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 March 31, 2006
 
 x
          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
          Small Business Issuer in Its Charter)
  NEVADA
                412079252(State
                    or Other Jurisdiction of Incorporation or Organization)
                (I.R.S.
                    Employer Identification No.)10th
                    Floor, Building A, Haitong Plaza, No.3 Nanlishi Ave.
                  Xicheng
                    District
                  Beijing,
                    China
                100037(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)
        68000346
 (Issuer's
        telephone number)
 
 Securities
        registered under Section 12(b) of the Exchange Act: none
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 Common
        Stock, $.001 par value
 (Title
        of
        Class)
 
 Check
        whether the issuer (1) has filed all reports required to be filed by Section
        13
        or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90 days.
 Yes x
        No o
 
 The
        number of shares of Common Stock outstanding on March 31, 2006 was
        32,426,665.
 
 Transitional
        Small Business Disclosure Format (check one): Yes o No x
  
 
 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 March 31, 2006
        were
        translated at 8.01 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 8.05 RMB for the three months ended March 31, 2006 was
        applied to income statement accounts.
 
 PART
        I.
        FINANCIAL INFORMATION
 
 ITEM
        1.
        FINANCIAL STATEMENTS
 
 F-1
   GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
            BALANCE SHEETS
 AS
            OF
            MARCH 31, 2006 AND DECEMBER 31, 2005
 
 ASSETS
 
 March
                      31,
                  
                  
                  December
                      31,2006
                  
                  
                  2005(Unaudited)
                  
                  
                  (Audited)CURRENT
                      ASSETS:Cash
                  
                  $
                  2,174,001
                  
                  $
                  8,648,373Restricted
                      cash
                  
                  
                  2,754,551
                  
                  
                  2,735,583Accounts
                      receivable, net of allowance for doubtful accounts of $1,414
                      and $1,371 as
                      of March 31, 2006 and December 31, 2005
                  
                  
                  2,583,669
                  
                  
                  993,417Notes
                      receivables
                  
                  
                  998,400
                  
                  
                  4,960Note
                      receivables - related party
                  
                  
                  2,995,200
                  
                  
                  2,976,000Other
                      receivables
                  
                  
                  48,832
                  
                  
                  109,769Inventories
                  
                  
                  16,048,102
                  
                  
                  10,730,941Advances
                      on inventory purchases
                  
                  
                  14,398,985
                  
                  
                  10,716,293Advances
                      on equipment purchases
                  
                  
                  -
                  
                  
                  1,053,169Short-term
                      investment
                  
                  
                  37,439
                  
                  
                  37,200Prepaid
                      expenses - current
                  
                  
                  65,064
                  
                  
                  64,647Total
                      current assets
                  
                  
                  42,104,243
                  
                  
                  38,070,352PLANT
                      AND EQUIPMENT, net
                  
                  
                  21,425,038
                  
                  
                  18,213,872OTHER
                      ASSETS:Prepaid
                      expenses - non current
                  
                  
                  837,071
                  
                  
                  669,460Intangible
                      assets - land use right, net of accumulated amortization
                  
                  
                  1,978,664
                  
                  
                  2,039,532Total
                      assets$
                  66,345,016
                  
                  $
                  58,993,216LIABILITIE
                      S AND SHAREHOLDERS' EQUITYCURRENT
                      LIABILITIES:Accounts
                      payable
                  
                  $
                  768,293
                  
                  $
                  823,760Short
                      term loans - bank
                  
                  
                  32,173,440
                  
                  
                  27,118,800Short
                      term notes payable
                  
                  
                  5,441,280
                  
                  
                  5,406,400Other
                      payables
                  
                  
                  160,642
                  
                  
                  69,667Other
                      payable - related party
                  
                  
                  330,000
                  
                  
                  980,000Accrued
                      liabilities
                  
                  
                  1,202,566
                  
                  
                  916,957Customer
                      deposits
                  
                  
                  2,572,512
                  
                  
                  1,276,536Deposits
                      due to sales representatives
                  
                  
                  1,581,216
                  
                  
                  1,261,080Taxes
                      payable
                  
                  
                  1,955,271
                  
                  
                  1,682,330Total
                      current liabilities
                  
                  
                  46,185,220
                  
                  
                  39,535,530SHARES
                      SUBJECT TO MANDATORY REDEMPTION
                  
                  
                  2,150,476
                  
                  
                  2,115,906Total
                      liabilities
                  
                  
                  48,335,696
                  
                  
                  41,651,436MINORITY
                      INTEREST
                  
                  
                  5,600,600
                  
                  
                  5,387,026SHAREHOLDERS'
                      EQUITY:Common
                      Stock, $0.01 par value, 75,000,000 shares authorized, 31,250,000
                      shares
                      issued and outstanding
                  
