UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        DC 20549
 
 FORM
        10-Q
 
 ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934.
 
 For
        the
        quarterly period ended September 30, 2007
 
  ̈  TRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 For
        the
        transition period from __________ to __________
 
 GENERAL
        STEEL HOLDINGS, INC.
 (Name
        of
        Issuer in Its Charter)
  NEVADA
              
              412079252(State
                  or Other Jurisdiction of Incorporation or Organization)
              
              (I.R.S.
                  Employer Identification No.)Room
                  2315, Kun Tai International Mansion Building, Yi No
                12,
                  Chao Yang Men Wai Ave.,
                Chao
                  Yang District, Beijing, China
              
              100020(Address
                  of Principal Executive Offices)
              
              (Zip
                  Code)
 
 Incorp
        Services Inc.
 6075
        S.
        Eastern Avenue
 Suite
        1,
        Las Vegas, Nevada, 89119-3146
 Tel:
        (702) 866-2500
 (Name,
        address and telephone number for Agent for Service)
 
 +
        86 (10)
        58797346
 (Issuer's
        telephone number)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes ý No  ̈
  
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  accelerated filer ̈
              
              Accelerated
                  filer ̈
              
              Non-accelerated
                  filerx
 
 Indicated
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act)  Yes  ̈ No x
  The
        number of shares of Common Stock outstanding on November 14, 2007 was
        34,634,765.
 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 September 30,
          2007
          were translated at 7.50 RMB to $1.00 USD as compared to 7.80 RMB at December
          31,
          2006. The equity accounts were stated at their historical rate. The average
          translation rate of 7.55 RMB for the three months ended September 30, 2007
          was applied to income statement accounts.
  
  PART
        I.
        FINANCIAL INFORMATION
  ITEM
        1.
        FINANCIAL STATEMENTS


GENERAL
        STEEL HOLDINGS INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        SEPTEMBER 30, 2007 AND DECEMBER 31, 2006


ASSETSSeptember
                30,
            
            December
                31,2007
            
            2006(Unaudited)CURRENT
                ASSETS:Cash
            
            $
            6,781,439
            
            $
            6,831,549Restricted
                cash
            
            
            10,073,014
            
            
            4,231,523Accounts
                  receivable, net of allowance for doubtful accounts of $142,694
                  and
                  $137,132 as of September 30, 2006 and December 31, 2006,
                  respectively
            
            
            18,522,393
            
            
            17,095,718Accounts
                receivable - related parties
            
            
            12,436,638
            
            
            -Notes
                receivable
            
            
            14,816,424
            
            
            537,946Other
                receivables
            
            
            2,246,237
            
            
            268,784Other
                receivables - related parties
            
            
            1,334,000
            
            
            850,400Inventories
            
            
            74,116,266
            
            
            12,489,290Advances
                on inventory purchases
            
            
            60,350,015
            
            
            2,318,344Advances
                on inventory purchases - related parties
            
            
            24,662,603
            
            
            -Prepaid
                expenses - current
            
            
            470,166
            
            
            46,152Total
                current assets
            
            
            225,809,195
            
            
            44,669,706PLANT
                AND EQUIPMENT, net
            
            
            207,347,239
            
            
            26,606,594OTHER
                ASSETS:Advances
                on equipment purchases
            
            
            211,431
            
            
            -Prepaid
                expenses - non current
            
            
            846,755
            
            
            740,868Intangible
                assets - land use right, net of accumulated amortization
            
            
            21,324,413
            
            
            1,804,440Total
                other assets
            
            
            22,382,599
            
            
            2,545,308Total
                assets
            
            $
            455,539,033
            
            $
            73,821,608LIABILITIES
                AND SHAREHOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable
            
            $
            96,096,557
            
            $
            3,001,775Accounts
                payable - related parties
            
            
            725,131
            
            
            -Short
                term loans - bank
            
            
            76,267,448
            
            
            30,284,686Short
                term loans - others
            
            
            37,151,900
            
            
            -Short
                term loans - related parties
            
            
            19,376,350
            
            
            -Short
                term notes payable
            
            
            41,247,280
            
            
            8,153,520Other
                payables
            
            
            6,650,517
            
            
            355,142Other
                payable - related partites
            
            
            15,461,042
            
            
            -Accrued
                liabilities
            
            
            7,936,729
            
            
            1,064,012Customer
                deposits
            
            
            50,909,808
            
            
            1,093,602Deposits
                due to sales representatives
            
            
            1,795,297
            
            
            2,051,200Taxes
                payable
            
            
            16,760,169
            
            
            5,391,602Investment
                payable
            
            
            6,403,200
            
            
            -Distribution
                payable to minority shareholder
            
            
            2,744,676
            
            
            -Shares
                subject to mandatory redemption
            
            
            -
            
            
            2,179,779Total
                current liabilities
            
            
            379,526,104
            
            
            53,575,318MINORITY
                INTEREST
            
            
            36,582,894
            
            
            6,185,797SHAREHOLDERS'
                EQUITY:Preferred
                  stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899
                  and 0
                  shares issued and outstanding as of September 30, 2007 and December
                  31,
                  2006, respectively
            
            
            3,093
            
            
            -Common
                  Stock, $0.001 par value, 200,000,000 shares authorized, 34,564,665
                  and
                  32,426,665 shares (including 1,176,665 redeemable shares) issued
                  and
                  outstanding as of September 30, 2007 and December 31, 2006,
                  respectively
            
            
            34,565
            
            
            31,250Paid-in-capital
            
            
            22,857,207
            
            
            6,871,358Retained
                earnings
            
            
            13,154,645
            
            
            4,974,187Statutory
                reserves
            
            
            1,107,010
            
            
            1,107,010Accumulated
                other comprehensive income
            
            
            2,273,515
            
            
            1,076,688Total
                shareholders' equity
            
            
            39,430,035
            
            
            14,060,493Total
                liabilities and shareholders' equity
            
            $
            455,539,033
            
            $
            73,821,608




The
        accompanying notes are an integral part of these statements.
  
  GENERAL
          STEEL HOLDINGS INC. AND SUBSIDIARIES
 
 CONSOLIDATED
          STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
                    THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                    2006(Unaudited)
 Three
                    months ended
                
                Nine
                    months endedSeptember
                    30,
                
                September
                    30,2007
                
                2006
                
                2007
                
                2006REVENUES
                
                $
                345,384,337
                
                $
                46,957,797
                
                $
                504,247,052
                
                $
                96,998,657COST
                    OF SALES
                
                
                319,494,586
                
                
                45,404,450
                
                
                468,510,928
                
                
                92,486,613GROSS
                    PROFIT
                
                
                25,889,751
                
                
                1,553,347
                
                
                35,736,124
                
                
                4,512,044SELLING,
                    GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                6,795,307
                
                
                605,801
                
                
                10,269,918
                
                
                2,155,612INCOME
                    FROM OPERATIONS
                
                
                19,094,444
                
                
                947,546
                
                
                25,466,206
                
                
                2,356,432OTHER
                    EXPENSE, NET
                
                
                2,916,768
                
                
                623,105
                
                
                4,378,586
                
                
                1,370,798INCOME
                      BEFORE PROVISION FOR INCOME TAXES AND MINORITY
                      INTEREST
                
                
                16,177,676
                
                
                324,441
                
                
                21,087,620
                
                
                985,634PROVISION
                    FOR INCOME TAXES
                
                
                2,025,389
                
                
                -
                
                
                3,359,271
                
                
                -NET
                    INCOME BEFORE MINORITY INTEREST
                
                
                14,152,287
                
                
                324,441
                
                
                17,728,349
                
                
                985,634LESS
                    MINORITY INTEREST
                
                
                6,151,792
                
                
                144,644
                
                
                7,359,688
                
                
                466,834NET
                    INCOME
                
                
                8,000,495
                
                
                179,797
                
                
                10,368,661
                
                
                518,800OTHER
                    COMPREHENSIVE INCOME:Foreign
                    currency translation adjustments
                
                
                374,568
                
                
                222,417
                
                
                1,196,827
                
                
                405,053COMPREHENSIVE
                    INCOME
                
                $
                8,375,063
                
                $
                402,214
                
                $
                11,565,488
                
                $
                923,853WEIGHTED
                    AVERAGE NUMBER OF SHARES
                
                
                32,343,332
                
                
                31,250,000
                
                
                31,704,912
                
                
                31,250,000EARNING
                    PER SHARE, BASIC AND DILUTED
                
                $
                0.25
                
                $
                0.01
                
                $
                0.33
                
                $
                0.02
  The
        accompanying notes are an integral part of these
        statements.
  -2-
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
          STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
          THE
          NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 AccumulatedPreferred
                    stock
                
                Common
                    stock
                
                
                
                Retained
                    earnings
                
                otherPaid-in
                
                Statutory
                
                
                
                comprehensiveShares
                
                Par
                    value
                
                Shares
                
                Par
                    value
                
                capital
                
                reserves
                
                Unrestricted
                
                income
                
                TotalsBALANCE,
                    January 1, 2006
                
                
                -
                
                $
                -
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358
                
                $
                840,753
                
                $
                4,207,236
                
                $
                399,188
                
                $
                12,349,785Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                518,800
                
                
                
                
                
                518,800Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                405,053
                
                
                405,053BALANCE,
                    September 30, 2006, unaudited
                
                
                -
                
                $
                -
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358
                
                $
                840,753
                
                $
                4,726,036
                
                $
                804,241
                
                $
                13,273,638Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                514,408
                
                
                
                
                
                514,408Adjustment
                    to statutory reserve
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                266,257
                
                
                (266,257
                )
                
                
                
                
                -Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                272,447
                
                
                272,447BALANCE,
                    December 31, 2006
                
                
                -
                
                $
                -
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358
                
                $
                1,107,010
                
                $
                4,974,187
                
                $
                1,076,688
                
                $
                14,060,493Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                10,368,661
                
                
                
                
                
                10,368,661Preferred
                      stock issued for acquistion of minority interest,net
                      of dividend distribution to Victory New
                
                
                3,092,899
                
                
                3,093
                
                
                
                
                
                
                
                
                8,370,907
                
                
                
                
                
                (2,188,203
                )
                
                
                
                
                6,185,797Conversion
                    of redeemable stock at $1.95/share
                
                
                
                
                
                
                
                
                1,176,665
                
                
                1,177
                
                
                2,293,320
                
                
                
                
                
                
                
                
                
                
                
                2,294,497Common
                    stock issued for service, $1.32/share
                
                
                
                
                
                
                
                
                18,000
                
                
                18
                
                
                23,742
                
                
                
                
                
                
                
                
                
                
                
                23,760Common
                    stock issued by $2.50/share
                
                
                
                
                
                
                
                
                2,120,000
                
                
                2,120
                
                
                5,297,880
                
                
                
                
                
                
                
                
                
                
                
                5,300,000Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,196,827
                
                
                1,196,827BALANCE,
                    September 30, 2007, unaudited
                
                
                3,092,899
                
                $
                3,093
                
                
                34,564,665
                
                $
                34,565
                
                $
                22,857,207
                
                $
                1,107,010
                
                $
                13,154,645
                
                $
                2,273,515
                
                $
                39,430,035
  The
        accompanying notes are an integral part of these
        statements.
  -3-
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 FOR
          THE
          NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 (Unaudited)


2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              10,368,661
              
              $
              518,800Adjustments
                    to reconcile net income to cash used in operating
                    activities:Minority
                  interest
              
              
              7,359,688
              
              
              466,834Depreciation
              
              
              5,491,604
              
              
              1,008,036Amortization
              
              
              429,662
              
              
              222,400(Gain)
                  Loss on disposal of equipment
              
              
              (4,013
              )
              
              28,005Stock
                  issued for services
              
              
              33,332
              
              
              -Interest
                  expense accrued on mandatory redeemable stock
              
              
              114,726
              
              
              344,178Interest
                  expense accrued on short term loan to related
                  parties
              
              
              424,580
              
              
              -Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              8,679,486
              
              
              (9,928,845
              )Accounts
                  receivable - related parties
              
              
              (12,179,328
              )
              
              -Notes
                  receivable
              
              
              (7,984,262
              )
              
              (1,106,993
              )Other
                  receivables
              
              
              (1,428,924
              )
              
              (7,476
              )Other
                  receivables - related parties
              
              
              (456,000
              )
              
              (850,400
              )Inventories
              
              
              (7,110,388
              )
              
              (4,681,528
              )Advances
                  on inventory purchases
              
              
              (61,418,795
              )
              
              3,737,173Advances
                  on inventory purchases-related parties
              
              
              (11,329,255
              )
              
              -Prepaid
                  expenses - current
              
              
              (282,484
              )
              
              (86,541
              )Accounts
                  payable
              
              
              84,348,627
              
              
              145,602Accounts
                  payable - related parties
              
              
              710,128
              
              
              -Other
                  payables
              
              
              4,353,966
              
              
              137,713Other
                  payable - related parties
              
              
              (63,100,758
              )
              
              (980,000
              )Accrued
                  liabilities
              
              
              5,182,043
              
              
              821,858Customer
                  deposits
              
              
              16,307,900
              
              
              64,917Taxes
                  payable
              
              
              10,887,436
              
              
              2,611,959Net
                  cash used in operating activities
              
              
              (10,602,368
              )
              
              (7,534,308
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Cash
                  acquired from subsidiary
              
              
              680,132
              
              
              -Increase
                  in investment payable
              
              
              6,270,720
              
              
              -Increase
                  in short term investment
              
              
              -
              
              
              37,494Notes
                  receivable-related parties
              
              
              -
              
              
              2,722,629Advances
                  on equipment purchases
              
              
              (207,056
              )
              
              1,061,493Deposits
                  due to sales representatives
              
              
              (332,087
              )
              
              538,664Cash
                  proceeds from sale of equipment
              
              
              43,652
              
              
              -Purchase
                  of equipment
              
              
              (12,159,159
              )
              
              (5,299,576
              )Net
                  cash used in investing activities
              
              
              (5,703,798
              )
              
              (939,296
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESRestriced
                  cash
              
              
              (1,633,346
              )
              
              (80,218
              )Borrowings
                  from related parties
              
              
              18,550,906
              
              
              -Borrowings
                  on short term loans - banks
              
              
              52,924,877
              
              
              21,309,090Payments
                  on short term loans - banks
              
              
              (63,199,713
              )
              
              (17,497,200
              )Borrowings
                  on short term loans - others
              
              
              5,225,600
              
              
              -Payments
                  on short term loans - others
              
              
              (1,437,040
              )
              
              -Borrowing
                  on short term notes payable
              
              
              42,484,128
              
              
              6,074,028Payment
                  on short term notes payable
              
              
              (40,001,968
              )
              
              (6,074,028
              )Cash
                  received on stock issuance
              
              
              5,290,428
              
              
              -Cash
                  received from shareholder
              
              
              1,500,000
              
              
              -Cash
                  contribution received from minority shareholders
              
              
              783,840
              
              
              -Payment
                  to minority shareholder
              
              
              (4,291,634
              )
              
              -Net
                  cash provided by financing activities
              
              
              16,196,078
              
              
              3,731,672EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              59,978
              
              
              102,648DECREASE
                  IN CASH
              
              
              (50,110
              )
              
              (4,639,284
              )CASH,
                  beginning of period
              
              
              6,831,549
              
              
              8,648,373CASH,
                  end of period
              
              $
              6,781,439
              
              $
              4,009,089
  The
        accompanying notes are an integral part of these
        statements.
  -4-
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
          30, 2007
 (UNAUDITED )
 **Note
          1 - Background**
 
 The
          Company was established on August 5, 2002. The Company through its 100%
          owned
          subsidiary, General Steel Investment Co., Ltd and 70% owned subsidiary,
          Daqiuzhuang Metal principally engages in the manufacturing of hot rolled
          carbon
          and silicon steel sheets which are mainly used on tractors, agricultural
          vehicles and in other specialty markets. Daqiuzhuang Metal sells its products
          through both retailers and wholesalers.
 
