flow
            information**
 
 Interest
        paid amounted to $1,376,863 and $1,344,433 for the nine months ended September
        30, 2006 and 2005, respectively.
 
 Income
        tax payments amounted
        to $0 and $488,344 for the nine months ended September 30, 2006 and 2005,
        respectively.
 
 **Note
        6 - Accounts receivable and allowance for doubtful
        accounts**
 
 The
        Company conducts its business operations in the People’s Republic of China.
        Account receivables include trade accounts due from the customers. Management
        believes that the trade accounts are fully collectible as these amounts are
        being collected throughout the year. Also, management reviews its accounts
        receivable on a regular basis to determine if the bad debt allowance is adequate
        and adjusts the allowance amount at the year end. The allowance for doubtful
        accounts as of September 30, 2006 and December 31, 2005 amounted to $1,403
        and
        $1,371, respectively.
 
 **Note
        7 - Notes receivable and note receivable - related party**
 
 Notes
        receivable represents trade accounts receivable due from various customers
        where
        the customers’ bank has guaranteed the payment of the receivable. This amount is
        non-interest bearing and is normally paid within three to six months. The
        Company has the ability to submit their request for payment to the customer’s
        bank earlier than the scheduled payment date. However the Company will incur
        an
        interest charge and a processing fee when they submit a payment request early.
        The Company had $1,126,406
        and $4,960 outstand ing
        as of
        September 30, 2006 and December 31, 2005, respectively.
 
 The
        note
        receivable from related party represents a note from Yang Pu Automotive
        Investment Limited. Yang Pu Automotive Investment Limited is a Chinese
        registered limited liability company which is 100% indirectly owned by Mr.
        Yu
        Zuo Sheng. This loan was given to the Yang Pu for business purposes on November
        15, 2005. The note is in the amount of RMB 24,000,000, translated to $2,995,200,
        for one year with an interest rate at 7% and due at maturity. In 2006, Yang
        Pu
        Automotive Investment Limited paid $2,757,920 towards the principal of the
        loan.
        The Company will calculate the interest based on the new balance. The Company
        periodically reviews the financial statements of Yang Pu Automotive Investment
        Limited to determine its ability to repay the debt.
 F-16
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            8 - Prepaid expenses**
 
 Prepaid
        expenses at September 30, 2006 consisted of the followings:
 Current
                
                Long-term
                
                TotalRent
                
                $
                45,576
                
                $
                277,568
                
                $
                323,144Land
                    use right
                
                
                20,427
                
                
                493,593
                
                
                514,020Total
                
                $
                66,003
                
                $
                771,161
                
                $
                837,164
 The
        Company rented a dormitory for its employees during 2005. The rent is for
        ten
        years starting on January 1, 2006 at RMB 90,000 per quarter or RMB 360,000
        per
        year. The Company's prepayment at September 30, 2006 a mounted
        to RMB 2,552,470 or $323,144.
 
 The
        Company also entered into another rental agreement on July 21, 2005 to rent
        the
        land use right for its manufacture expansion. The total amount of the rental
        is
        RMB 8,067,400 for a period of 50 years starting on September 1, 2005. The
        Company's prepayment at September 30, 2006 amoun ted
        to
        RMB 4,060,187 or $514,020.
 
 **Note
        9 - Advances on inventory purchases**
 
 Advances
        on inventory purchases are monies deposited or advanced to outside vendors
        or
        related parties on future inventory purchases. Due to the high shortage of
        steel
        in China, most of the Company’s vendors require a certain amount of money to be
        deposited with them as a guarantee that the Company will receive their purchases
        on a timely basis.
 
 This
        amount is refundable and bears no interest. The Company has a legal binding
        contract with their vendors for the guarantee deposit, which is to be returned
        to the Company at the end of the contract. The inventory is normally delivered
        within one month
        after the monies have been advanced. The total outstanding amount was $7,155,375
        and $10,716,293 as of September 30, 2006 and December 31, 2005,
        respectively.
 
 **Note
        10 - Related party transactions**
 
 The
        Company has a short term loan from Golden Glister Holdings Limited. Golden
        Glister holdings limited is incorporated in the territory of the British
        Virgin
        Islands which our president Yu Zuo Sheng is the majority shareholder. This
        amount was loaned to General Steel Investment Co., Ltd. for business operations.
        In the second quarter of 2006, General Steel Investment Co., Ltd. advanced
        $1,300,000 to Golden Glister Holdings Limited for its operations. Golden
        Glister
        has agreed to pay back the amount on a short term basis. The Compan y
        had a
        receivable from Golden Glister for $850,400 and a payable to Golden Glister
        for
        $980,000 as of September 30, 2006 and December 31, 200 5,
        respectively. These receivable and payable are short term and are non interest
        bearing.
  **Note
        11 - Short term loans - bank**
 
 Short
        term loans - bank represent amounts due to various banks which are due on
        demand
        or normally within one year. These loans can be renewed and bear no interest
        rate. The table below summarizes the loans outstanding at September 30, 2006
        and
        December 31, 2005.
 F-17
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            11 - Short term loans - bank (continued)**
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedLoans
                    from China Bank, JingHai Branch, dueNovember
                    2006. Monthly interest only payment at6.138%
                    per annum, secured by equipmentand
                    property
                
                $
                1,139,400
                
                $
                1,116,000Loans
                    from Agriculture Bank, DaQiuZhuang Branch, duevarious
                    dates from October 2006 to April 2007.Monthly
                    interest only payments in 2005 ranging fromfrom
                    6.696% to 6.975% per annum, guaranteed by anunrelated
                    third party and secured by property andequipment
                