                  
                  31,250
                  
                  
                  31,250Paid-in-capital
                  
                  
                  6,395,617
                  
                  
                  6,395,617Retained
                      earnings
                  
                  
                  4,620,507
                  
                  
                  4,287,946Statutory
                      reserves
                  
                  
                  840,753
                  
                  
                  840,753Accumulated
                      other comprehensive income
                  
                  
                  520,593
                  
                  
                  399,188Total
                      shareholders' equity
                  
                  
                  12,408,720
                  
                  
                  11,954,754Total
                      liabilities and shareholders' equity
                  
                  $
                  66,345,016
                  
                  $
                  58,993,216
  The
            accompanying notes are an integral part of these statements.
  F-2
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
            STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
            THE
            THREE MONTHS ENDED MARCH 31, 2006 AND 2005
 2006
                    
                    
                    2005(Unaudited)
                    
                    
                    (Unaudited)REVENUES
                    
                    $
                    20,642,503
                    
                    $
                    20,698,733COST
                        OF SALES
                    
                    
                    19,274,204
                    
                    
                    18,828,552GROSS
                        PROFIT
                    
                    
                    1,368,299
                    
                    
                    1,870,181SELLING,
                        GENERAL AND ADMINISTRATIVE EXPENSES
                    
                    
                    742,179
                    
                    
                    653,471INCOME
                        FROM OPERATIONS
                    
                    
                    626,120
                    
                    
                    1,216,710OTHER
                        EXPENSE, NET
                    
                    
                    (79,985
                    )
                    
                    (415,746
                    )INCOME
                          BEFORE PROVISION FOR INCOME TAXES AND MINORITY
                          INTEREST
                    
                    
                    546,135
                    
                    
                    800,964PROVISION
                        FOR INCOME TAXES
                    
                    
                    -
                    
                    
                    294,701NET
                        INCOME BEFORE MINORITY INTEREST
                    
                    
                    546,135
                    
                    
                    506,263LESS
                        MINORITY INTEREST
                    
                    
                    213,574
                    
                    
                    199,819.NET
                        INCOME
                    
                    
                    332,561
                    
                    
                    306,444OTHER
                        COMPREHENSIVE INCOME:Foreign
                        currency translation adjustment
                    
                    
                    121,405
                    
                    
                    -COMPREHENSIVE
                        INCOME
                    
                    $
                    453,966
                    
                    $
                    306,444WEIGHTED
                        AVERAGE NUMBER OF SHARES
                    
                    
                    31,250,000
                    
                    
                    31,250,000EARNING
                        PER SHARE, BASIC AND DILUTED
                    
                    $
                    0.011
                    
                    $
                    0.010
  The
                accompanying notes are an integral part of these statements.
  F-3
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
            STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
            THE
            THREE MONTHS ENDED MARCH 31, 2006 AND 2005
  Accumulated
                        otherNumber
                    
                    
                    Common
                    
                    
                    Paid-in
                    
                    
                    Statutory
                    
                    
                    Retained
                    
                    
                    comprehensiveof
                        shares
                    
                    
                    stock
                    
                    
                    capital
                    
                    
                    reserves
                    
                    
                    earnings
                    
                    
                    income
                        (loss)
                    
                    
                    TotalsBALANCE,
                        January 1, 2005, audited
                    
                    
                    31,250,000
                    
                    $
                    31,250
                    
                    $
                    6,871,358
                    
                    $
                    154,794
                    
                    $
                    2,152,976
                    
                    $
                    -
                    
                    $
                    9,210,378Net
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    306,444
                    
                    
                    
                    
                    
                    306,444BALANCE,
                        March 31, 2005
                    
                    
                    31,250,000
                    
                    $
                    31,250
                    
                    $
                    6,871,358
                    
                    $
                    154,794
                    
                    $
                    2,459,420
                    
                    $
                    -
                    
                    $
                    9,516,822Net
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,514,485
                    
                    
                    
                    
                    
                    2,514,485Adjustment
                        to statutory reserve
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    685,959
                    
                    
                    (685,959
                    )Issuance
                        of redeemable stock
                    
                    
                    
                    
                    
                    
                    
                    
                    (475,741
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (475,741
                    )Foreign
                        currency translation gain
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    399,188
                    
                    
                    399,188BALANCE,
                        December 31, 2005, audited
                    
                    
                    31,250,000
                    
                    $
                    31,250
                    
                    $
                    6,395,617
                    
                    $
                    840,753
                    
                    $
                    4,287,946
                    
                    $
                    399,188
                    
                    $
                    11,954,754Net
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    332,561
                    
                    
                    
                    
                    
                    332,561Foreign
                        currency translation gain
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    121,405
                    
                    
                    121,405BALANCE,
                        March 31, 2006
                    
                    
                    31,250,000
                    
                    $
                    31,250
                    
                    $
                    6,395,617
                    
                    $
                    840,753
                    
                    $
                    4,620,507
                    
                    $
                    520,593
                    
                    $
                    12,408,720
  The
                  accompanying notes are an integral part of these statements.
  F-4
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
            STATEMENTS OF CASH FLOWS
 FOR
            THE
            THREE MONTHS ENDED MARCH 31, 2006 AND 2005
 2006
                    
                    
                    2005(Unaudited)
                    
                    
                    (Unaudited)CASH
                        FLOWS FROM OPERATING ACTIVITIES:Net
                        income
                    