 On
          May
          18, 2007, General Steel entered into a Purchase Agreement with Victory
          New
          Holdings Limited (Victory New), a British Virgin Islands registered company
          under the control of the Company’s Chairman, CEO and majority shareholder Yu Zu
          Sheng (aka Henry Yu) to acquire Victory New’s 30% interest in Daqiuzhuang Metal.
          General Steel agreed to issue to the original shareholder of Victory New
          an
          aggregate of 3,092,899 shares of the Company’s Series A Preferred Stock with a
          fair value of $8,374,000, which have a voting power of 30% of the combined
          voting power of the Company’s common and preferred stock for the entire life of
          the Company. As a result of the acquisition, the Company has increased
          its
          equity interest in Daqiuzhuang Metal from 70% to 100%, and Daqiuzhuang
          Metal is
          a wholly owned subsidiary of the Company. See details in Note 18- Business
          Combinations.
 
 On
          April
          27, 2007, Daqiuzhuang Metal and Baotou Iron and Steel Group Co., Ltd. ("Baotou
          Steel") entered into an Amended and Restated Joint Venture Agreement (the
          "Agreement"), amending the Joint Venture Agreement entered into on September
          28,
          2005 ("Original Joint Venture Agreement"). The Agreement has increased
          Daqiuzhuang Metal's ownership interest in the Joint Venture to 80%. The
          joint
          venture company’s name is Baotou Steel - General Steel Special Steel Pipe Joint
          Venture Company Limited, a limited liability company formed under the laws
          of
          the People's Republic of China (referred to as “Baotou Steel Pipe Joint
          Venture”). Baotou Steel Pipe Joint Venture obtained its license on May 25, 2007
          and started its normal operation in July 2007. See more discussion in Note
          18 -
          Business combinations.
 
 Baotou
          Steel Pipe Joint Venture is located at Kundulun District, Baotou City,
          Inner
          Mongolia, China. It produces and sells welded steel pipes and primarily
          serves
          customers in the oil, gas and petrochemical markets. The current designed
          production capacity is 100,000 tons of steel pipes and will be increased
          to
          600,000 tons by 2009.
 
 On
          May
          18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co.,
          Ltd.
          (referred to as “Yangpu Investment”) and injected registered capital totaling
          RMB100,000,000 or approximately $13,030,000 into the investment. The total
          registered capital of Yangpu Investment is RMB110,000,000 or approximately
          $14,333,000, and Daqiuzhuang Metal has a 99.3% ownership interest in Yangpu
          Investment.
 
 Qiu
          Steel
          Investment Co., Ltd. (referred to as “Qiu Steel Investment”) was founded on June
          1, 2006. In June 2007, Yangpu Investment agreed to invest RMB148,000,000
          or
          approximately $19,284,400 through a capital injection and equity transfer
          with
          former shareholders. The total registered capital of Qiu Steel is RMB150,000,000
          or approximately $19,545,000. As a result of the above mentioned equity
          transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel Investment.
          Qiu Steel Investment then becomes a subsidiary of Yangpu Investment and
          Daqiuzhuang Metal.
 
 -5-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  Yangpu
          Investment and Qiu Steel Investment are Chinese registered limited liability
          companies with a legal structure similar to a limited liability company
          organized under state laws in the United States of America. Those two companies
          were formed to acquire other businesses.
 
 On
          June
          15, 2007, General Steel Holdings Inc. and Shaanxi Long Men Iron and Steel
          (Group) Co., Ltd. (referred to as Long Men Group) signed an agreement to
          form
          Shaanxi Long Men Iron and Steel Co., Ltd. (referred to as Long Men Joint
          Venture). The parties agreed to make the effective date of the transaction
          June
          1, 2007. General Steel Holdings Inc. contributed RMB300 million or approximately
          $39,450,000 through its subsidiaries, Daqiuzhuang Metal and Qiu Steel
          Investment., to the Long Men Joint Venture. General Steel and Long Men
          Group
          will own 60% and 40% ownership interest in Long Men joint Venture, respectively.
          The Long Men Joint Venture obtained the business license on June 22, 2007.
          See
          more discussion in Note 18 - Business combinations.
 
 Long
          Men
          Joint Venture is located in Hancheng city, Shaanxi province. Long Men Joint
          Venture is the largest integrated steel producer in Shaanxi Province, China
          that
          uses iron ore and coke as primary raw materials for steel production. Long
          Men
          Joint Venture produces pig iron, crude steel, reinforced bars and high-speed
          wires. Long Men Joint Venture has annual crude steel production capability
          of
          2.5 million tons. Long Men Joint Venture is also engaged in several other
          business activities, most of which are related to steel manufacturing.
          These
          include the production of coke and the production of iron ore pellets from
          taconite, transportation services and real estate and hotel operations.
          These
          operations are all located in Shaanxi Province, China and primarily serve
          regional customers in the construction industry.
 
 On
          September 24, 2007, Long Men Joint Venture further acquired 74.92% ownership
          interest in Environmental Protection Industry Development Co., Ltd. (“EPID)” for
          RMB18,080,930, approximately $2,380,000 and a 36% equity interest in Hualong
          Fire Retardant Materials Co., Ltd., (“Hualong”) for RMB3,287,980, approximately
          $430,000. The parties agreed to make the effective date of the transaction
          July
          1, 2007.
 
 -6-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
 
 The
          following table reflects the Company’s current organization
          structure:
 
  **Note
          2 - Summary of significant accounting policies**
 
 Basis
          of presentation
 
 The
          consolidated financial statements of General Steel Holdings, Inc. reflect
          the
          activities of the following directly and indirectly owned
          subsidiaries:
 
 PercentageSubsidiary
                
                Of
                    OwnershipGeneral
                    Steel Investment Co., Ltd.
                
                
                British
                    Virgin Islands
                
                
                100.0
                %Victory
                    New Holding, Ltd.
                
                
                British
                    Virgin Islands
                
                
                100.0
                %Tianjin
                    Daqiuzhuang Metal Sheet Co., Ltd
                
                
                P.R.C.
                
                
                100.0
                %Baotou
                    Steel Pipe Joint Venture
                
                
                P.R.C.
                
                
                80.0
                %Yangpu
                    Shengtong Investment Co., Ltd.
                
                
                P.R.C.
                
                
                99.3
                %Tianjing
                    Qiu Steel Investment Co., Ltd.
                
                
                P.R.C.
                
                
                98.0
                %Shaanxi
                    Long Men Joint Venture
                
                
                P.R.C.
                
                
                60.0
                %
 
 The
          accompanying financial statements have been prepared in accordance with accounting
          principles generally accepted in the United States of America. The accompanying
          consolidated financial statements include the accounts of all direct and
          indirectly owned subsidiaries listed above. All material intercompany
          transactions and balances have been eliminated in the consolidation. The
          Long
          Men Joint Venture financial data from June 1, the effective date of the
          acquisition, to September 30, 2007 is included in the Company’s consolidated
          financial statements. The financial data of Environmental Protection Industry
          Development Co., Ltd. and Hualong Fire Retardant Materials Co., Ltd. are
          included in the Company’s financial statements from July 1 to September 30,
          2007.
 
 -7-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  Revenue
          recognition
 
 The
          Company's revenue recognition policies are in compliance with Staff Accounting
          Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
          customers when a formal arrangement exists, the price is fixed or determinable,
          the delivery is completed, no other significant obligations of the Company
          exist
          and collectibility is reasonably assured. Payments received before all
          of the
          relevant criteria for revenue recognition are recorded as customer deposits.
          Sales revenue represents the invoiced value of goods, net of 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 13% to 17% of the gross sales price.
          This
          VAT may be offset by VAT paid by the Company on raw materials and other
          materials included in the cost of producing the finished product.
 
 Foreign
          currency translation
 
 The
          reporting currency of the Company is the US dollar. The Company uses the
          local
          currency, Renminbi (RMB), as its functional currency. Assets and liabilities
          are
          translated at the unified exchange rate as quoted by the People’s Bank of China
          at the end of the period. Translation adjustments resulting from this process
          are included in accumulated other comprehensive income in the statement
          of
          shareholders’ equity. Transaction gains and losses that arise from exchange rate
          fluctuations on transactions denominated in a currency other than the functional
          currency are included in the results of operations as incurred.
 
 Translation
          adjustments amounted to $2,273,515 and $1,076,688 as of September 30, 2007
          and
          December 31, 2006, respectively. Asset and liability amounts at September
          30,
          2007 and December 31, 2006 were translated at 7.50 RMB to $1.00 USD and
          7.80 RMB
          to $1.00 USD, respectively. Equity accounts were stated at their historical
          rate. The average translation rates applied to income statement accounts
          for the
          nine months ended September 30, 2007 and 2006 were 7.66 RMB and 8.01 RMB,
          and
          for the three months ended September 30, 2007 and 2006 were 7.55 RMB and
          8.00
          RMB, respectively. Cash flows are also translated at average translation
          rates
          for the period, therefore, amounts reported on the statement of cash flows
          will
          not necessarily agree with changes in the corresponding balances on the
          balance
          sheet.
 
 Plant
          and equipment, net
 
 Plant
          and
          equipment are stated at cost less accumulated depreciation. Depreciation
          is
          computed using the straight-line method over the estimated useful lives
          of the
          assets with 3%-5% residual value. Depreciation expense for the nine months
          ended
          September 30, 2007 and 2006 amounted to
          $5,491,604 an d
          $1,008,036, respectively. Depreciation expense for the three months ended
          September 30, 2007 and 2006 amounted to $3,347,167 and $459,351, respectively.
 
 -8-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  Estimated
          useful lives of the assets are as follows:
 Estimated
                    Useful LifeBuildings
                
                10-40
                    yearsMachinery
                    and equipment
                
                8-30
                    yearsOther
                    equipment
                
                5-8
                    yearsTransportation
                    equipment
                
                5-15
                    years
 
 Construction
          in progress represents the costs incurred in connection with the construction
          of
          buildings or new additions to the Company’s plant facilities. No depreciation is
          provided for construction in progress until such time as the assets are
          completed and are placed into service. Maintenance, repairs and minor renewals
          are charged directly to expense as incurred. Major additions and betterment
          to
          buildings and equipment are capitalized.
 
 Interest
          incurred during construction is capitalized into construction in progress.
          All
          other interest is expensed as incurred. For the nine months ended September
          30,
          2007 and 2006, interest incurred by the Company was $5,325,281 and $1,344,433,
          respectively, and capitalized interest for the nine months ended September
          30,
          2007 and 2006 amounted to $656,471 and $0, respectively.
  Plant
          and
          equipment consist of the following at:
  September
                    30, 2007
                
                
                December
                    31, 2006(unaudited)Buildings
                    and improvements
                
                $
                62,984,397
                
                $
                9,338,865Machinery
                
                
                126,567,039
                
                
                22,675,357Transportation
                    equipment
                
                
                4,467,440
                
                
                1,019,698Other
                    equipment
                
                
                1,149,103
                
                
                -Construction
                    in process
                
                
                24,889,653
                
                
                -Totals
                
                
                220,057,632
                
                
                33,033,920Less
                    accumulated depreciation
                
                
                (12,710,393
                )
                
                (6,427,326
                )Totals
                
                $
                207,347,239
                
                $
                26,606,594
 
 Long-term
          assets of the Company are reviewed annually or more often if circumstances
          dictate, to determine whether their carrying value has become impaired.
          The
          Company considers assets to be impaired if the carrying value exceeds the
          future
          projected cash flows from related operations. The Company also re-evaluates
          the
          periods of amortization to determine whether subsequent events and circumstances
          warrant revised estimates of useful lives. As of September 30, 2007, the
          Company
          expects these assets to be fully recoverable.
 
 Use
          of
          estimates
 
 The
          preparation of financial statements in conformity with generally accepted
          accounting principles of the United States of America requires management
          to
          make estimates and assumptions that affect the amounts reported in the
          combined
          financial statements and accompanying notes. For example, the Company estimates
          its potential losses on uncollectible receivables. Management believes
          that the
          estimates utilized in preparing its financial statements are reasonable
          and
          prudent. Actual results could differ from these estimates.
 
 -9-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  Concentration
          of risks
 
 Cash
          includes cash on hand and demand deposits in accounts maintained with
          state **** owned
          banks within the People’s Republic of China and Hong Kong. Total cash (including
          restricted cash balances) in these banks at September 30, 2007 and December
          31,
          2006 amounted to $16,528,750 and $11,058,636, respectively, of which no
          deposits
          are covered by insurance. The Company has not experienced any losses in
          such
          accounts and believes it is not exposed to any risks on its cash in bank
          accounts.
 
 The
          Company has five major customers which represented approximately 58% and
          31% of
          the Company’s total sales for the nine months ended September 30, 2007 and 2006,
          respectively. Five customers accounted for 41% of total acc ounts
          receivable as of September 30, 2007.
 
 For
          the
          nine months ended September 30, 2007 and 2006, the Company purchased
          approximately 53% and
          95%,
          respectively, of its raw materials from five major suppliers. There is
          no
          accounts payable to these suppliers as of September 30, 2007.
 