                
                9,881,130
                
                
                10,068,800Loan
                    from Construction Bank of China, JinHai Branch, dueAugust
                    15, 2007. Monthly interst only payment at7.4604%
                    per annum, secured by properties
                
                
                1,538,190
                
                
                1,004,400Loans
                    from ShangHai PuFa Bank, due various dates fromNovember
                    2006 to July 2007. Monthly interest onlypayments
                    ranging from 6.138% to 6.435% per month,guaranteed
                    by an unrelated third party
                
                
                6,330,000
                
                
                6,200,000Loans
                    from China Merchants Bank, due various dates fromMay
                    2007 to September 2007. Quarterly interest onlypayments,
                    annual interest rate of 6.1425%,guaranteed
                    by an unrelated third party
                
                
                7,596,000
                
                
                8,060,000Loan
                    from Construction Bank of China, due August 21, 2006Monthly
                    interest only payment at 7.4604% per annum,guaranteed
                    by an unrelated third party
                
                
                -
                
                
                669,600Loans
                    from Shenzhen Development Bank, Tianjin Branchdue
                    various dates from February to March 2007Quarterly
                    interest only payments rangingfrom
                    5.856% to 5.859%, secured by inventories
                
                
                5,064,000
                
                
                -Totals
                
                $
                31,548,720
                
                $
                27,118,800
 
 F-18
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            12 - Short term notes payable**
 
 Short
        term notes payable are lines of credit extended by the banks. When purchasing
        raw materials, the Company often issues a short term note payable to the
        vendor.
        This short term note payable is guaranteed by the bank for its complete face
        value. The banks usually require the Company to deposit a certain amount
        of cash
        at the bank as a guarantee deposit which is classified on the balance sheet
        as
        restricted cash.
 
 The
        Company has the following short term notes payable outstanding as for September
        30, 2006 and December 31, 2005:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedChina
                    Bank, Jing Hai Branch, various amounts, dueOctober
                    2006, restricted cash required 50% of loanamount,
                    secured by land and property
                
                $
                1,468,560
                
                $
                1,438,400Agricultural
                    Bank of China, various amounts, due datesranging
                    between July and October 2006,restricted
                    cash required of 50% of loan amount,secured
                    by land and property
                
                
                1,519,200
                
                
                1,488,000ShangHai
                    PuFa Bank, due November 2006, restrictedcash
                    required of 50% of loan balance, guaranteedby
                    an unrelated third party
                
                
                2,532,000
                
                
                2,480,000Totals
                
                $
                5,519,760
                
                $
                5,406,400
  Total
        interest expense for the nine months ending September 30, 2006 and 2005 on
        all
        debt amounted to $1,531,447
        and $1,344,433 ,
        respectively.
 
 **Note
        13 - Customer deposits**
 
 Customer
        deposits represent amounts advanced by customers on product orders. The product
        normally is shipped within nine months after receipt of the advance payment
        and
        the related sale is recognized in accordance with the Company’s revenue
        recognition policy. As of September 30, 2006 and December 31, 2005, customer
        deposits amounted to $1,369,060
        and $1,276,536, re spectively.
 F-19
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            14 - Deposits due to sales representatives**
 
 The
        Company has entered into agreements with various entities to act as the
        Company’s exclusive sales agent in a specified area. These exclusive sales
        agents must meet certain criteria and are required to deposit a certain amount
        of money with the Company. In return the sales agents receive exclusive sales
        rights to a specified area and discounted prices on products they order.
        These
        deposits bear no interest and are required to be returned to the sales agent
        once the agreement has been terminated. The Company had $1,833,168 and
        $1,261,080 in deposits due to sales representatives outstanding as of September
        30, 2006 and December 31, 2005, respectively.
 
 **Note
        15 - Major customers and suppliers**
 
 The
        Company has 5 major customers which represent approximately 31% and 41% of
        the
        Company’s total sales for the nine months ended September 30, 2006 and 2005,
        respectively. The Company did not have any one significant customer that
        represented more than 10% of the total sales for the three quarters ended
        September 30, 2006 and 2005.
  Four
        customers accounted for 54% and 43% of total
        accounts receivable as of September 30, 2006 and December 31, 2005,
        respectively.
 
 For
        the
        nine months ended September 30, 2006 and 2005, the Company purchases
        approximately 95% and 78%, respectively, of their raw materials from four
        major
        suppliers.
 
 **Note
        16 - Minority interest**
 
 Minority
        interest represents the outside shareholders’ 30% interest in Tianjin
        Daqiuzhuang Metal Sheet Co., Ltd.
 
 **Note
        17 - Other expenses and income, net**
 
 Other
        income and expense for the nine months ended September 30 consist of the
        following:
 2006
                
                2005Unaudited
                
                RestatedFinance/interest
                    expense
                
                $
                (1,880,668
                )
                $
                (1,348,949
                )Interest
                    income
                
                
                154,584
                
                
                45,279Other
                    nonoperating income
                
                
                408,240
                
                
                12,441Other
                    nonoperating expense
                
                
                (52,954
                )
                
                (17,110
                )Total
                    other expense
                
                $
                (1,370,798
                )
                $
                (1,308,339
                )
  Other
        nonoperating income includes the previously accrued income tax. During 2005,
        the
        Company has received approval from the P.R.C. local government for a two
        years
        income tax exemption and three years of 50% income tax rate reduction. The
        local
        Chinese tax authority waived the previously accrued tax accumulated prior
        to
        January 1, 2005 in the amount of $253,250 which was recorded as other
        nonoperating income for the nine months ended September 30, 2006 for previously
        accrued income taxes.
 F-20
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            18** **-** **Reclassifications**
 
 Certain
        amounts for the nine months ended September 30, 2005 in the accompanying
        financial statements have been reclassified to conform to the 2006 presentation.
        These reclassifications have no effect on net income or cash flows.
 