                    $
                    332,561
                    
                    $
                    306,444Adjustments
                        to reconcile net income to cash (used in) provided by operating
                        activities:Minority
                        Interest
                    
                    
                    213,573
                    
                    
                    199,819Depreciation
                    
                    
                    273,775
                    
                    
                    308,289Amortization
                    
                    
                    73,718
                    
                    
                    71,773Loss
                        (gain) on disposal of equipment
                    
                    
                    27,847
                    
                    
                    (21,186
                    )(Increase)
                        decrease in assets:Accounts
                        receivable
                    
                    
                    (1,577,243
                    )
                    
                    139,679Other
                        receivables
                    
                    
                    61,389
                    
                    
                    71,842Inventories
                    
                    
                    (5,227,041
                    )
                    
                    (581,054
                    )Advances
                        on inventory purchases
                    
                    
                    (3,598,499
                    )
                    
                    2,422,527Advances
                        on equipment purchases
                    
                    
                    1,055,547
                    
                    
                    -Prepaid
                        expenses - non current
                    
                    
                    (162,611
                    )
                    
                    -Increase
                        (decrease) in liabilities:Accounts
                        payable
                    
                    
                    (60,529
                    )
                    
                    (210,894
                    )Other
                        payables
                    
                    
                    90,567
                    
                    
                    316,590Other
                        payable - related party
                    
                    
                    (650,000
                    )
                    
                    (819,366
                    )Accrued
                        liabilities
                    
                    
                    279,506
                    
                    
                    (127,979
                    )Customer
                        deposits
                    
                    
                    1,282,375
                    
                    
                    5,851,932Deposits
                        due to sales representatives
                    
                    
                    310,700
                    
                    
                    59,290Taxes
                        payable
                    
                    
                    260,995
                    
                    
                    (304,584
                    )Net
                        cash (used in) provided by operating activities
                    
                    
                    (7,013,370
                    )
                    
                    7,683,122CASH
                        FLOWS FROM INVESTING ACTIVITIES:Increase
                        in notes receivable
                    
                    
                    (989,269
                    )
                    
                    (5,460,770
                    )Purchase
                        of equipment
                    
                    
                    (3,382,390
                    )
                    
                    (12,463
                    )Net
                        cash used in investing activities
                    
                    
                    (4,371,659
                    )
                    
                    (5,473,233
                    )CASH
                        FLOWS FINANCING ACTIVITIES:Borrowings,
                        net of payments on short term loans - bank
                    
                    
                    4,859,348
                    
                    
                    1,694,000Payments,
                        net of borrowings on short term notes payable
                    
                    
                    -
                    
                    
                    (605,000
                    )Interest
                        expense accrued on mandatory redeemable stock
                    
                    
                    34,570
                    
                    
                    -Net
                        cash provided by financing activities
                    
                    
                    4,893,918
                    
                    
                    1,089,000EFFECTS
                        OF EXCHANGE RATE CHANGE IN CASH
                    
                    
                    35,707
                    
                    
                    -(DECREASE)
                        INCREASE IN CASH
                    
                    
                    (6,455,404
                    )
                    
                    3,298,889CASH,
                        beginning of period
                    
                    
                    11,383,956
                    
                    
                    9,145,290CASH,
                        end of period
                    
                    $
                    4,928,552
                    
                    $
                    12,444,179
  The
                    accompanying notes are an integral part of these statements.
  F-5
 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. We established a subsidiary for the purpose of achieving the
                above stated
                objectives in Saskatchewan, Canada and to enter the residential and
                commercial
                construction industry in this market.
 
 To
                accomplish the above objective the founder of our company, Jeff Mabry
                established American Construction Company (a Nevada company) on August
                5, 2002.
                American Construction Company then established its subsidiary, West
                Dee
                Construction Ltd. (a Saskatchewan, Canada Company) on August 8, 2002
                by
                purchasing 100 shares from its treasury.
 
 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
                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.,
                Limited 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, the Board of Directors
                determined to change the Registrant’s fiscal year end from January 31 to
                December 31.
 
 On
                March
                7, 2005, General Steel Holdings, Inc. (the Company) formally changed
                its name
                from American Construction Company to General Steel Holdings, Inc.
                The Company
                through its subsidiary in China 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.
 
 F-6
 
  GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
                1 - Background, (continued)**
 
 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.
 
 **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:
 PercentageSubsidiary
                        
                        
                        
                        Of
                            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.
 
 F-7
 
 GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
                2 - Summary of significant accounting policies,
                (continued)**
 
 Foreign
                currency translation, continued
 
 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 $121,405 and $0 as of March 31, 2006 and 2005, respectively.
                The
                balance sheet amounts with the exception of equity at March 31, 2006
                were
                translated at 8.01 RMB to $1.00 USD as compared to 8.26 RMB at March
                31, 2005.
                The equity accounts were stated at their historical rate. The average
                translation rate of 8.04 RMB for the three months ended March 31,
                2006 was
                applied to income statement accounts.
 
 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 three
                months
                ended March 31, 2006 and 2005 amounted to $273,775 and $308,289,
                respectively.
 