 The
          Company's operations are carried out in the PRC. Accordingly, the Company's
          business, financial condition and results of operations may be influenced
          by the
          political, economic and legal environments in the PRC, and by the general
          state
          of the PRC's economy. The Company's operations in the PRC are subject to
          specific considerations and significant risks not typically associated
          with
          companies in the North America and Western Europe. These include risks
          associated with, among others, the political, economic and legal environments
          and foreign currency exchange. The Company's results may be adversely affected
          by changes in governmental policies with respect to laws and regulations,
          anti-inflationary measures, currency conversion and remittance abroad,
          and rates
          and methods of taxation, among other things.
 
 Restricted
          cash
 
 The
          Company has notes payable outstanding with various banks and is required
          to keep
          certain amounts on deposit that are subject to withdrawal restrictions,
          and
          these amounts were $10,073,014  and
          $4,231,523 as of September 30, 2007 and December 31, 2006,
          respectively.
 
 Inventories
 
 Inventories
          are stated at the lower of cost or market using weighted average method.
          Inventories consisted of the following:
  September
                    30, 2007
                
                December
                    31, 2006(unaudited)Supplies
                
                $
                1,340,338
                
                $
                1,061,773Raw
                    materials
                
                
                40,918,058
                
                
                2,827,127Finished
                    goods
                
                
                31,857,870
                
                
                8,600,390Totals
                
                $
                74,116,266
                
                $
                12,489,290
  Raw
          materials consist primarily of iron ore and coke at Long Men Joint Venture
          and
          steel strip at Daqiuzhuang Metal The
          cost
          of finished goods includes direct costs of raw materials as well as direct
          labor
          used in production. Indirect production costs such as utilities and indirect
          labor related to production such as assembling, shipping and handling costs
          are
          also included in the cost of inventory. The Company reviews its inventory
          periodically for possible obsolete goods and to determine if any reserves
          are
          necessary for potential obsolescence. As of September 30, 2007 and December
          31,
          2006 the Company believes no reserves are necessary.
 
 -10-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
 Financial
          instruments
 
 Statement
          of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
          Value of Financial Instruments” requires disclosure of the fair value of
          financial instruments held by the Company. SFAS 107 defines the fair value
          of
          financial instruments as the amount at which the instrument could be exchanged
          in a current transaction between willing parties. The Company considers
          the
          carrying amount of cash, accounts receivable, other **** receivables,
          accounts payable, accrued liabilities and other payables to approximate
          their
          fair values because of the short period of time between the origination
          of such
          instruments and their expected realization and their current market rate
          of
          interest.
 
 Intangible
          assets
 
 All
          land
          in the People’s Republic of China is owned by the government and cannot be sold
          to any individual or company. However, the government grants the user a
“land
          use right” to use the land.
 
 Daqiuzhuang
          Metal acquired land use rights during the years ended 2000 and 2003 for
          a total
          amount of $3,167,483. The land use rights are for 50 years and expire in
          2050
          and 2053. However, Daqiuzhuang Metal's initial business license had a ten-year
          term. Therefore management elected to amortize the land use rights over
          the
          ten-year business term. Daqiuzhuang Metal became a Sino Joint Venture in
          2004
          and obtained a new business license for twenty years; however, the Company
          decided to continue amortizing the land use rights over the original ten-year
          business term.
 
 Long
          Men
          Group contributed land use rights for a total amount of $19,823,885 to
          the Long
          Men Joint Venture. The land use rights are for 50 years and expire in 2048
          to
          2052.
 
 The
          Company’s land use rights are as follows:
 
 September
                    30, 2007
                
                December
                    31, 2006(unaudited)Land
                    use right
                
                $
                22,991,368
                
                $
                3,041,733Accumulated
                    Amortization
                
                
                (1,666,955
                )
                
                (1,237,293
                )Totals
                
                $
                21,324,413
                
                $
                1,804,440
  Intangible
          assets of the Company are reviewed annually to determine whether their
          carrying
          value has become impaired. The Company considers assets to be impaired
          if the
          carrying value exceeds the future projected cash flows from related operations.
          The Company also re-evaluates the periods of amortization to determine
          whether
          subsequent events and circumstances warrant revised estimates of useful
          lives.
          As of September 30, 2007, the Company expects these assets to be fully
          recoverable. Total
          amortization expense for the nine months ended September 30, 2007 and 2006
          amounted to $429,662 and $222,400 respectively. Amortization expense for
          the
          three months ended September 30, 2007 and 2006 amounted to $214,288 and
          $74,561,
          respectively.
 
 -11-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  Shares
          subject to mandatory redemption
 
 The
          Company adopted Statement of Financial Accounting Standards No. 150, “Accounting
          for Certain Financial Instruments with Characteristics of both Liabilities
          and
          Equity”. FAS 150 established classification and measurement standards for three
          types of freestanding financial instruments that have characteristics of
          both
          liabilities and equity. Instruments within the scope of FAS 150 must be
          classified as liabilities within the Company’s Consolidated Financial Statements
          and be reported at settlement date value. The Company issued redeemable
          stock in
          September 2005. The amount is presented as a liability on the balance sheet
          at
          the fair market value on the date of issuance plus accrued interest at
          the
          balance sheet date. As of September 30, 2007, redemption feature on all
          the
          shares issued was expired and subsequently the shares were reclassified
          from
          liability to equity. See note 14 for details.
 
 Share-based
          compensation
 
 The
          Company records stock-based compensation pursuant to Statement of Financial
          Accounting Standards No. 123 (revised 2004), "Share-Based Payments,"
          ("FAS123R"), which established standards for the accounting for transactions
          in
          which an entity exchanges its equity instruments for goods or services.
          This
          statement requires companies to measure the cost of services received in
          exchange for an award of equity instruments based on the grant-date fair
          value
          of the award. The cost will be recognized over the period of services
          rendered.
 
 Income
          taxes
 
 The
          Company adopted Statement of Financial Accounting Standards No. 109, “Accounting
          for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred
          income tax liabilities and assets for the expected future tax consequences
          of
          temporary differences between income tax basis and financial reporting
          basis of
          assets and liabilities. Provision for income taxes consists of taxes currently
          due plus deferred taxes. There are no deferred tax amounts at June 30,
          2007 and
          December 31, 2006. The Company adopted FASB Interpretation 48, “Accounting for
          Uncertainty in Income Taxes” (“FIN 48”), as of January 1, 2007. A tax position
          is recognized as a benefit only if it is “more likely than not” that the tax
          position would be sustained in a tax examination, with a tax examination
          being
          presumed to occur. The amount recognized is the largest amount of tax benefit
          that is greater than 50% likely of being realized on examination. For tax
          positions not meeting the “more likely than not” test, no tax benefit is
          recorded. The adoption had no effect on the Company’s financial statements.
 
 The
          charge for taxation is based on the results for the year as adjusted for
          items,
          which are non-assessable or disallowed. It is calculated using tax rates
          that
          have been enacted or substantively enacted by the balance sheet
          date.
 
 Deferred
          tax is accounted for using the balance sheet liability method in respect
          of
          temporary differences arising from differences between the carrying amount
          of
          assets and liabilities in the financial statements and the corresponding
          tax
          basis used in the computation of assessable tax profit. In principle, deferred
          tax liabilities are recognized for all taxable temporary differences, and
          deferred tax assets are recognized to the extent that it is probable that
          taxable profit will be available against which deductible temporary differences
          can be utilized. Deferred tax is calculated using tax rates that are expected
          to
          apply to the period when the asset is realized or the liability is settled.
          Deferred tax is charged or credited in the income statement, except when
          it is
          related to items credited or charged directly to equity, in which case
          the
          deferred tax is also dealt with in equity. Deferred tax assets and liabilities
          are offset when they relate to income taxes levied by the same taxation
          authority and the Company intends to settle its current tax assets and
          liabilities on a net basis.
 
 -12-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  Under
          the
          Income Tax Laws of PRC, the Company’s subsidiary, Daqiuzhuang Metal, is
          generally subject to an income tax at an effective rate of 33% (30% state
          income
          taxes plus 3% local income taxes) on income reported in the statutory financial
          statements after appropriate tax adjustments, unless the enterprise is
          located
          in a specially designated region where it allows foreign enterprises a
          two-year
          income tax exemption and a 50% income tax reduction for the following three
          years. T he
          Company’s subsidiary, Daqiuzhuang Metal, became a Chinese Sino-foreign joint
          venture at the time of the merger on October 14, 2004 and it became eligible
          for
          the tax benefit. Daqiuzhuang Metal is
          located in Tianjin
          Costal Economic Development Zone and under
          the
          Income Tax Laws of Tianjin City of PRC, it i s
          eligible for an income tax rate of 24%. Therefore, Daqiuzhuang
          Metal is
          exempt from income taxes for the years ended December 31, 2005 and 2006
          and is
          entitled to 50% income tax reduction of the special income tax rate of
          24%,
          which is a rate of 12% for the years ended December 31, 2007, 2008 and
          2009.
 
 The
          Company’s other subsidiary, Long Men Joint Venture, is located in the mid-west
          region of China. It qualifies for the Go-West tax rebate of 15% tax rate
          promulgated by the government, therefore income tax is accrued at
          15%.
 
 Baotou
          Steel Pipe Joint Venture is located in Inner Mongolia, is subject
          to an income tax at an effective rate of 33% (30% state income taxes plus
          3%
          local income taxes)
 
 Beginning
          January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
          existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
          (“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
          applicable to both DES and FIEs. The two-year tax exemption and three-year
          50%
          tax reduction tax holiday for production-oriented FIEs will be eliminated.
          The
          Company is currently evaluating the effect of the new EIT law will have
          on its
          financial position.
 
 The
          provision for income taxes for the nine and three months ended September
          30
          consisted of the following:
 For
                    the nine months ended
                
                For
                    the three months endedSeptember
                    30,
                
                September
                    30,2007
                
                2006
                
                2007
                
                2006(Unaudited)
                
                (Unaudited)
                
                (Unaudited)
                
                (Unaudited)Provision
                    for China Income Tax
                
                $
                3,053,883
                
                $
                -
                
                $
                1,841,263
                
                $
                -Provision
                    for China Local Tax
                
                
                305,388
                
                
                -
                
                
                184,126
                
                
                -Total
                    Provision for Income Taxes
                
                $
                3,359,271
                
                $
                -
                
                $
                2,025,389
                
                $
                -
  -13-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  The
          following table reconciles the U.S. statutory rates to the Company’s effective
          tax rate for the nine months ended September 30:
 
 2007
                
                2006U.S.
                    Statutory rates
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recognized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                33.0China
                    income tax exemption
                
                
                (17.1
                )Total
                    provision for income taxes
                
                
                15.9
                %
                
                -
                %
 
 Enterprises
          or individuals who sell commodities, engage in repair and maintenance or
          import
          and export goods in the PRC are subject to a value added tax in accordance
          with
          Chinese laws. The value added tax standard rate is 17% of the gross sales
          price.
          A credit is available whereby VAT paid on the purchases of semi-finished
          products or raw materials used in the production of the Company’s finished
          products can be used to offset the VAT due on sales of the finished product.
 
 VAT
          on
          sales and VAT on purchases amounted to $100,209,901 and $70,869,712 for
          the nine
          months ended September 30, 2007 and $16,489,771 and 12,139,751, for the
          nine
          months ended September 30, 2006, respectively. Sales and purchases are
          recorded
          net of VAT collected and paid as the Company acts as an agent for the
          government. VAT taxes are not impacted by the income tax holiday.
 
 Taxes
          payable consisted of the following:
 
 September
                    30, 2007
                
                December
                    31,(unaudited)
                
                2006VAT
                    taxes payable
                
                $
                12,119,622
                
                $
                5,317,466Income
                    taxes payable
                
                
                3,346,150
                
                
                -Misc
                    taxes
                
                
                1,294,397
                
                
                74,136Totals
                
                $
                16,760,169
                
                $
                5,391,602
 
 Shipping
          and handling
 
 Shipping
          and Handling for raw materials purchased are included in cost of goods
          sold.
          Shipping and handling cost incurred for shipping of finished products to
          customers are expensed. Shipping and handling expenses for the nine months
          ended
          September 30, 2007 and 2006 amounted to $1,360,302 and 153,377 respectively.
          Shipping and handling for the three months ended September 30, 2007 and
          2006
          amounted to $987,724 and $82,252, respectively.
 
 -14-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
 Recently
          issued accounting pronouncements
 
 In
          February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
          Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
          for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
          No. 140, “Accounting for Transfers and Servicing of Financial Assets and
          Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
          simplify the accounting for certain hybrid instruments by permitting fair
          value
          remeasurement for any hybrid financial instrument that contains an embedded
          derivative, as well as, clarifies that beneficial interests in securitized
          financial assets are subject to FAS 133. In addition, FAS 155 eliminates
          a
          restriction on the passive derivative instruments that a qualifying
          special-purpose entity may hold under FAS 140. FAS 155 is effective for
          all
          financial instruments acquired, issued or subject to a new basis occurring
          after
          the beginning of an entity’s first fiscal year that begins after
          September 15, 2006. The adoption of SFAS No. 155 did not have a material
          effect on the Company’s financial position or results of
          operations.
 
 In
          June
          2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF
          No.
          06-3, How Taxes Collected from Customers and Remitted to Governmental
          Authorities Should Be Presented in the Income Statement (EITF No. 06-3).
          EITF
          No. 06-3 permits that such taxes may be presented on either a gross basis
          or a
          net basis as long as that presentation is used consistently. The adoption
          of
          EITF No. 06-3 on January 1, 2007 did not impact our consolidated financial
          statements. We present the taxes within the scope of EITF No. 06-3 on a
          net
          basis.
 
 In
          September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
          which
          addresses the measurement of fair value by companies when they are required
          to
          use a fair value measure for recognition or disclosure purposes under GAAP.
          SFAS
          No. 157 provides a common definition of fair value to be used throughout
          GAAP
          which is intended to make the measurement of fair value more consistent
          and
          comparable and improve disclosures about those measures. SFAS No. 157 will
          be
          effective for an entity's financial statements issued for fiscal years
          beginning
          after November 15, 2007. The Company is currently evaluating the effect
          SFAS No.
          157 will have on its consolidated financial position, liquidity, or results
          of
          operations.
 