 **Note
        19 - Private Offering of Redeemable Stock**
 
 The
        Company has offered an aggregate of 3,333,333 shares of Common Stock par
        value
        $0.001 in a private placement to investors at a purchase price of $1.50 per
        share. 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. In addition, two warrants are attached to each share of
        common
        stock and each warrant gives the warrant holder the right to purchase an
        additional share of common stock or a total of 2,353,330 of common stock
        in the
        future. The warrants can be exercised on the second anniversary date at $2.50
        per share and on the third anniversary date at $5.00 per share. The number
        of
        shares attached to the warrants will be adjusted due to dividends and changes
        in
        the capital stock structure changes. At the option of the investors the Company
        maybe 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.
 
 Under
        this private offering, the Company raised a total of $1,765,000 and received
        net
        proceeds of $1,606,150 net of $158,850 of commissions paid.
 
 In
        accordance with Accounting Principles Board Opinion No. 14, the Company
        determined the fair value of the detachable warrants issued with redeemable
        stock using the Black-Scholes option pricing model under the following
        assumptions: risk free interest rate of 3.85%, dividend yield of 0% and
        volatility of 11%. The estimated value of the warrants is zero.
 
 In
        accordance with SFAS 150, the Company has recorded this stock
        issuance  as
        a
        liability in the financial statements due to the mandatory redemption provision.
        The shares were recorded at fair market value on the date of issuance, which
        is
        the net cash proceeds, plus any accrued interest up to December 31, 2005.
        The
        difference between the net proceeds, $1,606,150, and the redemption amount,
        $2,294,497, which is $688,347, will be accrued and is amortized as interest
        expense over an 18 months period beginning in October 2005 and ending in
        March
        2007. The following table reconciles the September 30, 2006 carrying
        amount:
 Balance
                    at December 31, 2005
                
                $
                1,720,875Interest
                    amortized during the firstnine
                    months
                
                
                344,178Balace
                    at September 30, 2006
                
                $
                2,065,053
 F-21
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            19 - Private Offering of Redeemable Stock
            (continued)**
 
 Total
        interest amortized since issuance to September 30, 2006 amounted to $458,898
        and
        $229,449 is the remaining amount left to be accrued and amortized through
        March
        2007. The Company amended its financial statements for the periods ended
        December 31, 2005 and March 31, 2006 to reflect the changes made to the
        accounting treatment of the redeemable stock. The original accounting treatment
        was to record the amount discounted at an average market rate as a liability
        with the difference between the discounted amount and the cash received treated
        as reduction in paid-in-capital and the difference between discounted amount
        and
        redemption value to be amortized over the 18 months from issuance
        date.
 
 **Note
        20 - Retirement plan**
 
 Regulations
        in the People’s Republic of China require the Company to contribute to a defined
        contribution retirement plan for all employees. All Joint Venture employees
        are
        entitled to a retirement pension amount calculated based upon their salary
        at
        their date of retirement and their length of service in accordance with a
        government managed pension plan. The PRC government is responsible for the
        pension liability to the retired staff.
 
 The
        Company became a foreign joint venture entity in the year of 2004. For the
        year
        ended December 31, 2005, it was the first year the Company was required to
        make
        contributions to the state retirement plan at 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
        $336,629 and $0 for the
        nine months ended September 30, 2006 and 2005, respectively. No contribution
        was
        made during the first nine months of 2005 because the Company contributed
        the
        total amount near year end of 2005.
  **Note
        21 - Joint venture agreement with Baotou Steel**
 
 On
        September 28, 2005, General Steel Investment Co., Ltd., a wholly owned
        subsidiary of General Steel Holdings, Inc., entered into a certain Baotou-GSHI
        Special Steel Joint Venture Agreement (the "Agreement") with Daqiuzhuang
        Metal
        Sheet Co., Ltd., and Baotou Iron and Steel (Group) Co., Ltd., a limited
        liability company formed under the laws of the People's Republic of China
        (the
        "Baotou Steel"). The name of the joint venture will be Baotou Steel-General
        Steel Special Steel Joint Venture Company Limited.
 
 The
        Joint
        Venture Company will be located at Kundulun District, Baotou City, Inner
        Mongolia, China. The stated purposes of the Joint Venture Company are, among
        others, to produce and sell special steel and to improve the product quality
        and
        the production capacity and competitiveness by adopting advanced technology
        in
        the production of steel products. The Joint Venture Company shall have a
        capacity of producing 600,000 tons of specialty steel products a year.
 F-22
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            21 - Joint venture agreement with Baotou Steel,
            (continued)**
 
 The
        registered capital of the joint venture will be approximately $24,000,000.
        The
        products of the joint venture will be sold in the Chinese market and abroad.
        The
        ownership will be comprised of the following:
 %
                    OwnershipBaotou
                    Iron and Steel (Group) Co.,Ltd.
                
                
                49
                %General
                    Steel Investment Co., Ltd.
                