 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.
 
 F-8
 
 GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
                2 - Summary of significant accounting policies,
                (continued)**
 
 Plant
                and equipment, net, continued
 
 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 March 31, 2006, the Company expects these assets to be fully
                recoverable.
 
 Plant
                and
                equipment consisted of the following:
 March
                            31,
                        
                        
                        December
                            31,2006
                        
                        
                        2005Unaudited
                        
                        
                        AuditedBuildings
                            and improvements
                        
                        $
                        5,426,161
                        
                        $
                        5,391,378Transportation
                            equipment
                        
                        
                        430,894
                        
                        
                        485,699Machinery
                        
                        
                        12,884,609
                        
                        
                        12,752,995Construction
                            in progress
                        
                        
                        7,605,823
                        
                        
                        4,231,318Totals
                        
                        
                        26,347,487
                        
                        
                        22,861,390Less
                            accumulated depreciation
                        
                        
                        4,922,449
                        
                        
                        4,647,518Totals
                        
                        $
                        21,425,038
                        
                        $
                        18,213,872
  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 March 31, 2006 and December
                31,
                2005, amounted to $4,722,935 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 amounts
                are
                $2,754,551 and $2,735,583 as of March 31, 2006 and December 31, 2005,
                respectively.
 
 F-9
 GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
                2 - Summary of significant accounting policies,
                (continued)**
 
 Inventories
 
 Inventories
                are stated at the lower of cost or market using the weighted average
                method.
                Inventories consisted of the following:
 March
                            31,
                        
                        
                        December
                            31,2006
                        
                        
                        2005Unaudited
                        
                        
                        AuditedSupplies
                        
                        $
                        1,330,881
                        
                        $
                        1,524,332Raw
                            materials
                        
                        
                        4,510,790
                        
                        
                        1,195,022Finished
                            goods
                        
                        
                        10,206,431
                        
                        
                        8,011,587Totals
                        
                        $
                        16,048,102
                        
                        $
                        10,730,941
  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 March
                31, 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 March
                31, 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.
 
 F-10
 
 GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
                2 - Summary of significant accounting policies,
                (continued)**
 
 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. The Company has acquired land use rights
                during the years ending in 2000 and 2003 for a total amount of $2,870,902.
                The
                Company has the right to use this land for 50 years. As of March
                31, 2006 and
                December 31, 2005, accumulated amortization amounted to $982,399
                and $902,550.
                The costs of these rights are being amortized over ten years using
                the
                straight-line method.
 
 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 March 31, 2006, the Company expects these assets to be fully
                recoverable.
 
 Total
                amortization expense for the three months ended March 31, 2006 and
                2005,
                amounted to $73,718 and $71,773, 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 net present
                value of
                the stock at the settlement date is recorded as a liability in the
                accompanying
                financial statements.
 
 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
                March 31, 2006 and December 31, 2005.
 
 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
                charge for taxation is based on the results for the year as adjusted
                for items,
                which are non-assessable or disallowed. It is calculated using tax
                rates that
                have been enacted or substantively enacted by the balance sheet
                date.
 
 Deferred
                tax is accounted for using the balance sheet liability method in
                respect of
                temporary differences arising from differences between the carrying
                amount of
                assets and liabilities in the financial statements and the corresponding
                tax
                basis used in the computation of assessable tax profit.
 
 In
                principle, deferred tax liabilities are recognized for all taxable
                temporary
                differences, and deferred tax assets are recognized to the extent
                that it is
                probably that taxable profit will be available against which deductible
                temporary differences can be utilized.
 
 Deferred
                tax is calculated 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 ô 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 perviously accrued tax accumulated prior to
                January 1, 2005
                in the amount of $253,250 which was recorded as other nonoperating
                income for
                the three months ended March 31, 2006 for previously accrued income
                taxes.
 
 F-12
 
 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 March 31 consisted
                of the
                following:
 2006
                        
                        
                        2005Unaudited
                        
                        
                        UnauditedProvision
                            for China Income Tax
                        
                        $
                        -
                        
                        $
                        265,231Provision
                            for China Local Tax
                        
                        
                        -
                        
                        
                        29,470Total
                            provision for income taxes
                        
                        $
                        -
                        
                        $
                        294,701
  The
                following table reconciles the U.S. statutory rates to the Company’s effective
                tax rate for the three months ended March 31:
 2006
                        
                        
                        2005U.S.
                            statutory rates
                        
                        
                        34.0
                        %
                        
                        34.0
                        %Foreign
                            income not recoginized in USA
                        
                        
                        (34.0
                        )
                        
                        (34.0
                        )China
                            income taxes
                        
                        
                        -
                        
                        
                        33.0Total
                            provision for income taxes
                        
                        
                        -
                        %
                        
                        33.0
                        %
  The
                estimated tax savings for the three months ended March 31, 2006 amounted
                to
                $191,674. The net effect on earnings per share had the income tax
                been applied
                would decrease earnings per share from $0.011 to $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:
 March
                            31,
                        
                        
                        December
                            31,2006
                        
                        
                        2005Unaudited
                        
                        
                        AuditedVAT
                            taxes payable
                        
                        $
                        1,954,124
                        
                        $
                        1,290,982Income
                            taxes payable
                        
                        
                        -
                        
                        
                        385,510Misc
                            taxes
                        
                        
                        1,147
                        
                        
                        5,838Totals
                        
                        $
                        1,955,271
                        
                        $
                        1,682,330
  F-13
 
  GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **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.
 