 In
          June
          2007, the
          FASB
          issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
          Payments for Goods or Services Received for use in Future Research and
          Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable
          advance payments for goods or services that used or rendered for research
          and
          development activities should be expensed when the advance payment is made
          or
          when the research and development activity has been performed. Management
          is
          currently evaluating the effect of this pronouncement on the Company’s financial
          statements.
 
 Reclassifications
 
 Certain
          prior period amounts have been reclassified to conform to the current period
          presentation. These reclassifications have no effect on net income or cash
          flows.
 
 **Note
          3 - Earnings per share**
 
 The
          Company reports earnings per share in accordance with the provisions of
          SFAS No.
          128, "Earnings Per Share." SFAS No. 128 requires presentation of basic
          and
          diluted earnings per share in conjunction with the disclosure of the methodology
          used in computing such earnings per share.
 
 -15-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  Basic
          earnings per share is computed by dividing income available to common
          stockholders by the weighted average common shares outstanding during the
          period. Diluted earnings per share takes into account the potential dilution
          that could occur if securities or other contracts to issue common stock
          were
          exercised and converted into common stock.
 
 Under
          SFAS 150 " Accounting
          for Certain Financial Instruments with Characteristics of both Liabilities
          and
          Equity", entities
          that have issued mandatory redeemable shares of common stock or entered
          into
          forward contracts that require physical settlement by repurchase of a fixed
          number of the issuer’s equity shares of common stock in exchange for cash shall
          exclude the common shares that are to be redeemed or repurchased in calculating
          basic and diluted earnings per share. Thus the 1,176,665 shares described
          in
          note 14 have been excluded from the September 30, 2006 earnings per share
          calculations.
 
 As
          described in Note 18, the Company issued Victory
          New an aggregate of 3,092,899 shares of the Company’s Series A Preferred
          Stock to
          purchase 30% minority ownership of Daqiuzhuang Metal. The preferred stock
          cannot
          be converted to common stock so it is excluded from the earning per share
          calculation. In addition, since no common stock equivalents existed at
          September
          30, 2007 and 2006, the basic EPS equals the diluted EPS.
  For
                    the nine months ended
                
                For
                    the three months endedSeptember
                    30,
                
                September
                    30,2007
                
                2006
                
                2007
                
                2006(Unaudited)
                
                (Unaudited)
                
                (Unaudited)
                
                (Unaudited)Net
                    income for basic and diluted earnings per share
                
                $
                8,000,495
                
                $
                179,797
                
                $
                10,368,661
                
                $
                518,800Weighted
                    average shares outstanding
                
                
                32,343,332
                
                
                31,250,000
                
                
                31,704,912
                
                
                31,250,000Earnings
                    per share, basic and diluted
                
                $
                0.25
                
                $
                0.01
                
                $
                0.33
                
                $
                0.02
 
 
 **Note
          4 - Supplemental disclosure of cash flow information**
 
 Interest
          paid amounte d
          to
          $5,981,387 an d
          $1,376,863 for the nine months ended September 30, 2007 and 2006,
          respectively.
 
 Income
          tax paid amounted to $124,454 and $0 during the nine
          months ended September 30, 2007 and 2006.
 
 On
          February 12, 2007, the Company issued 18,000 shares of common for investor
          relations services rendered in the amount of $23,742.
 
 -16-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  In
          May
          2007, the Company issued 3,092,899 shares of preferred stock with a fair
          value
          of $8,374,000 to the former shareholders of Victory New Holdings Inc. to
          purchase the 30% the minority ownership of Daqiuzhuang Metal.
 
 On
          September 1, 2007, 1,176,665 shares of redeemable stock was converted into
          common shares resulting in a reclassification of $2,294,497 from liabilities
          to
          equity,
 
 **Note
          5 - Accounts receivable and allowance for doubtful
          accounts**
 
 The
          Company conducts its business operations in the People’s Republic of China.
          Accounts receivable include trade accounts due from the customers. Management
          believes that the trade accounts are fully collectible as these amounts
          are
          being collected throughout the year. Also, management reviews its accounts
          receivable on a regular basis to determine if the bad debt allowance is
          adequate
          and adjusts the allowance when necessary. The allowance for doubtful accounts
          as
          of September 30, 2007 and December 31, 2006 amounted to $142,694 and $137,132,
          respectively.
  For
                      the nine months endedAllowance
                      for doubtful accounts
                  
                  September
                      30, 2007
                    (Unaudited)
                  
                  For
                      the year ended December 31, 2006Beginning
                      balance
                  
                  $
                  137,132
                  
                  $
                  1,371Additions
                  
                  
                  -
                  
                  
                  135,761Deductions
                  
                  
                  -
                  
                  
                  -Exchange
                      rate effect
                  
                  
                  5,562
                  
                  
                  -Ending
                      balance
                  
                  $
                  142,694
                  
                  $
                  137,132
 
 **Note
          6 - Notes receivable**
 
 Notes
          receivable represents trade accounts receivable due from various customers
          where
          the customers’ banks have guaranteed the payment of the receivables. This amount
          is non-interest bearing and is normally paid within three to six months.
          The
          Company has the ability to submit their request for payment to the customer’s
          bank earlier than the scheduled payment date, but will incur an interest
          charge
          and a processing fee when it submits the early payment request. The Company had
          $14,816,424 and $537,946 out standing
          as of September 30, 2007 and December 31, 2006, respectively.
 
 **Note
          7 - Prepaid expenses**
  Prepaid
          expenses consisted of the followings:
  September
                        30, 2007
                    
                    December
                        31, 2006(unaudited)Current
                    
                    Long-term
                    
                    Current
                    
                    Long-termRent
                    
                    $
                    69,548
                    
                    $
                    290,777
                    
                    $
                    46,152
                    
                    $
                    225,523Utilities
                    
                    
                    400,618
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Land
                        use right
                    
                    
                    -
                    
                    
                    555,978
                    
                    
                    -
                    
                    
                    515,345Total
                    
                    $
                    470,166
                    
                    $
                    846,755
                    
                    $
                    46,152
                    
                    $
                    740,868
 -17-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  The
            Company’s prepaid expenses include utilities, prepaid rent for the dormitory
            for
            its employees and land use rights in order to expand its manufactu ring
            capabilities. As of September 30, 2007 and December 31, 2006, prepaid
            rent for
            dormitory amounted to $360,325 and $271,675, respectively, and prepaid
            rent for
            land use rights amounted to $555,978 and $515,345, respectively. See
            note 19 for
            more details.
 
 **Note
          8 - Advances on inventory purchases**
 
 Advances
          on inventory purchases are monies deposited or advanced to outside vendors
          or
          related parties on future inventory purchases. Due to the high shortage
          of steel
          in China, most of the Company’s vendors require a certain amount of money to be
          deposited with them as a guarantee that the Company will receive its purchases
          on a timely basis.
 
 This
          amount is refundable and bears no interest. The Company has a legally binding
          contract with its vendors for the guarantee deposit, which is to be returned
          to
          the Company at the end of the contract. The inventory is normally delivered
          within one month after the monies have been advanced. The total outstanding
          amount was $85,012,618 and $2,318,344 as of September 30, 2007 and December
          31,
          2006, respectively.
 
 **Note
          9 - Related party transactions**
 
 The
          Company has advances to and from Golden Glister Holdings Limited for short
          term
          cash flow purposes. Golden Glister Holdings Limited is incorporated in
          the
          territory of the British Virgin Islands which the Company’s Chairman and CEO and
          majority shareholder, Yu Zuo Sheng (aka Henry Yu) is the majority shareholder.
          The Company had a payable to Golden Glister of $1,287,600 at September
          30, 2007
          and a receivable from Golden Glister of $850,400 at December 31, 2006.
          The
          payable is non interest bearing and the Company has agreed to pay back
          the
          amount on a short term basis in cash.
 
 The
          Company subleased a portion of its land use rights to Tianjin Jing Qiu
          Steel
          Market Company, a related party under common control. The Company’s Chairman,
          CEO and majority shareholder, Yu Zuo Zheng (aka Henry Yu), is the chairman
          and
          the largest shareholder of Jing Qiu Steel Market Company. The total rental
          income for nine months ended September 30, 2007 and 2006 was $1,200,600
          and $0 ,
          respectively. Total rental income for the three months ended September
          30, 2007
          and December 31, 2006 amounted $391,920 and $0, respectively.
 
 The
          Company’s short term loa n
          of
          $6,670,000 fro m
          Shenzhen Development Bank is personally guaranteed by the Company’s Chairman,
          CEO, and majority shareholder Yu Zuo Sheng (aka Henry Yu).
 
 The
          Company acquired the 30% minority ownership of Daqiuzhuang from Victory
          New
          which was legally owned by Mr. Yu Zuo Sheng’s mother and under Mr. Yu’s control.
          See details of acquisition of minority interest in Note 18. The Company
          has a
          payable totaling $50,000 to Mrs. Yu which is short term in nature and non
          interest bearing. The Company is expected to payback this amount in
          cash.
 
 -18-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  The
          Long
          Men Joint Venture did not obtain the VAT invoices from the local tax bureau
          until late July 2007. Before obtaining VAT invoices, all the sales and
          purchases
          made by the joint venture were carried out through the Company’s joint venture
          partner, Long Men Group, and all the sales proceeds and purchase payments
          were
          recorded as receivables from or payables to Long Men Group. The total receivable
          from Long Men Group is $42,815,087 and the total payable to Long Men Group
          is
          $55,866,671. The net amount is a payable of $13,051,584 to Long Men
          Group.
 
 Total
          related party sales amounted to $147,133,702 for the nine months ended
          September
          30, 2007.
 
 The
          following charts summarize the related party transactions as of September
          30,
          2007:
 
 **Accounts
          receivables-related parties**
 
 Subsidiary
                
                Amount
                
                Due
                    from
                
                Term
                
                Manner
                    of settlementDaqiuzhuang
                    Metal
                
                $
                5,443,724
                
                
                Tianjin
                    Hengying
                
                
                Short
                
                
                CashDaqiuzhuang
                    Metal
                
                
                6,992,914
                
                
                Tianjin
                    Dazhan
                
                
                Short
                
                
                CashTotal
                
                $
                12,436,638
 
 **Other
          receivables-related parties**
 Subsidiary
                
                Amount
                
                Due
                    from
                
                Term
                
                Manner
                    of settlementTianjin
                    Qiu Steel Investment
                
                $
                600,300
                
                
                Yang
                    Pu Capital Automobile
                
                
                Short
                
                
                CashTianjin
                    Qiu Steel Investment
                
                
                733,700
                
                
                Beijing
                    Wendlar
                
                
                Short
                
                
                CashTotal
                
                $
                1,334,000
 
 **Advances
          on inventory purchases- related parties**
 Subsidiary
                
                Amount
                
                Due
                    from
                
                Term
                
                Manner
                    of settlementDaqiuzhuang
                    MetalandLong
                    Men Joint Venture
                
                $
                12,744,965
                
                
                Tianjin
                    Hengying
                
                
                Short
                
                
                Deliver
                    goodsDaqiuzhuang
                    MetalandLong
                    Men Joint Venture
                
                
                11,917,638
                
                
                Tianjin
                    Dazhan
                
                
                Short
                
                
                Deliver
                    goodsTotal
                
                $
                24,662,603
 
 **Short
          tem loan -related parties**
 Subsidiary
                
                Amount
                
                Due
                    to
                
                Term
                
                Manner
                    of settlementDaqiuzhuang
                      Metal rate of 6.5%
                
                $
                14,708,517
                
                
                Tianjin
                    Dazhan
                
                
                Annual
                    interest rate of 6.5
                %
                
                CashDaqiuzhuang
                    Metal
                
                
                4,667,833
                
                
                Tianjin
                    Hengying
                
                
                Annual
                    interest
                  rate
                      of 6.5
                %
                
                CashTotal
                
                $
                19,376,350
 
 -19-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  **Accounts
          payable -related parties**
 Subsidiary
                
                Amount
                
                Due
                    to
                
                Term
                
                Manner
                    of settlementLong
                    Men Joint Venture
                
                
                725,131
                
                
                Minority
                    shareholders
                
                
                Short
                
                
                Cash
 
 **Other
          payable-related parties**
 Subsidiary
                
                Amount
                
                Due
                    to
                
                Term
                
                Manner
                    of settlementNew
                    Victory
                
                $
                50,000
                
                
                Shareholder
                
                
                Short
                
                
                CashBatou
                    Steel Joint Venture
                
                
                1,067,200
                
                
                Tianjin
                    Hengying
                
                
                Short
                
                
                CashLong
                    Men Joint Venture
                
                
                13,051,584
                
                
                Long
                    Men Group
                
                
                Short
                
                
                CashGeneral
                    Steel Investment
                
                
                1,287,600
                
                
                Golden
                    Glister
                
                
                Short
                
                
                CashYangpu
                    Shengtong
                
                
                4,658
                
                
                Beijing
                    Wandler
                
                
                Short
                
                
                CashTotal
                
                $
                15,461,042
 
 **Distribution
          payable to minority shareholder**
 
 Dividend
          payable of $2,744,676 represents dividend owed to the minority interest
          of Long
          Men Joint Venture’s subsidiaries, Environmental Protection Industry Development
          Co., Ltd. and Hualong Fire Retardant Materials
 
 **Investment
          payable**
 
 In
          June
          2007, Yangpu Investment and the former shareholders of Qiu Steel Investment
          entered into an agreement. Pursuant to this agreement, Yangpu Investment
          will
          receive 98.7% of the total equity of Qiu Steel Investment by injecting
          RMB148,000,000 or approximately $19,462,000. As of September 30, 2007,
          Yangpu
          Investment had payable amounted to RMB48,000,000 or approximately $6,403,200.
 
 **Note
          10 - Debt**
 
 Short
          term loans
 
 Short
          term loans represent amounts due to various banks, other companies and
          individuals, which are normally due within one year. The loans due to banks
          can
          be renewed with the banks. The Company had a total of $132,795,698 (including
          19,376,350 related party loans as discussed in note 9) and $30,284,686
          short
          term loans as of September 30, 2007 and December 31, 2006, respectively.
 