                
                31
                %Da
                    Qiu Zhuang Metal Sheet Co., Ltd
                
                
                20
                %
  Baotou
        Steel shall contribute land, existing equipment and materials at an estimated
        value of approximately $12,000,000 which will be contributed to the joint
        venture at the date of the approval of Joint Venture or issuance of the business
        license. The value of the assets to be contributed by Baotou Steel will be
        stated at fair market value General Steel Investment Co., Ltd. will contribute
        approximately $7,500,000 of cash and Daqiuzhuang Metal will contribute
        approximately $5,000,000 cash. These contributions will be required to be
        made
        on the following payment schedule 30% of their capital contribution within
        30
        days of the date of approval of the Joint Venture; 30% of their capital
        contribution within 3 months of the date of approval of the Joint Venture;
        and
        40% of their capital contribution within 6 months of the date of approval
        of the
        Joint Venture. The Company will use the consolidation method to account for
        the
        joint venture.
 
 As
        of
        September 30, 2006, the Company has not received the approval of the Baotou
        Steel Joint venture and it is still under government review and maybe subject
        to
        further industry sector review by the relevant authorities in China in view
        of
        the sensitive nature of the steel industry. Currently none of the operations
        of
        Baotou Steel is consolidated into the Company’s financial statements as there is
        no ownership or control relationship between the Company and Baotou Steel
        at
        this time.
 F-23




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




The
      following is management's discussion and analysis of certain significant factors
      that have affected our financial position and operating results during the
      periods included in the accompanying consolidated financial statements, as
      well
      as information relating to the plans of our current management. The following
      discussion and analysis should be read in conjunction with our consolidated
      financial statements and the related notes thereto and other financial
      information contained elsewhere in this Form 10Q.





**Overview**





Following
      the acquisition of ownership in General Steel Investment Co., Ltd. (herein
      referred to as “the Company”) in October 2004, the Company has shifted its main
      business focus to general steel products and steel manufacturing. As the
      core-operating unit of the Company, Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
      (herein referred to as "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 agricultural vehicles, tractors, shipping containers and in other specialty
      products.





Daqiuzhuang
      Metal uses a traditional rolling mill production sequence, such as heating,
      rolling, cutting, annealing, and flattening to process slabs 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 are possible to meet order
      requirements. "Qiu Steel" is the registered name for the products of Daqiuzhuang
      Metal.





In
      April
      2006, Daqiuzhuang Metal built a new plant next to their existing facility.
      The
      new plant consists of four new production lines capable of producing 150,000
      tons of hot-rolled steel sheets. The Company now operates 10 steel production
      lines capable of processing 400,000 tons of 0.75-2.0 mm hot-rolled carbon steel
      sheets per year. By the Company’s estimate, it now maintains a 50% market share
      of all hot rolled steel sheets used in the production of agricultural vehicles
      in China.





On
      September 28, 2005, General Steel Investment Co., Ltd., a wholly owned
      subsidiary of General Steel Holdings, Inc., entered into the Baotou-GSHI Special
      Steel Joint Venture Agreement (the "Agreement") with Daqiuzhuang Metal Sheet
      Co., Ltd., and Baotou Iron and Steel (Group) Co., Ltd., (herein after referred
      to as ”Baotou Steel”) a limited liability company formed under the laws of the
      People's Republic of China. The name of the joint venture will be Baotou
      Steel-General Steel Special Steel Joint Venture Company Limited.





The
      Joint
      Venture Company will be located at Kundulun District, Baotou City, Inner
      Mongolia, China. The stated purposes of the Joint Venture Company are, among
      others, to produce and sell specialty steel and to improve the product quality
      and the production capacity and competitiveness by adopting advanced production
      technologies. The Joint Venture Company shall have a capacity of producing
      600,000 tons of specialty steel products a year.




2





The
      registered capital of the Joint Venture will be approximately $24,000,000.
      The
      products of the Joint Venture will be sold in the Chinese market and abroad.
      The
      ownership will be comprised of the following:





%
                OwnershipBaotou
                Iron and Steel (Group) Co.,Ltd.
            
            
            49
            %General
                Steel Investment Co., Ltd.
            
            
            31
            %Daqiuzhuang
                Metal Sheet Co., Ltd.
            
            
            20
            %





Baotou
      Steel shall contribute land, existing equipment and materials at an estimated
      value of approximately $12,000,000 which will be contributed to the joint
      venture at the date of the approval of Joint Venture or issuance of the business
      license. The value of the assets to be contributed by Baotou Steel will be
      stated at fair market value. General Steel Investment Co., Ltd. will contribute
      approximately $7,500,000 cash and Daqiuzhuang Metal will contribute
      approximately $5,000,000 cash. These contributions will be required to be made
      on the following payment schedule: 30% of their capital contribution within
      30
      days of the date of approval of the Joint Venture; 30% of their capital
      contribution within 3 months of the date of approval of the Joint Venture;
      40%
      of their capital contribution within 6 months of the date of approval of the
      Joint Venture. The Company will use the consolidation method to account for
      the
      Joint Venture.




As
        of
        September 30, 2006, the Company has not received the approval of the Baotou
        Steel Joint Venture and it is still under government review and maybe subject
        to
        further industry sector review by the relevant authorities in China in view
        of
        the sensitive nature of the steel industry. The
        Company is working to encourage relevant parties to provide the requisite
        documentation and initiate the needed procedures. However, if the relevant
        documents cannot be produced and the required procedures
        will
        not be initiated withinthe next
        sixteen months, the Company may chooseto
        terminate the Joint Venture Agreement. Currently none of the operations
        of Baotou Steel is consolidated into the Company’s financial statements as there
        is no ownership or control relationship between the Company and Baotou Steel
        at
        this time




On
      September 18, 2005, the Company entered into a certain Subscription Agreement
      with certain investors and sold an aggregate of 1,176,665 shares of common
      stock
      in a private placement under Rule 506 of the Securities Act, at a purchase
      price
      of $1.50 per share. Under this private placement, the Company raised $1,765,000
      in the aggregate, with net proceeds of $1,606,150 after deducting $158,850
      paid
      for commissions.





