UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549








FORM
      10-Q/A





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





For
      the
      quarterly period ended June 30, 2006





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





For
      the
      transition period from __________ to __________





GENERAL
      STEEL HOLDINGS, INC.


(Name
      of
      Issuer in Its Charter)




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





Incorp
      Services Inc.


6075
      S.
      Eastern Avenue


Suite
      1,
      Las Vegas, Nevada, 89119-3146


Tel:
      (702) 866-2500


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





+
      86 (10)
      68000346


(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 o No
o





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





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





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




The
      number of shares of Common Stock outstanding on August 11, 2006 was
      32,426,665.





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







**Amendment
      No. 1 to the Quarterly Report on Form 10-Q**


**For
      the Quarterly Period Ended June 30, 2006**





General
      Steel Holdings, Inc. (the “Company”) is filing this Amendment No. 1 on
      Form 10-Q/A (this “Amendment”) to its Quarterly Report on Form 10-Q
      for the quarterly period ended June 30, 2006, which was originally filed on
      August 14, 2006 (the “Original Filing”), to amend and restate in its entirety
      Part I. Item 1, Part Il Item 2 and Part I. Item 4 of the Original Filing.





Pursuant
      to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this
      Amendment amends and restates in its entirety the Original Filing and contains
      new certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley
      Act of 2002. This Amendment contains only the sections and exhibits to the
      Original Filing that are being amended and restated, and those unaffected parts
      or exhibits are not included herein. This Amendment continues to speak as of
      the
      date of the Original Filing, and the Company has not updated the disclosure
      contained herein to reflect events that have occurred since the filing of the
      Original Filing. Accordingly, this Amendment should be read in conjunction
      with
      the Company’s other filings, if any, made with the United States Securities and
      Exchange Commission subsequent to the filing of the Original Filing, including
      the amendments to those filings, if any.





2


GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIES


**PART
      I. FINANCIAL INFORMATION**




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 June 30, 2006 were
      translated at 7.99 RMB to $1.00 USD as compared to 8.26 RMB at June 30,
      2005.  The equity accounts were stated at their historical rate.  The
      average translation rate of 8.03 RMB for the six months ended June 30, 2006
      was
      applied to income statement accounts.





ITEM
      1.
      FINANCIAL STATEMENTS





CONSOLIDATED
                BALANCE SHEETSAS
                OF JUNE 30, 2006 AND DECEMBER 31,
                2005




June
                30,
            
            December
                31,2006
            
            2005(Unaudited)
            
            (Restated)ASSETSCURRENT
                ASSETS:Cash
            
            $
            2,506,063
            
            $
            8,648,373Restricted
                cash
            
            
            2,479,335
            
            
            2,735,583Accounts
                receivable, net of allowance for doubtful accountsof
                $1,414 and $1,371 as of June 30, 2006 and December 31,
                2005
            
            
            4,254,287
            
            
            993,417Accounts
                receivable - related parties
            
            
            -
            
            
            -Notes
                receivables
            
            
            568,784
            
            
            4,960Note
                receivables - related party
            
            
            2,005,138
            
            
            2,976,000Other
                receivables
            
            
            91,967
            
            
            109,769Other
                receivables - related parties
            
            
            -
            ##
            
            -Other
                receivables- related party
            
            
            970,000Inventories
            
            
            23,866,808
            
            
            10,730,941Advances
                on inventory purchases
            
            
            6,861,664
            
            
            10,716,293Short-term
                investment
            
            
            37,560
            
            
            37,200Prepaid
                expenses - current
            
            
            65,273
            
            
            64,647Total
                current assets
            
            
            43,706,879
            
            
            37,017,183PLANT
                AND EQUIPMENT, net
            
            
            22,892,288
            
            
            18,213,872OTHER
                ASSETS:Advances
                on equipment purchases
            
            
            -
            
            
            1,053,169Prepaid
                expenses - non current
            
            
            785,176
            
            
            669,460Intangible
                assets - land use right, net of accumulated amortization
            
            
            1,910,742
            
            
            2,039,532Total
                other assets
            
            
            2,695,918
            
            
            3,762,161Total
                assets
            
            $
            69,295,085
            
            $
            58,993,216





F-1
 
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES


June
                30,
            
            December
                31,2006
            
            2005(Unaudited)
            