 The
          loans
          due to banks consisted of the following:
  -20-
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
          30, 2007
 (UNAUDITED )
 
 DAQIUZHUANG
                    METALSeptember
                    30, 2007
                
                December
                    31,(unaudited)
                
                2006Loan
                    from China Bank, JingHai Branch, dueSeptember
                    2008. Monthly interest only payment at6.732%
                    per annum, secured by equipmentand
                    property
                
                $
                1,200,600
                
                $
                1,153,800Loans
                    from Agriculture Bank, DaQiuZhuang Branch, duevarious
                    dates from October to April 2008.Monthly
                    interest only payments ranging from7.344%
                    to 7.668% per annum, guaranteed by anunrelated
                    third party and secured by property andequipment
                
                
                10,015,672
                
                
                9,625,256Loan
                    from Construction Bank of China, JinHai Branch, duevarious
                    dates in Auguest 2008. Monthly interest onlypayment
                    at 8.323% per annum, secured by properties
                
                
                1,467,400
                
                
                1,557,630Loans
                    from ShangHai PuFa Bank, due various dates fromJuly
                    2007 to March 2008. Monthly interest onlypayments
                    ranging from 6.435% to 6.732% per annum,guaranteed
                    by an unrelated third party
                
                
                5,336,000
                
                
                5,128,000Loan
                    from China Merchants Bank, dueNovember
                    2007. Quarterly interest onlypayments
                    at floating interest rate,105% of People's Bankbase
                    rate, guaranteed by an unrelated third party.
                
                
                8,004,000
                
                
                7,692,000Loan
                    from ShenZhen Development Bank, due variousdates
                    in March 2008. Monthly interest onlypayment
                    at 6.426% to 6.710% per annum, secured byinventory
                    and guaranteed by CEO of the Company.
                
                
                6,670,000
                
                
                5,128,000Total
                
                $
                32,693,672
                
                $
                30,284,686
  -21-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  September
                    30, 2007
                
                December
                    31,(unaudited)
                
                2006
 LONG
                    MEN JOINT VENTURELoans
                    from Construction Bank,HanCheng Branch, due variousdates
                      from October to September, 2008. Monthly interest onlypayments
                      ranging from 6.73% to 8.02% per annum,guaranteed
                      by equipment.
                  
                  
                  3,201,600
                  
                  
                  -Loans
                      from Bank of China,HenCheng Branch, due variousdates
                      from May 2008 to July 2008. Quarterly interestpayments
                      ranging from 6.71% to 6.90% per annum.guaranteed
                      by an unrelated third party and an related party.
                  
                  
                  9,338,000
                  
                  
                  -Loans
                      from Credit Cooperatives,due various datesfrom
                      March 2008 to August 2008.
                    Monthly
                      interest payments by 11.02% per annum.guaranteed
                      by an unrelated third party.
                  
                  
                  2,668,000
                  
                  
                  -Loans
                      from HuaXia Bank, due various dates from Octoberto
                      December 2007. Monthly interest payment ranging from5.83%
                      to 7.33% per annum.guaranteed
                      by epuipment.
                  
                  
                  5,202,600
                  
                  
                  -Loan
                      from Communication Bank, due October 2007,Quarterlyinterest
                      only payments, annual interest rate of 7.34%,guaranteed
                      by equipment.
                  
                  
                  3,335,000
                  
                  
                  -Loan
                      from China Merchants Bank,due September 2008,Monthly
                      interest payments,annual interest rate of 9.13%,guaranteed
                      by equipment and unrelated third parties.
                  
                  
                  6,670,000
                  
                  
                  -Loan
                      from China Everbright Bank, due November 2007. Monthlyinterest
                      only payments, annual interest rate of 6.12%,guaranteed
                      by an unrelated third party.
                  
                  
                  2,668,000
                  
                  
                  -Total
                      - Long men joint venture
                  
                  $
                  43,573,776
                  
                  $
                  -Grand
                      totals
                  
                  $
                  76,267,448
                  
                  
                  30,284,686
 
 Long
          Men
          joint venture also has various loans from non related companies and individuals
          which are due within on year. The loans are unsecured, annual interest
          rates
          ranging from 8% to 12%. As of September 30, 2007, these loans outstanding
          amounted to $37,151,900.
 
 Short
          term notes payable
 
 Short-term
          notes payable are lines of credit extended by the banks. When purchasing
          raw
          materials, the Company often issues a short term note payable to the vendor.
          This short term note payable is guaranteed by the bank for its complete
          face
          value. The banks usually require the Company to deposit a certain amount
          of cash
          at the bank as a guarantee deposit which is classified on the balance sheet
          as
          restricted cash.
 -22-
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
   The
          Company had the following short term notes payable outstanding as of September
          30, 2007 and December 31, 2006:
  DAQIUZHUANG
                  METALSeptember
                    30, 2007
                
                December
                    31,(unaudited)
                
                2006China
                  Bank, Jing Hai Branch, various amounts, dueOctober
                    2007, restricted cash required of 50%of
                    loan amount, guaranteed by the Company
                
                $
                1,547,440
                
                $
                1,487,120Agricultural
                    Bank of China, various amounts, due datesranging
                    between October and March 2007,restricted
                    cash required of 50% of loan amount,guaranteed
                    by the Company and an unrelated third party
                
                
                1,600,800
                
                
                1,538,400ShangHai
                    PuFa Bank, due November 2007,restricted
                    cash required of 50% of loan balance,guaranteed
                    by an unrelated third party
                
                
                5,336,000
                
                
                5,128,000Totals
                    - Daqiuzhuang Metal
                
                $
                8,484,240
                
                $
                8,153,520
   LONG
                      MEN JOINT VENTURESeptember
                      30, 2007
                  
                  December
                      31,(unaudited)
                  
                  2006Communication
                      Bank, due January 2008guaranteed
                      by an unrelated third party.
                  
                  $
                  5,202,600
                  
                  $
                  -China
                      Merchants Bank , various amounts, dueJanuary
                      2008, guaranteed by an unrelated third party.
                  
                  
                  6,670,000
                  
                  
                  -China
                      Everbright Bank of China, due January 2008ranging
                      between January to August 2007,restricted
                      cash required of 30% of loan amount,paid
                      by Long Men Steel Group,guaranteed
                      by Long Men Steel Group.
                  
                  
                  2,147,740
                  
                  
                  -Hua
                      Xia Bank, due date ranging between April and October 2007,restricted
                      cash required of 50% of loan amount,paid
                      by Long Men Steel Group,guaranteed
                      by Long Men Steel Group.
                  
                  
                  5,336,000
                  
                  
                  -ShangHai
                      Pudong Development Bank, various amounts, due datesranging
                      between April to November 2007,restricted
                      cash required of 60% of loan amount,paid
                      by Long Men Steel Group,guaranteed
                      by Long Men Steel Group.
                  
                  
                  5,069,200
                  
                  
                  -ShangHai
                      PuFa Bank, due various dates from April to September 2007,restricted
                      cash required of 50% of loan balance,guaranteed
                      by Long Men Steel Group.
                  
                  
                  8,337,500
                  
                  
                  -Totals
                  
                  
                  32,763,040
                  
                  
                  -Grand
                      totals
                  
                  $
                  41,247,280
                  
                  $
                  8,153,520
  -23-
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
          30, 2007
 (UNAUDITED )
   Total
          interest expense net of capitalized interest for the nine months ended
          September
          30, 2007 and 2006 on all debt amounted to $4,284,413 and $1,531,447,
          respectively. Total interest expense for the three months ended September
          30,
          2007 and 2006 amounted to $1,994,274 and $537,928, respectively.
 
 **Note
          11 - Customer deposits**
 
 Customer
          deposits represent amounts advanced by customers on product orders. The
          product
          normally is shipped within six months after receipt of the advance payment
          and
          the related sale is recognized in accordance with the Company’s revenue
          recognition policy. As of September 30, 2007 and December 31, 2006 customer
          deposits including related parties deposits amounted to $50,909,808 and
          $1,093,602, respectively.
 
 **Note
          12 - Deposits due to sales representatives**
 
 Daqiuzhuang
          Metal and One of Long Men Joint Venture’s subsidiaries, Yuxin Trading, entered
          into agreements with various entities to act as the Company’s exclusive sales
          agent in a specified area. These exclusive sales agents must meet certain
          criteria and are required to deposit a certain amount of money with the
          Company.
          In return the sales agents receive exclusive sales rights to a specified
          area
          and discounted prices on products they order. These deposits bear no interest
          and are required to be returned to the sales agent once the agreement has
          been
          terminated. The Company had $1,795,297and $2,051,200 in deposits due to
          sales
          representatives outstanding as of September 30, 2007 and December 31, 2006,
          respectively.
 
 **Note
          13 - Other expenses and income, net**
 
 Other
          income and expense for the nine months ended September 30, 2007 and 2006
          consist
          of the following:
  September
                    30, 2007
                
                September
                    30, 2006Three
                    months
                
                Nine
                    months
                
                Three
                    months
                
                Nine
                    monthsended
                
                ended
                
                ended
                
                endedFinance
                    /Interest expense
                
                $
                4,276,092
                
                $
                6,673,942
                
                $
                657,697
                
                $
                1,880,668Interest
                    income
                
                
                (762,143
                )
                
                (851,608
                )
                
                (20,874
                )
                
                (154,584
                )Other
                    non-operating income
                
                
                (626,935
                )
                
                (1,606,312
                )
                
                (15,367
                )
                
                (408,240
                )Other
                    non-operating expense
                
                
                29,754
                
                
                162,564
                
                
                1,649
                
                
                52,954$
                2,916,768
                
                $
                4,378,586
                
                $
                623,105
                
                $
                1,370,798
  -24-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
 For
          the
          nine months and three months ended September 30, 2007, other non-operating
          income includes rental
          income totaling $1,175,760 and $391,920, respectively, which represents
          land use
          rights subleased to a related party for one year as discussed in note
          8.
 
 During
          2005, Daqiuzhuang Metal received an approval from the PRC local government
          for a
          two year income tax exemption and a three year 50% reduction in income
          tax
          rates. The
          local
          Chinese tax authority waived the previously accrued income tax accumulated
          prior
          to January 1, 2005 in the amount of $253,250 which was included as other
          non-operating income during the nine months ended September 30,
          2006.
 
 **Note
          14 - Private offering of redeemable stock**
 
 On
          September 18, 2005, the Company entered into a subscription agreement with
          certain investors to sell a total of 1,176,665 shares of common stock at
          $1.50
          per share for gross proceeds of $1,765,000, commissions totaled $158,849,
          leaving net proceeds of $1,606,151. In addition, two warrants are attached
          to
          each share of common stock and each warrant gives the warrant holder the
          right
          to purchase an additional share of common stock or a total of 2,353,330
          of
          common stock in the future. The warrants can be exercised on the second
          anniversary date at $2.50 per share and on the third anniversary date at
          $5.00
          per share. The number of shares attached to the warrants will be adjusted
          due to
          dividends and changes in the capital stock structure changes. At the option
          of
          the investors, the Company may be required to repurchase the 1,176,665
          shares of
          common stock 18 months after the closing date at a per share price of
          $1.95.
 
 In
          accordance with Accounting Principles Board Opinion No. 14, the Company
          determined the fair value of the detachable warrants issued with redeemable
          stock using the Black-Scholes option pricing model under the following
          assumptions: risk free interest rate of 3.85%, dividend yield of 0% and
          volatility of 11%. The estimated value of the warrants was zero .
 
 In
          accordance with SFAS 150, the Company recorded this stock issuance as a
          liability in the financial statements due to the mandatory redemption provision.
          The shares were recorded at fair value on the date of issuance, which was
          the
          net cash proceeds, plus any accrued interest up to March 31, 2007. The
          difference between the net proceeds, $1,606,151, and the redemption amount,
          $2,294,497, totaling $688,346, was accrued and amortized as interest expense
          through March 2007.
  As
          of
          September 30, 2007, put option on all the redeemable shares has expired
          and all
          the shares are reclassified into equity.
 
 **Note
          15 - Shareholders’ equity**
 
 On
          February 12, 2007, the Company issued to Aurelius Consulting Group, Inc.(known
          to us as RedChip Companies, Inc.) 18,000 shares of common stock as a portion
          of
          its compensation for investor relations services rendered in the amount
          of
          $23,742. Those shares were valued at the market price at the date of the
          agreement.
 
 -25-
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
          30, 2007
 (UNAUDITED )
   On
          September 1, 2007, as discussed in Note 14, 1,176,665 shares of redeemable
          stock
          were reclassified from liabilities to common stock upon expiration of the
          redemption feature.
 
 In
          September 2007, 2,120,000 shares of warrants were converted to common stock
          at
          $2.50 per share for total proceeds of $5,300,000 in cash.
 
 **Note
          16 - Retirement plan**
 
 Regulations
          in the People’s Republic of China require the Company to contribute to a defined
          contribution retirement plan for all employees. All Joint Venture employees
          are
          entitled to a retirement pension amount calculated based upon their salary
          at
          their date of retirement and their length of service in accordance with
          a
          government managed pension plan. The PRC government is responsible for
          the
          pension liability to the retired staff. It was the first year the Company
          was
          required to make contributions to the state retirement plan. The Company
          is
          required to contribute 20% of the employees’ monthly salary. Employees are
          required to contribute 7% of their salary to the plan. Total pension expense
          incurred by the Company amounted to $1,245,033 and $336,629
          for the nine months ended September 30, 2007 and 2006, respectively. Total
          pension expense incurred amounted to $978,524 and $179,451 for the three
          months
          ended September 30, 2007 and 2006, respectively.
  **Note
          17 - Statutory reserves**
 
 The
          laws
          and regulations of the People’s Republic of China require that before an
          enterprise distributes profits to its partners, it must first satisfy all
          tax
          liabilities, provide for losses in previous years, and make allocations,
          in
          proportions determined at the discretion of the board of directors, to
          the
          statutory reserves. The statutory reserves include the surplus reserve
          funds and
          the enterprise fund and t hese
          statutory reserves represent restricted retained earnings.
 
 Surplus
          reserve fund
 
 The
          Company is required to transfer 10% of its net income, as determined in
          accordance with the PRC accounting rules and regulations, to a statutory
          surplus
          reserve fund until such reserve balance reaches 50% of the Company’s registered
          capital.
 
 The
          transfer to this reserve must be made before distribution of any dividend
          to
          shareholders. For
          the
          nine months ended September 30, 2007 and
          2006,
          the Company did not transfer any fund to this reserve. The surplus reserve
          fund
          is non-distributable other than during liquidation and can be used to fund
          previous years’ losses, if any, and may be utilized for business expansion or
          converted into share capital by issuing new shares to existing shareholders
          in
          proportion to their shareholding or by increasing the par value of the
          shares
          currently held by them, provided that the remaining reserve balance after
          such
          issue is not less than 25% of the registered capital.
 
 Enterprise
          fund
 
 The
          enterprise fund may be used to acquire plant and equipment or to increase
          the
          working capital to expend on production and operation of the business.
          No
          minimum contribution is required and the Company has not contributed to
          this
          fund.
 