**Results
      of Operations**





The
      results of operations of the Company are largely dependent on the level of
      general economic activity in China. Economic forecasts indicate continued fast
      pace growth in China in 2006. As a result, consumption of the Company’s steel
      products is expected to remain at a high level. The Company believes that it
      has
      successfully positioned itself within the Chinese agricultural vehicle market.
      As this market continues to demonstrate increased demand for steel products,
      the
      Company remains focused on building its leadership position by enhancing the
      quality of its products and expanding production capacity. However, the Company
      does believe that the highly competitive market will exist throughout 2006,
      with
      pressures for shipment volumes and prices. In view of that, the Company will
      continue to focus on cost control and new market development. The management
      will concentrate on increasing sales by continuing to sign new distributors
      in
      new markets and continuing to establish provincial branch sales
      offices.





The
      Company’s sales revenue mainly comes from the sale of metal sheets in different
      specifications and steel scrap generated in the cutting process. The Company's
      cost of sales includes the cost of its primary raw materials, rollers, energy
      cost, labor cost, the cost of warehousing and handling finished steel products
      and freight costs.





**Net
      sales and gross profit**





Net
      sales
      increased $21 million, or 80.38% from $26 million for the three months ended
      September 30, 2005 to $47 million for the three months ended September 30,
      2006.
      Shipments for the three months ended September 30, 2006 climbed 100% to 109,912
      tons from 54,740 tons due to increased production capacity brought about by
      the
      four new production lines and increased productivity and market development.
      Average selling price per ton including sale of scrap for the three months
      ended
      September 30, 2006 decreased to $427 from $463 in the same period of
      2005.





Net
      sales
      increased $25 million, 34.68% from $72 million for the nine months ended
      September 30, 2005 to $97 million for the nine months ended September 30, 2006.
      Shipments for the nine months ended September 30, 2006 climbed 61% to 229,819
      tons from 142,735 tons. Average selling price per ton including sale of scrap
      for the nine months ended September 30, 2006 decreased to $420 from $500 in
      the
      same period of 2005. The decrease in sales price mainly resulted from the
      overall steel market downturn, but the impact was offset by the increase in
      sales volume.




3







Gross
      profit for the three months ended September 30, 2006 was approximately $1.55
      million, a decrease of 41.43% or $1.1 million from $2.65 million for the same
      period last year. Gross profit margin decreased to 3.3% from 10.2% for the
      three
      months ended September 30, 2006 and 2005.




Gross
      profit for the nine months ended September 30, 2006 was approximately $4.5
      million, a decrease of 46% or $3.9 million from $8.4 million for the same period
      last year. Gross profit margin decreased to 4.7% from 11.6% for the nine months
      ended September 30, 2006 and 2005.





This
      decrease in gross profit margin is mainly due to the decrease in average selling
      price. Since April 2005, the price of steel products has been decreasing
      globally due to the overall increase in steel supply. The Company must adjust
      its products’ prices in order to stay competitive in this market. Management
      expects that the pressure on the selling price will be mitigated in the
      4 th quarter
      of 2006 as a result of steel industry consolidation in China and overall
      increase in demand.





**Cost
      of sales**





Overall
      cost of sales increased to $45.4 million or 94% for the three months ended
      September 30, 2006 from $23.4 million for the same period of 2005. Cost of
      sales
      as percentage of sales increased from 89.8% to 96.7%. Average cost per ton
      was
      $413 and $427, respectively for the three months ended September 30, 2006 and
      2005. In summary, although the average unit cost dropped, the cost of sales
      increased in the third quarter of 2006 due to the increase in the sales
      volume.





Overall
      cost of sales increased to $92.4 million or 45.1% for the nine months ended
      September 30, 2006 from $63.7 million for the same period of 2005. Cost of
      sales
      as percentage of sales increased from 88.3% to 95.3%. Average cost per ton
      was
      $402 and $446, respectively for the nine months ended September 30, 2006 and
      2005.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses, such as executive compensation, office
      expenses, legal and accounting charges, travel charges, and various taxes were
      $0.61 million for the three months ended September 30, 2006, compared to $0.52
      million for the same period of 2005, a 17.3% increase. A large component of
      the
      increase came from the legal and accounting expenses and investor and public
      relations charges for the public listing of the company.





Selling,
      general and administrative expenses were $2.16 million for the nine months
      ended
      September 30, 2006, compared to $1.76 million for the same period of 2005,
      a
      22.7% increase.





**Other
      income (expense)**





Other
      income (expense) for the three months ended September 30, 2006 consisted mainly
      of finance charges, interest income and other non-operating income (expense).
      Interest expense was $0.65 million for the three months ended September 30,
      2006, compared to $0.46 million for the same period in 2005. This increase
      was
      because the outstanding bank loans increased to $31.5 million from $26.2 million
      as of September 30, 2006 and 2005, respectively. This increase in debt borrowing
      was mainly used for the construction of the four new production
      lines.





Interest
      expense was $1.88 million for the nine months ended September 30, 2006, a 39.3%
      increase compared to $1.35 million for the same period in 2005.




4





**Income
      taxes**





The
      Company did not carry on any business and did not maintain any branch office
      in
      the United States during the nine months ended September 30, 2006 and 2005.
      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. The Company has been approved
      for this tax benefit and will be exempt from income tax for the years ended
      December 31, 2005 and 2006 and 50% income tax reduction for the years ended
      December 31, 2007, 2008 and 2009.