            (Restated)LIABILITIES
                AND SHARE HOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable
            
            $
            4,138,593
            
            $
            823,760Short
                term loans - bank
            
            
            31,368,860
            
            
            27,118,800Short
                term notes payable
            
            
            4,957,920
            
            
            5,406,400Other
                payables
            
            
            313,236
            
            
            69,667Other
                payable - related party
            
            
            
            
            
            980,000Accrued
                liabilities
            
            
            1,692,917
            
            
            916,957Customer
                deposits
            
            
            1,966,463
            
            
            1,276,536Deposits
                due to sales representatives
            
            
            1,712,736
            
            
            1,261,080Taxes
                payable
            
            
            2,613,393
            
            
            1,682,330Total
                current liabilities
            
            
            48,764,118
            
            
            39,535,530SHARES
                SUBJECT TO MANDATORY REDEMPTION
            
            
            1,950,327
            
            
            1,720,875Total
                liabilities
            
            
            50,714,445
            
            
            41,256,405MINORITY
                INTEREST
            
            
            5,709,216
            
            
            5,387,026SHAREHOLDERS'
                EQUITY:Common
                Stock, $0.01 par value, 75,000,000 shares authorized,32,426,665
                shares issued and outstanding
            
            
            31,250
            
            
            31,250Paid-in-capital
            
            
            6,871,358
            
            
            6,871,358Retained
                earnings
            
            
            4,546,239
            
            
            4,207,236Statutory
                reserves
            
            
            840,753
            
            
            840,753Accumulated
                other comprehensive income
            
            
            581,824
            
            
            399,188Total
                shareholders' equity
            
            
            12,871,424
            
            
            12,349,785Total
                liabilities and shareholders' equity
            
            $
            69,295,085
            
            $
            58,993,216




F-2
 
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED
                STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006 AND
                2005(Unaudited)




Three
                months ended
            
            Six
                months endedJune
                30
            
            June
                302006
            
            2005
            
            2006
            
            2005REVENUES
            
            $
            29,398,358
            
            $
            25,290,342
            
            $
            50,040,860
            
            $
            45,989,076COST
                OF SALES
            
            
            27,807,959
            
            
            21,448,304
            
            
            47,082,163
            
            
            40,276,856GROSS
                PROFIT
            
            
            1,590,399
            
            
            3,842,038
            
            
            2,958,697
            
            
            5,712,220SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            807,633
            
            
            587,172
            
            
            1,549,811
            
            
            1,240,643INCOME
                FROM OPERATIONS
            
            
            782,766
            
            
            3,254,866
            
            
            1,408,886
            
            
            4,471,577OTHER
                EXPENSE, NET
            
            
            (587,552
            )
            
            (444,649
            )
            
            (747,693
            )
            
            (860,396
            )INCOME
                BEFORE PROVISION FOR INCOME TAXES
            
            
            195,214
            
            
            2,810,217
            
            
            661,193
            
            
            3,611,181AND
                MINORITY INTERESTPROVISION
                FOR INCOME TAXES
            
            
            
            
            
            972,293
            
            
            
            
            
            1,266,996NET
                INCOME BEFORE MINORITY INTEREST
            
            
            195,214
            
            
            1,837,924
            
            
            661,193
            
            
            2,344,185LESS
                MINORITY INTEREST
            
            
            108,616
            
            
            571,897
            
            
            322,190
            
            
            771,715NET
                INCOME
            
            
            86,598
            
            
            1,266,027
            
            
            339,003
            
            
            1,572,470OTHER
                COMPREHENSIVE INCOME (LOSS):Foreign
                currency translation adjustment
            
            
            61,231
            
            
            
            
            
            182,636COMPREHENSIVE
                INCOME
            
            $
            147,829
            
            $
            1,266,027
            
            $
            521,639
            
            $
            1,572,470WEIGHTED
                AVERAGE NUMBER OF SHARES
            
            
            31,250,000
            
            
            31,250,000
            
            
            31,250,000
            
            
            31,250,000EARNING
                PER SHARE, BASIC AND DILUTED
            
            $
            0.00
            
            $
            0.04
            
            
            0.02
            
            $
            0.05





F-3




GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED
                STATEMENTS OF SHAREHOLDERS' EQUITYFOR
                THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
                (UNAUDITED)