 -26-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
 **Note
          18 - Business combinations**
 
 **Acquisition
          of 30% Minority Interest of Daqiuzhuang Metal**
 
 As
          previously described in Note 1, on
          May
          18, 2007, General Steel entered into a Purchase Agreement with Victory
          New
          Holdings to acquire the remaining 30% interest in Daqiuzhuang Metal. General
          Steel agreed to issue Victory New an aggregate of 3,092,899 shares of the
          Company’s Series A Preferred Stock which have a voting power of 30% of the
          combined voting power of the Company’s common and preferred stock for the life
          of the Company. As a result of the acquisition, the Company increased its
          equity
          interest in Daqiuzhuang Metal from 70% to 100%.
 
 Victory
          New Holdings is a newly formed entity under the control of the Company’s
          Chairman, CEO and majority shareholder Yu Zuo Sheng (aka Henry Yu). Victory
          New
          was legally owned by Mrs. Yang, Baoyin, Mr. Yu’s mother. Therefore, General
          Steel and Victory New were under common control. According to FASB
          Statement No. 141, "Business Combinations", a cquisition
          of minority interests from entities under common control should be accounted
          for
          using the purchase method. The
          Company engaged a third party to determine the fair value of the 3,092,899
          shares of the Company’s Series A Preferred Stock, which was $8,374,000. The
          premium over book value of $2,188,203 was accounted for as dividend distribution
          to the original shareholder of Victory New.
 
 **Joint
          venture agreement with Baotou Steel**
 
 As
          Mentioned in Note 1, on April 27, 2007, Daqiuzhuang Metal, a wholly owned
          subsidiary of the Company, and Baotou Iron and Steel Group Co., Ltd. (“Baotou
          Steel”) entered into an Amended and Restated Joint Venture Agreement (the
“Amended agreement”), amending the Joint Venture Agreement entered into on
          September 28, 2005 (“Original Joint Venture Agreement”). The Ame nded
          agreement has increased Daqiuzhuang Metal's ownership interest in the Joint
          Venture from 20% to 80%.
 
 The
          Amended agreement states that the initial capital of the joint venture
          company
          will be approximately $6,400,000, equal to the registered capital. Baotou
          Steel
          will contribute RMB10,000,000, or approximately $1,270,000, and Daqiuzhuang
          Metal will contribute RMB40,000,000, or approximately $5,130,000. Daqiuzhuang
          Metal and Baotou Steel each contributed 30% of their portion of the registered
          capital to commence the business. This joint venture company obtained its
          business license on  May
          25,
          2007. Operations began in the third quarter of 2007.
 
 The
          joint
          venture company’s name is Baotou Steel - General Steel Special Steel Pipe Joint
          Venture Company Limited, a limited liability company formed under the laws
          of
          the PRC. Baotou Steel Pipe Joint Venture is located at Kundulun District,
          Baotou
          City, Inner Mongolia, China. It produces and sells seamless and welded
          steel
          pipes.
 
 The
          ownership will be comprised of the following:
 %
                    OwnershipBaotou
                    Iron and Steel (Group) Co., Ltd.
                
                
                20
                %Daqiuzhuang
                    Metal Sheet Co., Ltd
                
                
                80
                %
   -27-
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
            30, 2007
 (UNAUDITED )
  **Shaanxi
          Long Men Iron and Steel Co., Ltd** **Joint venture**
 
 As
          described in Note 1, on June 15, 2007, General Steel Holdings Inc. and
          Shaanxi
          Long Men Iron and Steel (Group) Co., Ltd. (“Long Men Group”) signed the
          agreement to form Shaanxi Long Men Iron and Steel Co., Ltd. (“Long Men Joint
          Venture”). Long Men Group will contribute its operating facility and
          corresponding debt with an appraised net asset value of RMB 200 million.
          General
          Steel Holdings Inc. will contribute RMB 300 million to the Long Men Joint
          Venture through its subsidiaries which are Daqiuzhuang Metal and Qiu Steel
          Investment. Daqiuzhuang Metal and Qiu Steel Investment will each contribute
          RMB200,000,000 and RMB140,000,000 in cash, each holding 32% and 28% respectively
          of the Long Men Joint Venture and 60% collectively. Long Men Group will
          own 40%
          of the Long Men Joint Venture and General Steel Holdings Inc. through its
          subsidiaries will own approximately 60% of the Long Men Joint Venture.
          The Long
          Men Joint Venture obtained the business license on June 22, 2007.
 Assets
          acquired and debts assumed in the transaction are listed as below:
 
 Assumed
                    byItem
                
                Fair
                    Value
                
                Long
                    Men Joint VentureCurrent
                    assets
                
                $
                317,744,960
                
                $
                98,530,222Property,
                    plant, and equipment
                
                
                186,915,879
                
                
                164,811,374Intangible
                    assets
                
                
                20,128,972
                
                
                19,543,875Other
                    assets
                
                
                99,604,841Total
                    assets
                
                
                624,394,652
                
                
                282,885,471Current
                    liability
                
                
                473,168,746
                
                
                223,776,221Long
                    term liability
                
                
                38,246,111
                
                
                32,809,250Total
                    liabilities
                
                
                511,414,857
                
                
                256,585,471Net
                    assets
                
                $
                112,979,795
                
                $
                26,300,000
 
 Further
          on September 24, 2007, Long Men Joint Venture acquired 74.92% ownership
          interest
          in Environmental Protection Industry Development Co., Ltd. (“EPID)” for RMB
          18,080,930 and a 36% equity interest in Hualong Fire Retardant Materials
          Co.,
          Ltd., (“Hualong”) for RMB 3,287,980. The parties agreed to make the effective
          date of the transaction July 1, 2007. Due to EPID, Huanlong, and Long Men
          Joint
          Venture are under common management control, this transaction was recorded
          at
          the book value as of the effective date.
 
 **Pro
          Forma**
 
 The
          following unaudited pro forma condensed income statements for the nine
          months
          ended September 30, 2007 and year ended December 31, 2006 were prepared
          under
          generally accepted accounting principles and as if the Long Men Joint Venture
          transactions had occurred on January 1, 2006. The pro forma information
          may not
          be indicative of the results that actually would have occurred if the
          acquisition had been in effect from and on the dates indicated or which
          may be
          obtained in the future.
 
 -28-
  Pro
          Forma
          Condensed Income Statements:
 For
                    the nine months
                
                For
                    the yearended
                
                endedSeptember
                    30, 2007
                
                December
                    31, 2006(In
                    Million $)
                
                (In
                    Million $)Sales
                
                $
                988.2
                
                $
                829.6Cost
                    of sales
                
                
                901.4
                
                
                786.1Gross
                    Profit
                
                
                86.8
                
                
                43.5SG&A
                    expenses
                
                
                22.3
                
                
                15.6Other
                    expense
                
                
                18.2
                
                
                5.6Income
                    before income tax and minority interest
                
                
                46.3
                
                
                22.3Income
                    tax
                
                
                4.9
                
                
                2.7Net
                    income before minority interest
                
                
                41.4
                
                
                19.6Minority
                    interest
                
                
                14.9
                
                
                6.9Net
                    income
                
                $
                26.5
                
                $
                12.7
 
 **Note
          19 - Commitment and contingencies**
 
 The
          Company is obligated to contribute RMB40,000,000, or approximately $5,130,000,
          as registered capital of Baotou Steel Pipe Joint Venture. The Company has
          already made a capital contribution of approximately $1,734,200 as of September
          30, 2007, and the rest of the required registered capital will be invested
          within a year. The remainder of the investment will come from the operating
          cash
          flow of Daqiuzhuang Metal.
 
 Daqiuzhuang
          Metal provides dormitory facilities for its employees under a 10 year rental
          contract. The agreement began January 2006 and required full prepayment
          for the
          10 year period totaling $466,200. Total rental expenses for the nine months
          ended September 30, 2007 and 2006 amounted to
          $35,273 and $33,745, respectively. Total rental expensed for the three
          months
          ended September 30, 2007 and 2006 amounted to $12,925 and $11,313,
          respectively.
 
 Daqiuzhuang
          Metal has rented additional land for fifty years starting September 2005.
          The
          agreement was for Daqiuzhuang Metal to pay the first three years’ rent payments
          upon signing the agreement. The other forty years’ rent payment will be paid in
          full three years after the agreement date. Total amount of the rent over
          the 50
          years period is approximately $1, 044,728 (or RMB8,067,400). During the
          period,
          the lessor has to assist Daqiuzhuang Metal in obtaining land use right.
          Upon
          obtaining land use right, Daqiuzhuang Metal will pay the remaining balance
          before September 2008 as stated in the agreement.
 
 At
          September 30, 2007, total future minimum lease payments for the unpaid
          portion
          under an operating lease were as follows:
  For
                    the year ended December 31,
                
                Amount2007
                
                $
                -2008
                
                
                424,909Thereafter
                
                $
                -
 
 Total
          rental expense of the land use right for the nine months ended September
          30,
          2007 and 2006 amounted to $15,808 and $15,123, respectively.  -29-






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




**Forward-Looking
      Statements:**




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




**Company
      Overview**




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





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





Our
      mission is to acquire Chinese steel companies and increase their profitability
      and efficiencies with the infusion of applied western management practices,
      advanced production technologies and capital resources.




-30-





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





We
      presently have controlling interest in three steel subsidiary
      companies:





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





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




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











**Steel
      Operating Companies**





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




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




-31-




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





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




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





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




On
      April
      27, 2007, Daqiuzhuang Metal and Baotou Iron and Steel Group Co., Ltd. ("Baotou
      Steel") entered into an Amended and Restated Joint Venture Agreement (the
      "Agreement"), amending the Joint Venture Agreement entered into on September
      28,
      2005 ("Original Joint Venture Agreement"). The Amended and Restated Joint
      Venture Agreement has increased Daqiuzhuang Metal's ownership interest in the
      Joint Venture to 80%. The joint venture company’s name is Baotou Steel - General
      Steel Special Steel Pipe Joint Venture Company Limited (“Baotou Steel Pipe Joint
      Venture”). Baotou Steel will initially contribute RMB 10,000,000, or
      approximately US$1,270,000 taking 20% ownership interest in the Baotou Steel
      Pipe Joint Venture. Daqiuzhuang Metal will initially contribute RMB 40,000,000,
      or approximately US$5,130,000 taking 80% ownership interest in the Baotou Steel
      Pipe Joint Venture.





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





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




-32-





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





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





On
      June
      15, 2007, through two subsidiaries, Daqiuzhuang Metal and Tianjin Qiu Steel
      Investment Co., Ltd., we entered into a joint venture agreement with Shaanxi
      Longmen Iron & Steel Group Co., Ltd. (“Long Steel Group”) to form Shaanxi
      Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). Through our two
      subsidiaries, we invested approximately $39 million cash and collectively
      hold approximately 60% of the new joint venture.




Long
      Steel Group, located in Hancheng city, Shaanxi province, in China’s central
      region, was founded in 1958 and incorporated in 2002. In 2006, its reported
      sales revenue was $7.4 billion RMB million ($900 million). It is the largest
      steel company in the province. It has a total annual production capacity of
      2.5
      million tons. Last year, the Chinese National Statistics Bureau ranked it among
      the top 50 steel companies in China in terms of output.





Long
      Steel Group operates as a fully-integrated steel production facility, which
      means it is capable of taking iron-ore and other raw materials, processing
      them
      into crude steel and then processing the crude steel into finished steel
      products. Less than 10% of steel companies in China have fully-integrated steel
      production capacity.





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





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





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





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


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




-33-




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


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




·
            Shaanxi
                Yuteng Commercial Trading Co., Ltd.





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





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





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





An
      established regional network of 27 agents and 2 sales offices sell the joint
      venture’s products. Agents account for approximately 66% of sales. All products
      sell under the registered brand name of “Yulong” which enjoys strong regional
      recognition and awareness. Rebar and billet products carry ISO 9001 and 9002
      certification and many other products have won national quality awards. Products
      produced at the facility have been used in the construction of the Yangtze
      River
      Three Gorges Dam, Xi’an International Airport, the Xi Han, Xi Tong and Xi Da
      provincial expressways, and are currently being used in the construction of
      the
      Xi’an city subway system.





On
      September 24, 2007, Longmen Joint Venture acquired controlling interest in
      two
      subsidiaries of the Long Steel Group. Both acquisitions were accretive to
      earnings.





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




-34-




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





**Stock
      listing on American Stock Exchange**





General
      Steel Holdings, Inc. obtained listing approval from American Stock Exchange
      (AMEX) on September 28, 2007. The stock officially started to trade on AMEX
      on
      October 3, 2007 under the ticker symbol, “GSI”.





**Operating
      Results**





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





Owing
      to
      the second quarter start for both Baotou Steel Pipe Joint Venture and Longmen
      Joint Venture, the third quarter is the first quarter reflecting all three
      of
      our subsidiaries operating results for a full quarter.





***Sales
      Revenue and Gross Profit***





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





Overall,
      net sales for the three months ended September 30, 2007 were approximately
      $345.4 million compared to $47.0 million in the same period of 2006, an increase
      of 636%.





At
      Daqiuzhuang Metal, shipments for the three months ended September 30, 2007
      decreased 37%
      to
      69,245 tons from 109,912 tons in the same period last year. This decrease is
      a
      result from shifting the product mix to a higher percentage of silicon sheet
      which takes longer to process than regular hot-rolled carbon sheet. Average
      selling price per ton including sale of scrap for the three months ended
      September 30, 2007 increased to $582 from $427 in the same period of 2006.
      The
      increase in sales price mainly resulted from the overall steel market rebound
      and increased amount of silicon sheets which are sold at a higher price compared
      to carbon steel sheets.




-35-





At
      Baotou
      Steel Pipe Joint Venture, shipments for the three months ended September 30,
      2007 were 8,295 tons. Averag e
      selling
      price per ton including sale of scrap for the three months ended September
      30,
      2007 was $451.





At
      our Longmen
      Joint Venture, shipments for the three months ended September 30, 2007 were
      736,916 tons. The average selling price per ton for the three months ended
      September 30, 2007 was $409.





The
      following table displays sales and steel shipment data for General Steel by
      operating unit for the three months ended September 30, 2007 and 2006,
      respectively.