**Liquidity
      and capital resources**





Due
      to
      the strong market demand for the Company’s products, it increased production
      capacity by adding four new production lines. The Company plans to maintain
      a
      higher-than-average debt to equity ratio to better position itself in this
      fast
      growing market. The bank loans are considered short-term for the purpose of
      the
      preparation of the financial statements because they are renewable with the
      banks every year. Due to the recent joint venture agreement with Baotou Steel
      the Company is reserving cash for the first 30% of its capital contribution,
      approximately $3.7 million, which needs to be paid when the business license
      for
      the Joint Venture is issued. Cash balance including restricted cash amounted
      to
      $6.9 million and $11.6 million as of September 30, 2006 and 2005.





**Operating
      activities**




Net
      cash
      used in operating activities for the nine months ended September 30, 2006 was
      $7.53 million compared to $4.86 million provided by operating activities in
      the
      same period last year. This change was mainly due to increases in inventory.
      As
      the new production lines are now in full operation, approximately 13,000 tons
      of
      additional products are now being produced monthly. Finished goods inventories
      have increased and the sales department has, since the beginning of second
      quarter, established 3 provincial sales offices to help increase sales and
      reduce these inventories. The finished goods inventory value on September 30,
      2006 was 29,597 tons compared to 20,726 tons at December 31, 2005. The value
      of
      finished goods inventories also increased to $12.1 million as of September
      30,
      2006 from $8.01 million as of December 31, 2005.




**Accounts
      Receivable**




Accounts
      receivable were $11.07 million as of September 30, 2006 compared to $993,417
      at
      December 31, 2006. We previously collect the deposit from our customers in advance.
      This increase in accounts receivableis
      mainly
      due to a change in the company's collection approach. Starting in the second
      quarter of 2006, the company has gone with a different collection methodology,
      as opposed to receive deposits from its customers; the company has extended
      credit sales to its major customers. The Company now has four new production
      lines in operation. The management is now taking measures to secure the existing
      customer base and attract new customers. One of the approaches is to extend
      credit sales to our major customers and distributors as incentives for buying
      our products. Extending credit to our major customers and distributors is also
      in line with a growing industrial trend in this competitive market. Our top
      four
      customers constitute 54% of our total accounts receivable balance as of
      September 30, 2006.




**Investing
      activities**





Net
      cash
      used in investing activities was $1.02 million for the nine months ended
      September 30, 2006 compared to $0.08 million provided by investing activities
      in
      the same period last year. The cash has been spent on the construction of the
      new plant.





**Financing
      activities**





Net
      cash
      provided by financing activities was $3.81 million for the nine months ended
      September 30, 2006 compared to $1.10 million used in investing activities in
      the
      same period last year. The Company signed a borrowing agreement with Shenzhen
      Development Bank to borrow $5,064,000 in the first quarter. The proceeds were
      mainly used to pay for inventory purchases and the construction of the new
      plant.




5





**Compliance
      with environmental laws and regulations**





Based
      on
      the equipment, technologies and measures adopted, the Company 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 pollution. The Company
      uses
      gas-fired reheat furnaces recommended by the State Environmental Protection
      Agency to heat raw materials and semi-finished products.





In
      2005,
      the Daqiuzhuang County ordered an environmental clean-up campaign and required
      harmless waste water discharge. In order to meet these requirements, the Company
      invested $94,190 to remodel its 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.
      The
      Company can realize approximately $10,000 savings per year using this
      system.




As
      for
      the remodeling of gas furnace and desulphurization of discharged gas, the local
      government has not posted any control measures currently and the Company has
      no
      plans to proceed with this remodeling until such time regulations are mandated.
      The Company believes 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.





**Impact
      of inflation**





The
      Company is subject to commodity price risks arising from price fluctuations
      in
      the market prices of the raw materials. The Company has generally been able
      to
      pass on cost increases through price adjustments. However, the ability to pass
      on these increases depends on market conditions driven by the overall economic
      conditions in China. The Company manages price risks chiefly through
      productivity improvements and cost-containment measures.





Management
      does not believe that inflation risk is material to its business or financial
      position, results of operations or cash flows.





**OUTLOOK**





Certain
      statements contained herein constitute "forward-looking statements" within
      the
      meaning of the Private Securities Litigation Reform Act of 1995. Such
      forward-looking statements involve known and unknown risks, uncertainties and
      other factors, which may cause the actual results, performance or achievements
      of General Steel Holdings, Inc. ("the Company”) or industry results, to be
      materially different from any future results, performance, or achievements
      expressed or implied by such forward-looking statements. The Company's future
      operating results are dependent upon many factors, including but not limited
      to
      the risk factors discussed in this periodic report and developments beyond
      the
      Company's control as well as other risk factors discussed in the Company's
      periodic filings with the Securities and Exchange Commission which are available
      for review at www.sec.gov under "Search for Company Filings."





The
      Company expects better results in the fourth quarter of 2006 as average overall
      market prices improve compared to the first nine months of 2006. The Company
      also expects solid sales contribution as its three newly established provincial
      sales offices and six new distributors gain traction in their respective
      markets.





**ACCOUNTING
      STANDARDS**





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.




6





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 recognizes revenue when the goods are delivered and title has passed.
      Sales revenue represents the invoiced value of goods, net of a value-added
      tax
      (VAT). All of the Company’s products that are sold in the PRC are subject to a
      Chinese value-added tax at a rate of 17% of the gross sales price. This VAT
      may
      be offset by VAT paid by the Company on raw materials and other materials
      included in the cost of producing their finished product.