Accumulated
                otherNumber
            
            Common
            
            Paid-in
            
            Statutory
            
            Retained
            
            comprehensiveof
                shares
            
            stock
            
            capital
            
            reserves
            
            earnings
            
            income
                (loss)
            
            TotalsBALANCE,
                January 1, 2005, restated
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            154,794
            
            $
            2,152,976
            
            $
            
            
            $
            9,210,378Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,572,470
            
            
            
            
            
            1,572,470BALANCE,
                June 30, 2005, restated
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            154,794
            
            $
            3,725,446
            
            $
            
            
            $
            10,782,848Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,167,749
            
            
            
            
            
            1,167,749Adjustment
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            685,959
            
            
            (685,959
            )Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            399,188
            
            
            399,188BALANCE,
                December 31, 2005, restated
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            840,753
            
            $
            4,207,236
            
            $
            399,188
            
            $
            12,349,785Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            339,003
            
            
            
            
            
            339,003Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            182,636
            
            
            182,636BALANCE,
                June 30, 2006
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            840,753
            
            $
            4,546,239
            
            $
            581,824
            
            $
            12,871,424





F-4




GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES


CONSOLIDATED
                STATEMENTS OF CASH FLOWSFOR
                THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005(Unaudited)




2006
            
            2005(Unaudited)
            
            (Restated)CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            339,003
            
            $
            1,572,470Adjustments
                to reconcile net income to cash(used
                in) provided by operating activities:Minority
                Interest
            
            
            322,190
            
            
            771,716Depreciation
            
            
            548,685
            
            
            532,574Amortization
            
            
            147,839
            
            
            143,545Loss
                (gain) on disposal of equipment
            
            
            28,859
            
            
            34,205Interest
                expense accrued on mandatory redeemable stock
            
            
            229,452
            
            
            -(Increase)
                decrease in assets:Accounts
                receivable
            
            
            (3,236,194
            )
            
            357,279Notes
                receivable
            
            
            (561,164
            )
            
            (12,160,048
            )Other
                receivables
            
            
            18,777
            
            
            13,088Other
                receivables -related party
            
            
            (970,000
            )Inventories
            
            
            (12,971,648
            )
            
            (1,984,610
            )Advances
                on inventory purchases
            
            
            3,939,998
            
            
            8,105,211Prepaid
                expenses - non current
            
            
            (108,732
            )
            
            -Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            3,291,541
            
            
            70,872Other
                payables
            
            
            242,167
            
            
            286,014Other
                payable - related party
            
            
            (980,000
            )
            
            (831,012
            )Accrued
                liabilities
            
            
            763,533
            
            
            (52,933
            )Customer
                deposits
            
            
            674,434
            
            
            4,040,738Taxes
                payable
            
            
            910,544
            
            
            719,509Net
                cash (used in) provided by operating activities
            
            
            (7,370,716
            )
            
            1,618,618CASH
                FLOWS FROM INVESTING ACTIVITIES:Restricted
                cash
            
            
            256,248
            
            
            692,493Notes
                receivable-related party
            
            
            995,031Advances
                on equipment purchases
            
            
            1,058,435Purchase
                of equipment
            
            
            (5,058,840
            )
            
            (220,708
            )Deposits
                due to sales representatives
            
            
            437,416
            
            
            240,790Net
                cash (used in) provided by investing activities
            
            
            (2,311,710
            )
            
            712,575




F-5
 
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
                    STATEMENTS OF CASH FLOWSFOR
                    THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005(Unaudited)


2006
            
            2005(Unaudited)
            
            (Restated)CASH
                FLOWS FINANCING ACTIVITIES:Borrowings
                on short term loans-bank
            
            
            14,125,677
            
            
            15,959,900(Payments)
                on short term loans-bank
            
            
            (10,156,530
            )
            
            (14,641,000
            )Borrowings
                on short term notes payable
            
            
            10,542,852
            
            
            5,880,600(Payments)
                on short term notes payable
            
            
            (11,041,332
            )
            
            (6,776,000
            )Net
                cash provided by financing activities
            
            
            3,470,667
            
            
            423,500EFFECTS
                OF EXCHANGE RATE CHANGE IN CASH
            
            
            69,449
            
            
            -(DECREASE)
                INCREASE IN CASH
            
            
            (6,142,310
            )
            
            2,754,693CASH,
                beginning of period
            
            
            8,648,373
            
            
            5,547,810CASH,
                end of period
            
            $
            2,506,063
            
            $
            8,302,503




F-6




GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
        1 - Background**
 
 The
        Company (formerly known as American Construction Company) was established
        on
        August 5, 2002 for the purpose of commencing the business of general
        construction contracting. It was the Company's objective to provide to its
        customers timely and durable construction for their residential and commercial
        needs. We established a subsidiary for the purpose of achieving the above
        stated
        objectives in Saskatchewan, Canada and to enter the residential and commercial
        construction industry in this market.
 