3rd
                Quarter 2007
            
            3rd
                Quarter 2006Operating
                Unit
            
            Shipment
                Volume
            
            Sales
                Amount
            
            Shipment
                Volume
            
            Sales
                Amount(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            69,245
            
            $
            40,315,887
            
            
            109,912
            
            $
            46,957,797Baotou
                Steel Pipe Joint Venture
            (a)
            
            8,295
            
            
            3,747,359
            
            
            -
            
            
            -Longmen
                Joint Venture
            (b)
            
            736,916
            
            
            301,321,091
            
            
            -
            
            
            -Totals
            
            
            814,456
            
            $
            345,384,337
            
            
            109,912
            
            $
            46,957,797





(a)
      Sales
      and shipment data reflect 100% of the Baotou Steel Pipe Joint
      Venture for the
      three months ended September 30, 2007 .
      General
      Steel, through its subsidiary, owns 80% of the Baotou Steel Pipe Joint Venture.
      The minority interest is removed after profits.





(b)
      Sales
      and shipment data reflect 100% of the Longmen Joint Venture for the
      three months ended September 30, 2007 .
      General
      Steel, through its subsidiaries, owns 60% of the Longmen Joint Venture. The
      minority interest is removed after profits.





Overall,
      gross profit for the three months ended September 30, 2007 was
      approximat ely
      $25.89 million,
      an increase of 1,567% or $24.34 million up from $1.55 million for the same
      period last year. Gross profit margin increased to 7.5% from 3.3% for the three
      months ended September 30, 2007 and 2006, respectively.





At
      Daqiuzhuang Metal, gross profit margin went down from 3.3%
      to
      2.25% mai nly
      due
      to increase in raw materials price. The price of iron-ore which is used to
      produce our feedstock at Daqiuzhuang Metal increased in the 3 rd quarter
      compared to the same period last year.





At
      our
      Baotou Steel Pipe Joint Venture, gross profit was $139,428 and gross profit
      margin was 3.72% for the three months ended in
      September 30, 2007.





At
      our
      Longmen Joint Venture, gross profit w as
      $24.8
      million an d
      gross
      profit margin was 8.24%
      for the
      three months ended September 30, 2007. Geographic location gives our Longmen
      Joint Venture a unique competitive advantage over its competitors. Longmen
      Joint
      Venture is the largest integrated steel company in Shaanxi Province and has
      no
      major competitors within a 250km radius. It uses iron-ore and coke purchased
      regionally as primary raw materials to produce pig iron, crude steel and
      finished steel products. Its fully-integrated production ability and regionally
      sourced raw materials are key factors contributing to the high gross profit
      margin.




-36-





The
      following table displays gross profit and gross margin data for General Steel
      by
      operating unit for the three months ended September 30, 2007 and 2006,
      respectively.




3rd
                Quarter 2007
            
            3rd
                Quarter 2006Operating
                Unit
            
            Gross
                Profit
            
            Gross
                Margin
            
            Gross
                Profit
            
            Gross
                MarginDaqiuzhuang
                Metal
            
            $
            910,749
            
            
            2.25
            %
            $
            1,553,347
            
            
            3.3
            %Baotou
                Steel Pipe Joint Venture
            (c)
            
            139,428
            
            
            3.72
            %
            
            -
            
            
            -Longmen
                Joint Venture
            (d)
            
            24,839,574
            
            
            8.24
            %
            
            -
            
            
            -Totals
            
            $
            25,889,751
            
            
            7.5
            %
            $
            1,553,347
            
            
            3.3
            %





(c)
      Gross
      profit and gross margin data reflect 100% of operations from Baotou Steel Pipe
      Joint Venture for the three
      months ended September 30, 2007. General
      Steel, through its subsidiary, owns 80% of the Baotou Steel Pipe Joint Venture.
      Minority interest is removed after profits.





(d)
      Gross
      profit and gross margin data reflect 100% of operations from Longmen Joint
      Venture for the three months ended September 30, 2007. General Steel, through
      its subsidiaries, owns 60% of the Longmen Joint Venture. Minority interest
      is
      removed after profits.





***Nine
      months ended September 30, 2007 compared with nine months ended September 30,
      2006***





Overall,
      net sales for the nine months ended September 30, 2007 were approximately $504.2
      million compared to $97 million in the same period of 2006, an increase of
      420%.





At
      Daqiuzhuang Metal, shipments for the nine months ended September 30, 2007
      climbed 11%
      t o
      254,412
      tons from 229,819 tons in the same period last year. The rise reflects an
      increase in market development as the 16 new distributors added in 2006 gained
      further traction in their respective markets, and an increase in productivity
      as
      our four new production lines, installed March 2006, reached full operating
      efficiencies by the end of 2006. Average selling price per ton including sale
      of
      scrap for the nine months ended September 30, 2007 increased to $477 from $422
      in the same period of 2006. The increase in sales price mainly resulted from
      the
      overall steel market rebound and producing more silicon sheets in the product
      mix which are sold at a higher price compared to hot rolled carbon
      sheets.




-37-





At
      our
      Baotou Steel Pipe Joint Venture, shipments representing July through September
      operations in the nine months period ended September 30, 2007 were 8,295 tons.
      Average selling price per ton was $451.





At
      our
      Longmen Joint Venture, shipments representing June through September operations
      in the nine months period ended September 30, 2007 were 944,489 tons. Average
      selling price per ton was $401.





The
      following table displays sales and steel shipment data for General Steel by
      operating unit for the nine months ended September 30, 2007 and 2006,
      respectively.




Nine
                Months 2007
            
            Nine
                Months 2006Operating
                Unit
            
            Shipment
                Volume
            
            Sales
                Amount
            
            Shipment
                Volume
            
            Sales
                Amount(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            254,412
            
            $
            121,440,779
            
            
            229,819
            
            $
            96,998,657Baotou
                Steel Pipe Joint Venture
            (e)
            
            8,295
            
            
            3,747,359
            
            
            -
            
            
            -Longmen
                Joint Venture
            (f)
            
            944,489
            
            
            379,058,914
            
            
            -
            
            
            -Totals
            
            
            1,207,196
            
            $
            504,247,052
            
            
            229,819
            
            $
            96,998,657





(e)
      Sales
      and shipment data from Baotou Steel Pipe Joint Venture are for the months from
      July through September only. Data reflects 100% of the Baotou Steel Pipe Joint
      Venture. General Steel, through its subsidiary, owns 80% of the Baotou Steel
      Pipe Joint Venture. The minority interest is removed after profits.





(f) Sales
      and
      shipment data from Longmen Joint Venture are for the months from June through
      September only. Data reflects 100% of the Longmen Joint Venture. General Steel,
      through its subsidiaries, owns 60% of the Longmen Joint Venture. The minority
      interest is removed after profits.





Gross
      profit for the nine months ended September 30, 2007 was approximately $35.7
      million, an increase of 692% or $31.2 million from $4.5 million for the same
      period last year. Gross profit margin increased to 7.09% from 4.65% for the
      nine
      months ended September 30, 2007 and 2006.




-38-





The
      following table displays gross profit and gross margin data for General Steel
      by
      operating unit for the nine months ended September 30, 2007 and 2006,
      respectively.




Nine
                Months 2007
            
            Nine
                Months 2006Operating
                Unit
            
            Gross
                Profit
            
            Gross
                Margin
            
            Gross
                Profit
            
            Gross
                MarginDaqiuzhuang
                Metal
            
            $
            3,628,017
            
            
            3.35
            %
            $
            4,512,044
            
            
            4.65
            %Baotou
                Steel Pipe Joint Venture
            (g)
            
            139,428
            
            
            3.72
            %
            
            -
            
            
            -Longmen
                Joint Venture
            (h)
            
            31,968,679
            
            
            8.43
            %
            
            -
            
            
            -Totals
            
            $
            35,736,124
            
            
            7.09
            %
            $
            4,512,044
            
            
            4.65
            %




(g)
            Gross
                profit and gross margin data from Baotou Steel Pipe Joint Venture
                are for
                the months from July through September only. Data reflects 100% of
                Baotou
                Steel Pipe Joint Venture. General Steel, through its subsidiary,
                owns 80%
                of the Baotou Steel Pipe Joint Venture. The minority interest is
                removed
                after profits.





(h)
            Gross
                profit and gross margin data from Longmen Joint Venture are for the
                months
                from June through September only. Data reflects 100% of the Longmen
                Joint
                Venture. General Steel, through its subsidiaries, owns 60% of the
                Longmen
                Joint Venture. The minority interest is removed after
                profits.





***Cost
      of Sales***





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





Cost
      of
      sales principally consists of the cost of raw materials, labor, utilities,
      manufacturing costs, manufacturing related depreciation and other fixed costs.
      Overall, cost of sales increased to $319.5 million for the three months ended
      September 30, 2007 from $45.4 million for the same period of 2006.





At
      Daqiuzhuang Metal, average cost per ton was $569 and $413, respectively for
      the
      three months ended September 30, 2007 and 2006. Cost of sales went up mainly
      due
      to the price increase in iron-ore which is a raw material in the steel strip
      coil we buy for processing. We also shifted more of our product mix to silicon
      steel sheets which have higher feedstock and processing costs than carbon steel
      sheets.





At
      our
      Baotou Steel Pipe Joint Venture, average cost per ton during the three months
      ended September 30, 2007 was $435.





At
      our
      Longmen Joint Venture, average cost per ton during the three months ended
      September 30, 2007 was $375.




-39-





The
      following table displays cost of sales and steel shipment data for General
      Steel
      by operating unit for the three months ended September 30, 2007 and 2006,
      respectively.




3rd
                Quarter 2007
            
            3rd
                Quarter 2006Operating
                Unit
            
            Shipment
                Volume
            
            Cost
                of Sales
            
            Shipment
                Volume
            
            Cost
                of Sales(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            69,245
            
            $
            39,405,138
            
            
            109,912
            
            $
            45,404,450Baotou
                Steel Pipe Joint Venture
            (i)
            
            8,295
            
            
            3,607,931
            
            
            -
            
            
            -Longmen
                Joint Venture
            (j)
            
            736,916
            
            
            276,481,517
            
            
            -
            
            
            -Totals
            
            
            814,456
            
            $
            319,494,586
            
            
            109,912
            
            $
            45,404,450




(i)
      Cost
      of sales and shipment volume data reflect 100% of operations of Baotou Steel
      Pipe Joint Venture for the three months ended September 30, 2007. General Steel,
      through its subsidiary, owns 80% of the Baotou Steel Pipe Joint Venture.





(j)
      Cost
      of sales and shipment volume data reflect 100% of operations of Longmen Joint
      Venture for the three months ended September 30, 2007. General Steel, through
      its subsidiaries, owns 60% of the Longmen Joint Venture.





***Nine
      months ended September 30, 2007 compared with nine months ended September 30,
      2006***





Overall
      cost of sales increased to $468.5 million for the nine months ended September
      30, 2007 from $92.5 million for the same period of 2006.





At
      Daqiuzhuang Metal, average cost per ton was $463 and $402, respectively for
      the
      nine months ended September 30, 2007 and 2006. Cost of sales went up mainly
      due
      to the price increase in raw materials. We also shifted more of our product
      mix
      to silicon steel sheets which have higher feedstock and processing costs than
      carbon steel sheets.





At
      our
      Baotou Steel Pipe Joint Venture, average cost per ton was $435, representing
      July through September operations in the nine month period ended September
      30,
      2007.





At
      our
      Longmen Joint Venture, average cost per ton was $367, representing June through
      September operations in the nine month period ended September 30,
      2007.





The
      following table displays cost of sales and steel shipment data for General
      Steel
      by operating unit for the nine months ended September 30, 2007 and 2006,
      respectively.




Nine
                Months 2007
            
            Nine
                Months 2006Operating
                Unit
            
            Shipment
                Volume
            
            Cost
                of Sales
            
            Shipment
                Volume
            
            Cost
                of Sales(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            254,412
            
            $
            117,812,762
            
            
            229,819
            
            $
            92,486,613Baotou
                Steel Pipe Joint Venture
            (k)
            
            8,295
            
            
            3,607,931
            
            
            -
            
            
            -Longmen
                Joint Venture
            (l)
            
            944,489
            
            
            347,090,235
            
            
            -
            
            
            -Totals
            
            
            1,207,196
            
            $
            468,510,928
            
            
            229,819
            
            $
            92,486,613




-40-




(k)
            Cost
                of sales and shipment volume data from Baotou Steel Pipe Joint Venture
                are
                for the months from July through September only. Data reflects 100%
                of the
                Baotou Steel Pipe Joint Venture. General Steel, through its subsidiary,
                owns 80% of the Baotou Steel Pipe Joint Venture. The minority interest
                is
                removed after profits.





(l)
            Cost
                of sales and shipment volume data from Longmen Joint Venture are
                for the
                months from June through September only. Data reflects 100% of the
                Longmen
                Joint Venture. General Steel, through its subsidiaries, owns 60%
                of the
                Baotou Steel Pipe Joint Venture. The minority interest is removed
                after
                profits.





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





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





Selling,
      general and administrative expenses, such as executive compensation, office
      expenses, legal and accounting charges, travel charges, and various taxes were
      $6.8 million for the three months ended September 30, 2007, compared to $0.61
      million for the same period of 2006. SG&A expense as a percentage of sales
      revenue was 1.97% for the three months ended September 30, 2007 as opposed
      to
      1.29% for the same period last year. This increase is due to additional SG&A
      expense at the new Longmen Joint Venture which is about $5.7
      million. As a
      point
      of reference, Longmen Joint Venture employs approximately 4,000 full-time
      employees. Another component of the increase came from the legal and accounting
      and other professional expenses for the public listed company mainly associated
      with our newly added joint ventures.





***Nine
      months ended September 30, 2007 compared with nine months ended September 30,
      2006***





Selling,
      general and administrative expenses were $10.27 million for the nine months
      ended September 30, 2007, compared to $2.16 million for the same period of
      2006.
      This increase is largely attributable to the operations of the Longmen Joint
      Venture, which alone accounted for approximately $7.4 million in SG&A
      expense since June.





***Other
      income (expense)***





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





Other
      income (expense) for the three months ended September 30, 2007 consisted mainly
      of finance charges, interest income and other non-operating income (expense).
      Interest expense was $4.28 million for the three months ended September 30,
      2007, compared to $0.65 million for the same period in 2006. This increase
      is
      attributable to the $80.7 million outstanding bank loans at Longmen Joint
      Venture as of September 30, 2007. Total outstanding short term loans
      increased to $113.4 million from $30.3 million as of September 30, 2007 and
      2006, respectively.