Use
      of
      estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles of the United States of America requires management to
      make estimates and assumptions that affect the amounts reported in the combined
      financial statements and accompanying notes.





Management
      believes that the estimates utilized in preparing its financial statements
      are
      reasonable and prudent. Actual results could differ from these
      estimates.





Inventories





We
      record
      reserves against our inventory to provide for estimated obsolete or unsalable
      inventory based on assumptions about future demand for its products and market
      conditions. If future demand and market conditions are less favorable than
      management's assumptions, additional reserve could be required. Likewise,
      favorable future demand and market conditions could positively impact future
      operating results if previously reserved for inventory is sold.





**Contractual
      obligations and commercial commitments**




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





The
      following tables summarize our contractual obligations as of September 30,
      2006,
      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)
            
            $
            31,548.7
            
            $
            31,548.7
            
            $
            
            
            $Notes
                payable
            
            
            5,519.8
            
            
            5,519.8Deposits
                due to sales representatives
            
            
            1,833.2
            
            
            1,833.2Land
                lease obligations (2)
            
            
            507.3
            
            
            5.3
            
            
            10.5
            
            
            491.5Redeemable
                stock
            
            
            2,065.1
            
            
            2,065.1Total
            
            $
            41,452
            
            $
            40972.1
            
            $
            10.5
            
            $
            469.4




(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.





(2)  Land
      lease obligations consist primarily of land lease agreements for our plant
      No.
      3. According to the agreement, the total lease amount for the land is $1,021,333
      and we have already paid $514,020 in advance as of September 30,
      2006.




7





ITEM
      3 . QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS




**Commodity
      Price Risk and Related Risks**




In
      the
      normal course of its business, General Steel is exposed to market risk or price
      fluctuations related to the purchase, production or sale of steel products
      over
      which we have little or no control. General Steel does not use any derivative
      commodity instruments to manage the price risk. General Steel’s market risk
      strategy has generally been to obtain competitive prices for its products and
      allow operating results to reflect market price movements dictated by supply
      and
      demand. Based upon an assumed annual production capacity of 400,000 tons, a
      $1
      change in the annual average price would change annual pre-tax profits by
      approximately $400,000.




**Interest
      Rate Risk**




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




**Foreign
      Currency Exchange Rate Risk**




General
      Steel’s operating unit, Daqiuzhuang Metal, is located in China. The operation
      purchase, produce and sell all of the steel products domestically. It is subject
      to the foreign currency exchange rate risk due to the effects of fluctuations
      in
      the Chinese Renminbi on revenues and operating cost and existing assets or
      liabilities. General Steel has not generally used derivative instruments to
      manage this risk. A 10 percent decrease in the average Renminbi exchange rate
      would result in a $155,611 charge to income for the nine months ended September
      30, 2006.




ITEM
      4.
      CONTROLS AND PROCEDURES




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




8




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




PARTII
      -
      OTHER INFORMATION




ITEM
      1.
      LEGAL PROCEEDINGS




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




ITEM
      1A.
      RISK FACTORS




Competition
      within the steel industry is intense. In the sale of flat rolled carbon steel
      and silicon steel, the Company competes with competitors 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.




The
      Company competes with both state owned 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 may be unsuccessful in our attempts
      to compete, which would have a material adverse impact on our business and
      financial condition. The Company considers there to be three major competitors
      of similar size, production capability and product line in the market place:
      Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan
      Fengrun Metal Sheet Plant. With the PRC's entry into the World Trade
      Organization and the PRC's agreements to lift many of the barriers to foreign
      competition, the Company believes that competition will increase in the PRC
      agricultural equipment market as a whole with the entry of foreign companies
      to
      the market.




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




We
      began
      our operations in 2000. 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 cannot assure you that we will maintain our
      profitability or that we will not 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;






9






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




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




If
      we are
      not successful in addressing any or all of these risks, our business may be
      materially and adversely affected.




**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 capital from outside
      sources. We believe that in order to grow our company further, we will seize
      the
      opportunity in Chinese state owned enterprise’s privatization and set up
      strategic joint ventures with these SOE companies. That will require us to
      finance through the capital market. In the future we may be unable to obtain
      the
      necessary financing on a timely basis and on acceptable terms, and our failure
      to do so may adversely affect our financial position, competitive position,
      growth and profitability. Our ability to obtain acceptable financing at any
      time
      may depend on a number of factors, including:




·
            Our
                financial condition and results of
                operations,




·
            The
                condition of the PRC economy and the agricultural equipment industry
                in
                the PRC, and




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




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




If
      our
      business and markets grow and develop, it will be necessary for us to finance
      and manage 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. There can be no assurance
      that we will be able to raise the required financing or control and manage
      this
      future growth.




**We
      depend on large contracts and a concentration of
      customers.**




Our
      revenue is dependent, in large part, on significant contracts from a limited
      number of customers. For the year ended December 31, 2005 approximately 37%
      of
      sales were to five customers. We believe that revenue derived from 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 would have a material adverse effect on our business,
      operating results and financial condition. 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.




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




The
      major
      raw materials that we purchase for production are steel slabs and strip steel.
      The price and availability of these raw materials are subject to market
      conditions affecting supply and demand. Our financial condition or results
      of
      operations may be impaired by further increases in raw material costs to the
      extent we are unable to pass those higher costs 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.