 To
        accomplish the above objective the founder of our company, Jeff Mabry
        established American Construction Company (a Nevada company) on August 5,
        2002.
        American Construction Company then established its subsidiary, West Dee
        Construction Ltd. (a Saskatchewan, Canada Company) on August 8, 2002 by
        purchasing 100 shares from its treasury.
 
 On
        October 14, 2004, American Construction Company and General Steel Investment
        Co., Ltd. (referred to as General Steel) and Northwest Steel Company, a Nevada
        corporation, entered into an Agreement and Plan of Merger (the "Agreement")
        pursuant to which American Construction Company acquired General Steel, and
        it’s
        70% ownership in its subsidiary Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang
        Metal) in exchange for shares of the Company’s common stock, of which 22,040,000
        shares was a new issuance by the Company, and 7,960,000 shares are from certain
        shareholders of the Company, which in aggregate, constituted 96% of the total
        issued and outstanding shares of the Company.
 
 Under
        the
        terms of the Agreement, General Steel will remain a 100% owned subsidiary
        of the
        Company. The transaction contemplated by the Agreement was intended to be
        a
“tax-free" reorganization pursuant to the provisions of Section 351 and 368(a)
        (1) (A) of the Internal Revenue Code of 1986, as amended. The stockholders
        of
        General Steel, as of the closing date of the merger own approximately 96%
        of the
        Company's common stock outstanding as of October 15, 2004 (excluding any
        additional shares to be issued on outstanding options, warrants and other
        securities convertible into common stock).
 
 The
        accounting for these transactions is identical to that resulting from a
        reverse-acquisition, except that no goodwill or other intangible assets is
        recorded. Accordingly, the financial statements of General Steel Investment
        Co.,
        Ltd. are the historical financial statements of the Company, formerly the
        operations of Daqiuzhuang Metal Sheet Co., Ltd.
 
 Based
        on
        the Company's Plan of Merger with General Steel Investment Co., Ltd., the
        Board
        of Directors determined to change the Registrant's fiscal year end from January
        31 to December 31.
  The
        Company through its subsidiary Daqiuzhuang Metal principally engages in the
        manufacturing of hot rolled carbon and silicon steel sheets which are mainly
        used on tractors, agricultural vehicles and in other specialty markets. The
        Company sells its products through both retailers and wholesalers.
  F-7
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          1 - Background, (continued)**
 
 Daqiuzhuang
        Metal Sheet Co., Ltd. (referred to as Daqiuzhuang Metal) was established
        on
        August 18, 2000 in
        Jinghai county, Tianjin city, Hebei province, the People’s Republic of China
        (PRC). The Articles of Corporation provides for a 10 year operating term
        beginning on August 18, 2000 with registered capital of $ 9,583,200. The
        Company is a Chinese registered limited liability company with a legal structure
        similar to a limited liability company organized under state laws in the
        United
        States of America. There is no discriminatory provision for the minority
        shareholders and the 30% shareholders will receive their distribution of
        retained earnings according to their ownership percentage in Daqiuzhuang
        Metal.
  **Note
          2 - Restatement of financial statements**
 
 The
          Company is restating the consolidated financial statements for the year
          ended
          December 31, 2005 for corrections in accounting which include:
 
 1.Restating
          the carry amount of redeemable stock issued in 2005 and amortizing the
          difference between redemption amount and fair value as interest expense
          over the
          18 month period from issuance date using an implied interest rate in accordance
          with SFAS 150, The amount originally recorded as liability was discounted
          at an
          average market rate with the difference between the discounted amount and
          the
          cash received was treated as reduction in paid-in-capital and the difference
          between discounted amount and redemption value was to be amortized over
          the 18
          months from issuance. In addition, certain disclosures in notes 3 and 18
          to the
          consolidated financial statements are being restated to reflect the correction.
          The effects of this restatement are as follows:
 December
                    31,
                