 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 March
                31, 2006 and
                December 31, 2005, and the results of operations, changes in shareholders’
equity and cash flows for the three months ended March 31, 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 note 18 have been excluded
                from the
                earnings per share calculation.
  F-14
  GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
                4 - Earnings per share, (continued)**
  The
                weighted average number of shares used to calculate EPS for the three
                months
                ended March 31, 2006 (31,250,000), 2005 (31,250,000) reflect only
                the shares
                outstanding for those periods.
  **Note
                5 - Supplemental disclosure of cash flow information**
 
 Interest
                paid amounted to $499,877 and $440,221 for the three months ended
                March 31, 2006
                and 2005, respectively.
 
 Income
                tax payments amounted to $0 and $485,615 for the three months ended
                March 31,
                2006 and 2005, respectively.
 
 **Note
                6 - 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 $998,400 and $4,960 outstanding as of March 31, 2006
                and
                December 31, 2005, respectively.
 
 The
                note
                receivable from related party represents a note issued by the Company
                to a
                related party, Yang Pu Automotive Investment Limited, for business
                purpose 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.
 
 **Note
                7 - Prepaid expenses**
 
 Prepaid
                expenses at March 31, 2006 consisted of the followings:
 Current
                        
                        
                        Long-term
                        
                        
                        TotalRent
                        
                        $
                        44,928
                        
                        $
                        333,715
                        
                        $
                        378,643Land
                            use right
                        
                        
                        20,136
                        
                        
                        503,356
                        
                        
                        523,492Total
                        
                        $
                        65,064
                        
                        $
                        837,071
                        
                        $
                        902,135
  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 March 31, 2006 amounted to RMB
                3,034,000 or
                $378,643.
 
 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 made a prepayment of RMB 4,234,981 or $528,505 and prepaid
                balance
                remained at March 31, 2006 amounted to RMB 4,194,644 or $523,492.
 
 F-15
 
  GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
                8 - Advances on inventory purchases**
 
 Advances
                on inventory purchases are monies deposited or advanced to outside
                vendors or
                related parties on future inventory purchases. Due to the high shortage
                of steel
                in China, most of the Company’s vendors require a certain amount of money to be
                deposited with them as a guarantee that the Company will receive
                their purchases
                on a timely basis.
 
 This
                amount is refundable and bears no interest. The Company has a legal
                binding
                contract with their vendors for the guarantee deposit, which is to
                be returned
                to the Company at the end of the contract. The inventory is normally
                delivered
                within one month after the monies has been advanced. The total outstanding
                amount was $14,398,985 and $10,716,293 as of March 31, 2006 and December
                31,
                2005, respectively.
 
 **Note
                9 - Other payable - related party**
 
 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.
                The amount
                was loaned to General Steel Investment Co., Ltd for business operations.
                The
                Company had $330,000 and $980,000 outstanding on this loan as of
                March 31, 2006
                and December 31, 2005, respectively. This amount is short-term and
                is non
                interest bearing.
 
 **Note
                10 - 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 with the
                banks. The
                Company had a total of $32,173,440 and $27,118,800 short term bank
                loans with
                various banks as of March 31, 2006 and December 31, 2005, respectively.
 
 F-16
 
 GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
                10 - Short term loans - bank, (continued)**
 March
                            31,
                        
                        
                        December
                            31,2006
                        
                        
                        2005Unaudited
                        
                        
                        AuditedLoans
                            from China Bank, JingHai Branch, due November 2006. Monthly
                            interest only
                            payment at6.138% per annum, secured by equipment and
                            property
                        
                        $
                        1,123,200
                        
                        $
                        1,116,000Loans
                            from Agriculture Bank, DaQiuZhuang Branch, due various
                            dates from May 2006
                            to March 2007. Monthly interest only payments in 2005
                            ranging from 6.696%
                            to 7.533% per annum, guaranteed by an unrelated third
                            party and secured by
                            property and equipment
                        
                        
                        10,021,440
                        
                        
                        10,068,800Loan
                            from Construction Bank of China, JinHai Branch, due August
                            15, 2006.
                            Monthly interest only payment at 7.4604% per annum, secured
                            by
                            properties
                        
                        
                        1,010,880
                        
                        
                        1,004,400Loans
                            from ShangHai PuFa Bank, due various dates from July
                            2006 to March 2007.
                            Monthly interest only payments ranging from 6.138% to
                            6.42% per month,
                            guaranteed by an unrelated third party
                        
                        
                        6,240,000
                        
                        
                        6,200,000Loans
                            from China Merchants Bank, due various dates from June
                            2006 to September
                            2006. Quarterly interest only payments, annual interest
                            rate of 5.859% to
                            5.86%, guaranteed by an unrelated third party
                        