10




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




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




The
      economy of China is at a transition from a planned economy to a market oriented
      economy subject to five-year and annual plans adopted by the government that
      set
      down national economic development goals. Policies of the Chinese government
      can
      have significant effects on the economic conditions of China. The Chinese
      government has confirmed that economic development will follow a model of market
      economy under socialism. Under this direction, we believe that the PRC will
      continue to strengthen its economic and trading relationships with foreign
      countries and business development in China will follow market forces. While
      we
      believe that this trend will continue, there can be no assurance that such
      will
      be the case. A change in policies by the Chinese government could adversely
      affect our interests in by, among other factors: changes in laws, regulations
      or
      the interpretation thereof; confiscatory taxation; restrictions on currency
      conversion, imports or sources of supplies; or the expropriation or
      nationalization of private enterprises. Although the Chinese government has
      been
      pursuing economic reform policies for approximately two decades, there is no
      assurance that the government will continue to pursue such policies or that
      such
      policies may not be significantly altered, especially in the event of a change
      in leadership, social or political disruption, or other circumstances affecting
      China's political, economic and social life.




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




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




**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, we cannot assure you that such growth
      will
      continue. The automotive industry in the PRC is relatively new and growing,
      but
      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 cars and trucks,
      and therefore, auto parts. A slowdown in overall economic growth, an economic
      downturn or recession or other adverse economic developments in the PRC may
      materially reduce the demand for our products and materially and adversely
      affect our business.




11




**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.




**Governmental
      control of currency conversion may affect the value of your
      investment.**




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 materially and adversely affect your
      investment.**




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, any significant
      revaluation of the Renminbi may materially and adversely affect our cash flows,
      revenues and financial condition. 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, appreciation of the Renminbi against the U.S. dollar could
      have a material adverse effect on our business, financial condition and results
      of operations.




Conversely,
      if we decide to convert our Renminbi into U.S. dollars for the purpose of making
      payments for dividends on our common shares or for other business purposes
      and
      the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent
      of
      the Renminbi we convert would be reduced. To date, however, we have not engaged
      in transactions of either type. In addition, the depreciation of significant
      U.S. dollar denominated assets could result in a charge to our income statement
      and a reduction in the value of these assets.




Since
      1994 the PRC has pegged the value of the Renminbi to the U.S. dollar. We do
      not
      believe that this policy has had a material effect on our business. However,
      there have been indications that the PRC government may be reconsidering its
      monetary policy in light of the overall devaluation of the U.S. dollar against
      the Euro and other currencies during the last two years. In July 2005, the
      PRC
      government revalued the Renminbi by 2.1% against the U.S. dollar, moving from
      Renminbi 8.28 to Renminbi 8.11 per dollar. Because of the pegging of the
      Renminbi to the U.S. dollar is loosened, we anticipate that the value of the
      Renminbi appreciate against the dollar with the consequences discussed
      above.




12




**The
      PRC legal system has inherent uncertainties that could materially and adversely
      affect us.**




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.




**Risks
      Related to Our Common Stock**




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




Our
      officers, directors and affiliates beneficially own approximately 96% of our
      common stock. Mr. Yu, Zuo Sheng our major shareholder, beneficially owns
      approximately 76.5% of our common stock and is the selling stockholder herein.
      Mr. Yu can effectively control us and his interests may differ from other
      stockholders




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




Among
      all
      of our directors only one director resides in the United States. In addition,
      Daqiuzhuang, our operating subsidiary, is located in China substantially all
      of
      its assets are located outside of the United States. It may therefore be
      difficult for investors in the United States to enforce their legal rights
      based
      on the civil liability provisions of the U.S. federal securities laws against
      us
      in the courts of either the U.S. and the PRC and, even if civil judgments are
      obtained in U.S. courts, to enforce such judgments in PRC courts. Further,
      it is
      unclear if extradition treaties now in effect between the United States and
      the
      PRC would permit effective enforcement against us or our officers and directors
      of criminal penalties under the U.S. federal securities laws or
      otherwise.




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




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




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




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




In
      addition, broker-dealers who recommend our common stock to people who are not
      established customers or qualifying investors must follow special sales
      procedures, including getting the purchaser's written consent prior to the
      sale.
      Our common stock is also subject to the "penny stock" rules, which require
      delivery of a schedule explaining the penny stock market and the associated
      risks before any sale. These requirements may further limit your ability to
      sell
      your shares.




13




**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 auto parts makers, trading volume
      in our common stock, changes in general conditions in the economy and the
      financial markets or other developments affecting our competitors or
      us.




In
      addition, the stock market is subject to extreme price and volume fluctuations.
      This volatility has had a significant effect on the market price of securities
      issued by many companies for reasons unrelated to their operating performance
      and could have the same effect on our common stock.




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




None
      for
      the period covered by this report.




ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES




None
      for
      the period covered by this report.




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




None
      for
      the period covered by this report.




ITEM
      5.
      OTHER INFORMATION




None
      for
      the period covered by this report.




ITEM
      6.
      EXHIBITS




(a)
      Exhibits





31.1
      Certification of Chief Executive Officer;


31.2
      Certification of Chief Financial Officer;


32.1
      Certification of Chief Executive Officer; and


32.2
      Certification of Chief Financial Officer.


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SIGNATURES





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


General
                Steel Holdings, Inc.
              (Registrant)Date:
                November 14, 2006
            By:
            /s/
              Zuo
              Sheng YuZuo
              Sheng YuChief
                Executive Officer and President


Date:
                November 14, 2006
            By:
            /s/
              John
              ChenJohn
              ChenDirector
                and Chief Financial Officer






15