                
                
                December
                    31,2005
                
                
                
                2005PreviouslyReported
                
                Adjustments
                
                RestatedShares
                    subject to mandatory redemption
                
                $
                2,115,906
                
                $
                (395,031
                )
                $
                1,720,875Paid-in
                    capital
                
                $
                6,395,617
                
                $
                475,741
                
                $
                6,871,358Retained
                    Earnings
                
                $
                4,287,946
                
                $
                (80,710
                )
                $
                4,207,236
  Consolidated
                    statements of income and other comprehensive incomeOther
                    (expenses) income, net
                
                $
                (1,600,132
                )
                $
                (80,710
                )
                $
                (1,680,842
                )Net
                    income
                
                $
                2,820,929
                
                $
                (80,710
                )
                $
                2,740,219Comprehensive
                    income
                
                $
                3,220,117
                
                $
                (80,710
                )
                $
                3,139,407Consolidated
                    statements of cash flowsInterest
                    expense accrued onmandatory
                    redeemable stock
                
                $
                34,014
                
                $
                80,710
                
                $
                114,724
   F-8
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
        2 - Restatement of financial statements (continued)**
 
 2.
              Reclassifying
                  advances on equipment purchases to Other Assets - non-current from
                  current
                  assets on the 2005 balance sheet
 
 3.
              Reclassifying
                  certain amounts on the statements of cash flows for 2005, 2004,
                  and 2003
                  as follows:
 a.
              Reclassified
                  accrued interest expense accrued on mandatory redeemable stock
                  from
                  financing activities to operating
                  activities
 b.
              Reclassified
                  notes receivable from investing activities to operating activities
                  since
                  it is related to inventory sales
 c.
              Separated
                  restricted cash from cash and classified restricted cash in investing
                  activities
 d.
              Reclassified
                  deposits due to sales representatives and advances on equipment
                  purchases
                  from operating activities to investing activities****
 
 4.
              Restating
                  borrowings and payments on short term loan - bank and short term
                  notes
                  payable on a gross basis vs. net basis as previously
                  reported
 
 Further,
        we have added or revised certain disclosures in notes 20, and 22 to provide
        more
        detail information and explanations
 
 **Note
          3 - Summary of significant accounting policies**
 
 Basis
        of presentation
  The
        consolidated financial statements of General Steel Holdings, Inc. reflect
        the
        activities of the following subsidiaries:
 
 PecentageSubsidiary
              
              
              
              Of
                  OwnershipGeneral
                  Steel Investment Co., Ltd.
              
              
              British
                  Virgin Islands
              
              
              100.0
              %Tianjin
                  Daqiuzhuang Metal Sheet Co., Ltd.
              
              
              P.R.C.
              
              
              70.0
              %
  The
          accompanying financial statements have been prepared in accordance with
          accounting principles generally accepted in the United States of America.
          The
          accompanying consolidated financial statements include the accounts of
          General
          Steel Investment Co., Ltd. and Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
          (collectively the “Company”). All material intercompany transactions and
          balances have been eliminated in the consolidation.
  Revenue
        recognition
 
 The
        Company recognizes revenue when the goods are delivered and title has passed.
        Sales revenue represents the invoiced value of goods, net of a value-added
        tax
        (VAT). All of the Company’s products that are sold in the PRC are subject to a
        Chinese value-added tax at a rate of 17% of the gross sales price. This VAT
        may
        be offset by VAT paid by the Company on raw materials and other materials
        included in the cost of producing their finished product.
  F-9
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
        3 - Summary of significant accounting policies,
        (continued)**
 
 Accounts
        receivables and allowance for doubtful accounts
 
 Management
        regularly reviews aging of receivables for changes in payment by its customers,
        and records a reserve when they believe collection of amounts are at risk.
        Accounts considered uncollectible are written off.
 
 Foreign
        currency translation
 
 The
          reporting currency of the Company is the US dollar. The Company uses their
          local
          currency, Renminbi (RMB), as their functional currency. Results of operations
          and cash flow are translated at average exchange rates during the period,
          and
          assets and liabilities are translated at the unified exchange rate as quoted
          by
          the People’s Bank of China at the end of the period.
 