                        
                        8,112,000
                        
                        
                        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
                        
                        
                        673,920
                        
                        
                        669,600Loans
                            from Shenzhen Development Bank, Tianjin Branch due various
                            dates from
                            February to March 2007. Quarterly interest only payments
                            ranging from
                            5.856% to 5.859%, secured by inventories
                        
                        
                        4,992,000
                        
                        
                        -Totals
                        
                        $
                        32,173,440
                        
                        $
                        27,118,800
 
 F-17
 
 GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
                11 - Short term notes payable**
 
 The
                Company has the following short term notes payable outstanding as
                for March 31,
                2006 and December 31, 2005:
 March
                            31,
                        
                        
                        December
                            31,2006
                        
                        
                        2005Unaudited
                        
                        
                        AuditedChina
                            Bank, Jing Hai Branch, various amounts, due May 2006,
                            restricted cash
                            required 50% of loan amount, guaranteed by the Company
                        
                        $
                        1,447,680
                        
                        $
                        1,438,400Agricultural
                            Bank of China, various amounts, due dates ranging between
                            June and July
                            2006,restricted cash required of 50% of loan amount,
                            guaranteed by the
                            Company and an unrelated third party
                        
                        
                        1,497,600
                        
                        
                        1,488,000ShangHai
                            PuFa Bank, due May 2006, restricted cash required of
                            50% of loan balance,
                            guaranteed by an unrelated third party
                        
                        
                        2,496,000
                        
                        
                        2,480,000Totals
                        
                        $
                        5,441,280
                        
                        $
                        5,406,400
  Total
                interest expense for the three months ending March 31, 2006 and 2005
                on all debt
                amounted to $499,877 and $440,221, respectively.
 
 **Note
                12 - Customer deposits**
 
 Customer
                deposits represent amounts advanced by customers on product orders.
                The product
                normally is shipped within six months after receipt of the advance
                payment and
                the related sale is recognized in accordance with the Company’s revenue
                recognition policy. As of March 31, 2006 and December 31, 2005, customer
                deposits amounted to $2,572,512 and $1,276,536, respectively.
 
 **Note
                13 - 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 $1,581,216
                and
                $1,261,080 in deposits due to sales representatives outstanding as
                of March 31,
                2006 and December 31, 2005, respectively.
 
 F-18
 
 GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
                14 - Major customers and suppliers**
 
 The
                Company has 5 major customers which represent approximately 62% and
                43% of the
                Company’s total sales for the three months ended March 31, 2006 and 2005,
                respectively.
 
 For
                the
                three months ended March 31, 2006 and 2005, the Company purchases
                approximately
                97% and 90%, respectively, of their raw materials from four major
                suppliers.
 
 **Note
                15 - Minority interest**
 
 Minority
                interest represents the outside shareholders’ 30% interest in Tianjin
                Daqiuzhuang Metal Sheet Co., Ltd.
 
 **Note
                16 - Other expenses and income, net**
 
 Other
                income and expense for the three months ended March 31 consist of
                the
                following:
 2006
                        
                        
                        2005Unaudited
                        
                        
                        UnauditedFinance/interest
                            expense
                        
                        $
                        (466,064
                        )
                        $
                        (441,659
                        )Interest
                            income
                        
                        
                        60,033
                        
                        
                        17,427Other
                            nonoperating income
                        
                        
                        354,844
                        
                        
                        11,551Other
                            nonoperating expense
                        
                        
                        (28,798
                        )
                        
                        (3,065
                        )Total
                            other expense
                        
                        $
                        (79,985
                        )
                        $
                        (415,746
                        )
  Other
                nonoperating income includes the previously accrued income. During
                2005, the
                company has approved from the P.R.C. local government for two years
                income tax
                exempt and three years of 50% income tax reduction. The local Chinese
                tax
                authority waived the perviously accrued tax accumulated prior to
                January 1, 2005
                in the amount of $253,250 which was recorded as other nonoperating
                income for
                the three months ended March 31, 2006 for previously accrued income
                taxes.
 
 **Note
                17 - Reclassifications**
 
 Certain
                amounts for the three months ended March 31, 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.
  F-19
 GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
                18 - 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, 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 first anniversary date at $2.50
                per share and
                on the second 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.
 In
                accordance with SFAS no. 150, the Company has recorded this stock
                issuanc e as
                a
                liability in the financial statements due to the mandatory redemption
                provision.
                The shares have been recorded at the net present value of the stock
                using a
                discount interest rate of 6.5%. The following table shows the carrying
                value of
                the shares subject to mandatory redemption:
 Total
                            liability of mandatory redeemable common stock 1,176,665
                            shares at $1.95
                            per share
                        
                        $
                        2,294,497Interest
                            expense to accrue over the next 18 months
                        
                        
                        (212,606
                        )Net
                            present value at September 30, 2005
                        
                        $
                        2,081,891Interest
                            accrued between October 2005 and March 2006
                        
                        
                        68,585Carrying
                            value at March 31, 2006
                        
                        $
                        2,150,476
  Interest
                expense will be accrued over the next 12 months and interest expense
                accrued for
                the three months ended March 31, 2006 amounted to $34,570.
 