***Nine
      months ended September 30, 2007 compared with nine months ended September 30,
      2006***





Interest
      expense was $6.67 million for the nine months ended September 30, 2007, a 227%
      increase from $1.88 million for the same period in 2006. The increase is traced
      to an increase in short term borrowings largely associated with the Longmen
      Joint Venture operations.





***Net
      income***





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





Overall,
      net income was $8.0 million for the three months ended September 30, 2007
      compared to $0.18 million for the same period of 2006, a 4,350% increase. This
      is a result of our recently established joint ventures with Longmen Iron and
      Steel Group and Baotou Iron and Steel Group.




-41-





Longmen
      Joint Venture and Baotou Steel Pipe Joint Venture respectively made
      approximately $14 million and $68,000 before minority interest for the three
      months ended September 30, 2007.





***Nine
      months ended September 30, 2007 compared with nine months ended September 30,
      2006***





Net
      income was $10.4 million for the nine months ended September 30, 2007 compared
      to $0.52 million for the same period of 2006, a 1,899% increase.





***Earnings
      per share***





Earnings
      per share was $0.25 and $0.33 for the three and nine months ended September
      30,
      2007. Earnings per share are calculated as follows:




Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30, 2007
            
            September
                30, 2006
            
            September
                30, 2007
            
            September
                30, 2006Net
                income
            
            $
            8,000,495
            
            $
            179,797
            
            
            10,368,661
            
            $
            518,800Weighted-average
                ofcommon
                stock o/s
            
            
            32,343,332
            
            
            31,250,000
            
            
            31,704,912
            
            
            31,250,000Earnings
                per share
            
            $
            0.25
            
            $
            0.006
            
            
            0.33
            
            $
            0.017





-42-




***Income
      taxes***





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





Pursuant
      to the relevant laws and regulations in the People's Republic of China,
      Daqiuzhuang Metal, as a foreign owned enterprise in the People's Republic of
      China, is entitled to an exemption from the PRC enterprise income tax for two
      years commencing from its first profitable year. Daqiuzhuang Metal has been
      approved for this tax benefit and will be exempt from income tax for the years
      ended December 31, 2005 and 2006 and 50% income tax reduction for the years
      ended December 31, 2007, 2008 and 2009. The current effective income tax rate
      is
      12%.





The
      effective income tax rate at our Baotou Steel Pipe Joint Venture is
      33%.





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





For
      the
      three months ended September 30, 2007, we had a tax expense of $2.02 million.
      For the nine months ended September 30, 2007, we had a tax expense of $3.36
      million.





***Minority
      Interest***





Minority
      interest mainly represents Long Steel Group’s 40% interest in Longmen Joint
      Venture and Baotou Iron and Steel Group’s 20% interest in Baotou Steel Pipe
      Joint Venture.





***Accounts
      Receivable***





Accounts
      receivable and accounts receivable-related party were $31 million as of
      September 30, 2007 compared to $17.1 million on December 31, 2006.





We
      recognize the revenue when we ship out products and pass the titles of the
      products to our customers and distributors. At Daqiuzhuang Metal, we extended
      short-term credit to our customers and distributors with good reputations and
      long-term business relationships. We have not experienced any bad debt in these
      accounts. Also we review our accounts receivable on a regular basis to determine
      if the bad debt allowance is adequate and adjust the allowance amount if needed.
      We believe the accounts receivable amount is collectible. Never-the-less, to
      be
      conservative and prudent in our management practice, as of September 30, 2007,
      we reserved $142,694 for bad debt allowance based on our reasonable
      estimate.




-43-





***Liquidity
      and capital resources***




Due
      to
      the strong market demand for our products and our new Longmen Joint Venture,
      we
      plan to maintain a higher-than-average debt to equity ratio to better position
      ourselves in this fast growing market. The bank loans are considered short
      term
      for the purpose of the preparation of the financial statements though they
      are
      renewable with the banks every year. Cash balance amounted to $6.78 million
      and
      $6.83 million as of September 30, 2007 and December 31, 2006,
      respectively.





***Operating
      activities***




Net
      cash
      used by operating activities for the nine months ended September 30, 2007 was
      $10.6 million compared to $7.5 million used in the same period of 2006. This
      change was mainly due to the combination of the following factors:





Our
      net
      income for the nine months ended September 30, 2007 was $10.4 million, an
      increase of $9.9 million compared to $0.5 million in the same period of 2006.
      Accounts receivable and accounts receivable-related party increased by $3.5
      million compared to the beginning of the year. Notes receivable and other
      receivable in total also increased by approximately $9.9 million compared to
      the
      beginning of the year. Inventory and advances on inventory purchases increased
      by $79.9 million compared to the beginning of the year.





Accounts
      payable, other payables, accrued liabilities, customer deposits and tax payable
      went up by $58.7 million compared to the beginning of the year. The increase
      in
      these accounts helped the company generate positive cash flows from operating
      activities.





***Investing
      activities***




Net
      cash
      used by investing activities was $5.7 million for the nine months ended
      September 30, 2007 compared to $0.94 million used in the same period of 2006.
      This increase in cash used in investing activities mainly resulted from a $12.2
      million on equipment purchase.





***Financing
      activities***




Net
      cash
      provided by financing activities was $16.2 million for the nine months ended
      September 30, 2007 compared to $3.7 million in the same period of 2006. This
      was
      mainly due to a bridge loan from our Chairman to consummate our Longmen Joint
      Venture.




-44-





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





**Longmen
      Joint Venture:**





Since
      2002, our joint venture partner, Long Steel Group, has invested RMB 580 million
      (approximate $76 million) in a series of comprehensive projects to reduce its
      waste emissions of coal gas, water, and solid waste. In 2005 it received ISO
      14001 certification for its overall environmental management system. Long Steel
      Group has received several awards from the Shaanxi provincial government for
      its
      increasing effort in environmental protection.





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





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





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





**Daqiuzhuang
      Metal:**





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





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





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




-45-





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





***Off-balance
      sheet arrangements***




There
      are
      currently no off-balance sheet arrangements.





***New
      Accounting Pronouncements***





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





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





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





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


In
        June
        2007, the
        FASB
        issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
        Payments for Goods or Services Received for use in Future Research and
        Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable
        advance payments for goods or services that used or rendered for research
        and
        development activities should be expensed when the advance payment is made
        or
        when the research and development activity has been performed. Management
        is
        currently evaluating the effect of this pronouncement on the Company’s financial
        statements.


ITEM
      3.
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





**Commodity
      Price Risk and Related Risks**





In
      the
      normal course of its business, General Steel is exposed to market risk or price
      fluctuations related to the purchase, production or sale of steel products
      over
      which we have little or no control. General Steel does not use any derivative
      commodity instruments to manage the price risk. General Steel’s market risk
      strategy has generally been to obtain competitive prices for its products and
      allow operating results to reflect market price movements dictated by supply
      and
      demand. Based upon an assumed 2007 annual production capacity of 2 million
      tons,
      a $1 change in the annual average price would change annual pre-tax profits
      by
      approximately $2 million.




-46-





**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 units, Daqiuzhuang Metal, Longmen Joint Venture, and Baotou
      Steel Pipe Joint Venture are all located in China. They produce and sell all
      of
      their steel products domestically. They are 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
      1 0
      percent
      decrease in the average Renminbi exchange rate would result in a $15.8 million
      charge to
      income
      for the nine months ended September 30, 2007.





ITEM
      4.
      CONTROLS AND PROCEDURES





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





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





**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





There
      have been no legal proceedings issued against or commenced by General
      Steel.




-47-





**ITEM
      1A. RISK FACTORS**





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





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





Criteria
      for our customers include:





·
            Quality;


·
            Price/cost
                competitiveness;




·
            System
                and product performance;


·
            Reliability
                and timeliness of delivery;





·
            New
                product and technology development capability;


·
            Excellence
                and flexibility in operations;





·
            Degree
                of global and local presence;


·
            Effectiveness
                of customer service; and




·
            Overall
                management capability.





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





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


·
            At
                Longmen Joint Venture: Shanxi Haixin Iron and Steel Co., Ltd. and
                Gansu
                Jiuquan Iron and Steel Co., Ltd.·
            At
                Baotou Steel Pipe Joint Venture:  Tianjin Bo Ai Steel Pipe Co., Hebei
                Cangzhou Zhong Yuan Steel Pipe Co., Shanxi Taiyuan Guo Lian Steel
                Pipe
                Co.




-48-




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





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





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





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


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




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


·
            Maintain
                adequate control of our expenses;




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


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





Our
      business, business prospects and results of operations will be affected if
      we
      are not successful in addressing any or all of these risks and
      difficulties.




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





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




-49-





·
            Our
                financial condition and results of operations,


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




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





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





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





***If
      we fail to maintain an effective system of internal controls, we may not be
      able
      to accurately report our financial results or prevent
      fraud.***





We
      will
      be subject to reporting obligations under the U.S. securities laws. The
      Securities and Exchange Commission (“SEC”), as required by Section 404 of
      the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), adopted rules requiring
      every public company to include a management report on such company’s internal
      controls over financial reporting in its annual report, which contains
      management’s assessment of the effectiveness of the company’s internal controls
      over financial reporting. In addition, an independent registered public
      accounting firm must attest to and report on management’s assessment of the
      effectiveness of the company’s internal controls over financial reporting. These
      requirements will first apply to our annual report on Form 10-K for the fiscal
      year ending December 31, 2007. Our management may conclude that our
      internal controls over our financial reporting are not effective. Moreover,
      even
      if our management concludes that our internal controls over financial reporting
      are effective, our independent registered public accounting firm may still
      decline to attest to our management’s assessment or may issue a report that is
      qualified if it is not satisfied with our controls or the level at which our
      controls are documented, designed, operated, or reviewed, or if it interprets
      the relevant requirements differently from us. Our reporting obligations as
      a
      public company will place a significant strain on our management, operational,
      and financial resources and systems for the foreseeable future. Effective
      internal controls, particularly those related to revenue recognition, are
      necessary for us to produce reliable financial reports and are important to
      help
      prevent fraud. As a result, our failure to achieve and maintain effective
      internal controls over financial reporting could result in the loss of investor
      confidence in the reliability of our financial statements, which in turn could
      harm our business and negatively impact the trading price of our stock.
      Furthermore, we anticipate that we will incur considerable costs and use
      significant management time and other resources in an effort to comply with
      Section 404 and other requirements of the Sarbanes-Oxley Act.




-50-




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





Our
      revenue is dependent, in large part, on significant contracts with a limited
      number of large customers. For the first nine months of 2007, approximately
      58%
      of our sales were to five customers **.** We
      believe that revenue derived from our current and future large customers will
      continue to represent a significant portion of our total revenue. Our inability
      to continue to secure and maintain a sufficient number of large contracts or
      the
      loss of, or significant reduction in purchases by, one or more of our major
      customers would have the effect of reducing our revenues and profitability.





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





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





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





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





According
      to the survey conducted by China Iron and Steel Association, there are more
      than
      1,500 steel companies in China. Among those, only 15 companies have over 5
      million tons of production capacity. Each steel company has its own production
      plan. The Chinese government posted a new guidance on steel industry to
      encourage consolidation within the fragmented steel sector to mitigate problems
      of low-end repetitive production and inefficient use of resources. The current
      situation of overproduction may not be solved by these measures posted by the
      Chinese government. If the current state of overproduction continues, our
      product shipments could decline, our inventory could build up and eventually
      we
      may be required to decrease our sales price, which may eventually decrease
      our
      profitability.




-51-





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





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





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





***We
      depend on acquiring companies to fulfill our growth
      plan***





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





***We
      depend on bank financing for our working capital
      needs.***





We
      have
      various financing facilities amounting to approximately US $31.9 million, of
      which all are due on demand or within one year **.** So
      far,
      we have not experienced any difficulties in repaying such financing facilities.
      However, we may in the future encounter difficulties to repay or refinance
      such
      loans on time and may face severe difficulties in our operations and financial
      position.




-52-





***We
      rely on Yu, Zuo Sheng for important business
      leadership***





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





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





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





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





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





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




-53-





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





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




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





While
      the
      Chinese economy has experienced rapid growth, such growth has been uneven among
      various sectors of the economy and in different geographical areas of the
      country. Rapid economic growth can lead to growth in the money supply and rising
      inflation. If prices for our products rise at a rate that is insufficient to
      compensate for the rise in the costs of supplies, it may have an adverse effect
      on profitability. In order to control inflation in the past, the Chinese
      government has imposed controls on bank credits, limits on loans for fixed
      assets and restrictions on state bank lending. Such an austerity policy can
      lead
      to a slowing of economic growth. In October 2004, the People’s Bank of China,
      China’s central bank, raised interest rates for the first time in nearly a
      decade and indicated in a statement that the measure was prompted by
      inflationary concerns in the Chinese economy. Repeated increases in interest
      rates by the central bank will likely slow economic activity in China which
      could, in turn, materially increase our costs and also reduce demand for our
      products.




-54-





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





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





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





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





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





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




-55-





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





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





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





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





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




-56-





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





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





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





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





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





**Risks
      Related to Our Common Stock**




-57-





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





Our
      officers, directors and affiliates beneficially own approximately 70% of our
      common stock. Mr. Yu, Zuo Sheng our major shareholder, beneficially owns
      approximately 69% of our common stock. Mr. Yu can effectively control us and
      his
      interests may differ from other stockholders.




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





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





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





-58-





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





The
      market price of our common stock could fluctuate substantially due to a variety
      of factors, including market perception of our ability to achieve our planned
      growth, quarterly operating results of other steel makers, trading volume in
      our
      common stock, changes in general conditions in the economy and the financial
      markets or other developments affecting our competitors or us.





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




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





None
      for
      the period covered by this report.





ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES





None
      for
      the period covered by this report.





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





None
      for
      the period covered by this report.





ITEM
      5.
      OTHER INFORMATION





None
      for
      the period covered by this report.




-59-





ITEM
      6.
      EXHIBITS





(a)
      Exhibits





31.1
            Certification
                of Chief Executive Officer;




31.2
            Certification
                of Chief Financial Officer;




32.1
            Certification
                of Chief Executive Officer;




32.2
            Certification
                of Chief Financial Officer.




SIGNATURES





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




General
                Steel Holdings, Inc.(Registrant)Date:
                November 14, 2007
            By:
            /s/ Zuo
              Sheng
              YuZuo
                Sheng YuChief
                Executive Officer and Chairman


Date:
                November 14, 2007
            By:
            /s/
                John ChenJohn
                  ChenDirector
                  and Chief Financial Officer




-60-