 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. The difference
                between the net present value of redeemable stock on September 30,
                2005 and the
                net proceeds, which is $475,741, was recorded as decrease in paid-in
                capital.
 
 **Note
                19 - Retirement plan**
 
 Regulations
                in the People’s Republic of China require the Company to contribute to a defined
                contribution retirement plan for all employees. All Joint Venture
                employees are
                entitled to a retirement pension amount calculated based upon their
                salary at
                their date of retirement and their length of service in accordance
                with a
                government managed pension plan. The PRC government is responsible
                for the
                pension liability to the retired staff.
 
 F-20
  GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
                  19 - Retirement plan, (continued)**
 
 The
                Joint
                Venture is 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
                $61,661 and $0 for the three ended March 31, 2006 and 2005, respectively.
  **Note
                20 - 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 Da Qiu
                Zhuang 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.
 
 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
                        %
  Baotao
                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. General Steel Investment Co., Ltd. will contribute approximately
                $7,500,000 of cash and Da Qiu Zhuang Metal Sheet Co., Ltd. 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. As of March 31, 2006, the Company has not received
                the approval
                from the Local Chinese authority.
  F-21
  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
        which 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. 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 "DQ") started its
        operation in 1988. DQ's core business is the manufacturing of high quality
        hot
        rolled carbon and silicon steel sheets which are mainly used in the production
        of tractors, agricultural vehicles, shipping containers and in other specialty
        markets.
 
 DQ
        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 Company's products.
 
 The
        Company has recently completed an expansion program to build a new plant
        next to
        the existing facility with four new production lines to increase its hot-rolled
        steel sheet production capacity by 150,000 tons. 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, maintaining a 50% market share of
        all
        hot rolled steel sheets used in the production of agricultural vehicles in
        China.
  2
 
 Having
        negotiated with Baotou Iron and Steel (Group) Co., Ltd. for nearly a year,
        the
        Company announced on September 28, 2005 the firm agreement with them to set
        up
        the 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.
 
 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
        Iron and Steel (Group) Co., Ltd. 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. General Steel Investment Co., Ltd. will
        contribute approximately $7,500,000 of cash and Da Qiu Zhuang Metal Sheet
        Co.,
        Ltd. will contribute approximately $5,000,000 cash. These contributions will
        be
        required to be made on the following payment schedule that 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 also completed a private placement round in 2005 to sell a total
        of
        1,176,665 shares of common stocks at $1.50 per unit. Each unit contains one
        share of its common stock and two warrants. The warrants can be exercised
        on the
        first anniversary date at $2.50 per share and on the second anniversary date
        at
        $5.00 per share. 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 total of $1,765,000 which will
        be used
        to pay for the above mentioned joint venture.
  3
 
 **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, the consumption of our steel products
        is expected to remain at a high level. We believe that we have successfully
        positioned ourselves within the Chinese agricultural vehicle market. As this
        market continues to demonstrate increased demand for steel products, we remain
        focused on building our leadership position by enhancing the quality of our
        products and expanding our 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
        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
        for the three months ended March 31, 2006 were $20.6 million compared to
        $20.7
        million in the same period of 2005. Shipments for the three months ended
        March
        31, 2006 climbed 29% to 53,547 tons from 41,421 tons due to overall increase
        in
        productivity and market development. Average selling price per ton including
        sale of scrap for the three months ended March 31, 2006 slipped to $383 from
        $491 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. This is why our net sales amount is still in line
        with
        the same period last year.
 
 Gross
        profit for the three months ended March 31, 2006 was $1.37 million, a decrease
        of 27% or $0.5 million from $1.87 million for the same period last year.
        Gross
        profit margin decreased to 6.6% from 9.0% for the three months ended March
        31,
        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 has to adjust its products’ prices in order to stay competitive in this
        market. T he
        management thinks that the pressure on the selling price will be mitigated
        in
        2006 as a result of steel industry consolidation in China and overall increase
        in demand.
 
 **Cost
        of sales**
 
 Overall
        cost of sales slightly increased to $19.3 million for the three months ended
        March 31, 2006 from $18.8 million for the same period of 2005. Cost of sales
        as
        percentage of sales increased from 91.0% to 93.4%. Average cost per ton was
        $360
        and $455, respectively for the
        three
        months ended March 31, 2006 and 2005. In summary the increase in cost of
        sales
        mainly resulted from the increase in the sales volume .
  4
 
 **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 $0.74
        million in the first quarter of 2006, compared to $0.65 million in the first
        quarter of 2005, a 13.6% increase. A large component of the increase came
        fro m
        the
        legal and accounting expenses and investor and public relations charges for
        the
        public listed company.
 
 **Other
        income (expense)**
  Other
        income (expense) for the three months ended March 31, 2006 consisted mainly
        of
        finance charges, interest income and other non-operating income (expense).
        Interest expense was $0.47 million in the first quarter of 2006, compared
        to
        $0.44 million in the first quarter of 2005. Outstanding bank loans increased
        to
        $32.2 million from $27.1 million as of March 31, 2006 and 2005, respectively.
        This increase in debt borrowing is mainly used for the construction of the
        new
        plant.
 
 **Income
        taxes**
 
 The
        Company did not carry on any business and did not maintain any branch office
        in
        the United States during the three months ended March 31, 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 good market demand for our steel products, the Company plans to maintain
        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 Iron
        and
        Steel (Group) Co., Ltd., 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 $4.9 million and $11.4 million as of March 31,
        2006
        and 2005.
  5
 
 **Operating
        activities**
 
 Net
        cash
        used in operating activities for the three months ended March 31, 2006 was
        $7.0
        million compared to $7.7 million provided by operating activities in the
        same
        period last year. Increase in accounts receivable, inventories, and advance
        on
        inventory purchases, and less customer deposit became the major factors of
        this
        increase in cash used in operating activities. As the raw materials price
        showed
        signs of going back up in March this year, the management decided to stock
        up
        raw materials inventory in order to maximize the profitability.
 
 **Investing
        activities**
 
 Net
        cash
        used in investing activities was $4.4 million for the three months ended
        March
        31, 2006 compared to $5.5 million used in investing activities in the same
        period last year. The Company has been building a new plant with four new
        production lines next to the existing facility since the third quarter last
        year. As of March 31, 2006, the Company has spent $7.6 million on construction
        in progress.
 
 **Financing
        activities**
 
 Net
        cash
        provided by investing activities was $4.9 million for the three months ended
        March 31, 2006 compared to $1.1 million provided by investing activities
        in the
        same period last year. The Company signed a new borrowing agreement with
        Shenzhen Development Bank to borrow $4,992,000. The proceeds were mainly
        used to
        pay for inventory purchases and the construction of the new plant.
 
 **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. We use gas-fired
        reheat furnaces recommended by the State Environmental Protection Agency
        to heat
        our 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, we invested
        $94,190 to remodel our industrial water recycling system to reduce new water
        consumption and industrial water discharge. As for the remodeling of gas
        furnace
        and desulphurization of discharged gas, the local government has not posted
        any
        control measures currently and we have no plans to proceed with this remodeling
        until such time regulations have been implemented.
 
 The
        Company believes that future costs relating to environmental compliance will
        not
        have a material 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 material adverse costs.
  6
 
 **Impact
        of inflation**
 
 We
        are
        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. Price risks are managed by the Company through productivity
        improvements and cost-containment measures. Management does not believe that
        inflation risk is material to our business or our financial position, results
        of
        operations or cash flows.
 
 **Off-balance
        sheet arrangements**
 
 There
        are
        currently no off-balance sheet arrangements.
 
 **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:
  7
 
 l
            Implement
                our business model and strategy and adapt and modify them as
                needed; 
 l
            Increase
                awareness of our brands, protect our reputation and develop customer
                loyalty; 
 l
            Manage
                our expanding operations and service offerings, including the integration
                of any future acquisitions; 
 l
            Maintain
                adequate control of our expenses; 
 l
            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; 
 l
            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:
 
 l
            Our
                financial condition and results of
                operations, l
            The
                condition of the PRC economy and the agricultural equipment industry
                in
                the PRC, and l
            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.
  8
 
 **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.
 
 **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.
  9
 
 **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.
 
 **Inflation
        in China could negatively affect our profitability and
        growth.**
  10
 
 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.
  11
 
 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.
  **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.**
  12
 
 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. See "MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
        COMMON EQUITY AND RELATED STOCKHOLDER MATTERS." These requirements may further
        limit your ability to sell your shares.
 
 **Our
        common stock is subject to price volatility unrelated to our
        operations.**
  13
 
 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.
 
 
 **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."
 
 We
        are
        expecting strong results in the second quarter of 2006 as shipments and average
        realized prices are expected to improve compared to the first quarter of
        2006.
        Due to our new plant’s full operation in the second quarter of 2006, we expect a
        considerable jump on the sales volume compared to the same period of 2005.
        In
        addition, our selection of steel strip as our new raw materials could also
        increase our productivity and reduce manufacturing costs.
 
 **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. 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 inentory is
          sold.
 
 **Item
        III.**  **Quantitative
        and Qualitative Disclosures About Market Risk.**
  **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.
  14
 
 **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 $71,198 charge to income in the first quarter of
        2006.
 
 PART
        II.
        OTHER INFORMATION
 
 ITEM
        1.
        LEGAL PROCEEDINGS
 
 There
        has
        been no legal proceedings issued against or commenced by the
        company.
 
 ITEM
        2.
        CHANGES IN SECURITIES
 
 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 AND REPORTS ON FORM 8-K
  15
 
 (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.
 
 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:
                May 15, 2006
              By:
              /s/
                Zuo
                Sheng YuZuo
                  Sheng Yu
                Chief
                  Executive Officer and President
                General
                  Steel Holdings, Inc.
                (Registrant)
 
 Date:
                May 15, 2006
              By:
              /s/
                John
                ChenJohn
                  Chen
                Director
                  and Chief Financial Officer
 
 16