 Translation
          adjustments resulting from this process are included in accumulated other
          comprehensive income in the statement of shareholders’ equity. Transaction gains
          and losses that arise from exchange rate fluctuations on transactions
          denominated in a currency other than the functional currency are included
          in the
          results of operations as incurred.
 
 Translation
        adjustments resulting from this process are included in accumulated other
        comprehensive income in the consolidated statement of shareholders' equity
        and
        amounted to $182,636
        an d
        $0 as
        of June 30, 2006 and 2005, respectively. The balance sheet amounts with the
        exception of equity at June 30, 2006 were translated at 7.99 RMB to $1.00
        USD as
        compared to 8.26 RMB at June 30, 2005. The equity accounts were stated at
        their
        historical rate. The average translation rate of 8.03 RMB for the six months
        ended June 30, 2006 was applied to income statement accounts.
 
 Plant
        and equipment, net
 
 Plant
        and
        equipment are stated at cost less accumulated depreciation. Depreciation
        is
        computed using the straight-line method over the estimated useful lives of
        the
        assets with 3% residual value. The depreciation expense for the six months
        ended
        June 30, 2006 and 2005 amounted to
        $548,685 and $532,574, respe ctively.
 
 Estimated
        useful lives of the assets are as follows:
 EstimatedUseful
                    LifeBuildings
                
                10-30
                    yearsMachinery
                    and equipment
                
                8-15
                    yearsOther
                    equipment
                
                5-8
                    yearsTransportation
                    equipment
                
                10-15
                    years
 F-10
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
        3 - Summary of significant accounting policies,
        (continued)**
 
 Plant
        and equipment, net, continued
 
 Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company’s plant facilities. No depreciation is
        provided for construction in progress until such time as the assets are
        completed and are placed into service.
 
 The
        cost
        and related accumulated depreciation of assets sold or otherwise retired
        are
        eliminated from the accounts and any gain or loss is included in the statements
        of operations. Maintenance, repairs and minor renewals are charged directly
        to
        expenses as incurred. Major additions and betterment to buildings and equipment
        are capitalized.
  Long-term
          assets of the Company are reviewed annually as to whether their carrying
          value
          has become impaired. The Company considers assets to be impaired if the
          carrying
          value exceeds the future projected cash flows from related operations.
          The
          Company also re-evaluates the periods of amortization to determine whether
          subsequent events and circumstances warrant revised estimates of useful
          lives.
          As of June 30, 2006, the Company expects these assets to be fully
          recoverable.
 
 Plant
        and
        equipment consisted of the following:
 June
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedBuildings
                    and improvements
                
                $
                8,345,653
                
                $
                5,391,378Transportation
                    equipment
                
                
                859,303
                
                
                485,699Machinery
                
                
                18,901,934
                
                
                12,752,995Construction
                    in progress
                
                
                -
                
                
                4,231,318Totals
                
                
                28,106,890
                
                
                22,861,390Less
                    accumulated depreciation
                
                
                5,214,602
                
                
                4,647,518Totals
                
                $
                22,892,288
                
                $
                18,213,872
  Use
        of
        estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles of the United States of America requires management
        to
        make estimates and assumptions that affect the amounts reported in the combined
        financial statements and accompanying notes. Management believes that the
        estimates utilized in preparing its financial statements are reasonable and
        prudent. Actual results could differ from these estimates.
 
 F-11
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
        3 - Summary of significant accounting policies,
        (continued)**
 
 Cash
        and concentration of risk
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with
        state **** owned
        banks within the People’s Republic of China and Hong Kong. Total cash (including
        restricted cash balances) in these banks at June 30, 2006 and December 31,
        2005,
        amounted to $4,283,206 and $11,446,120, respectively of which no deposits
        are
        covered by insurance. The Company has not experienced any losses in such
        accounts and believes it is not exposed to any risks on its cash in bank
        accounts.
 
 Restricted
        cash
 
 The
        Company through its bank agreements is required to keep certain amounts on
        deposit that are subject to withdrawal restrictions and these amoun ts
        are
        $2,479,335 and
        $2,735,583 as of June 30, 2006 and December 31, 2005, respectively.
  Inventories
 
 Inventories
        are stated at the lower of cost or market using the weighted average method.
        Inventories consisted of the following:
  June
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedSupplies
                
                $
                1,182,711
                
                $
                1,524,332Raw
                    materials
                
                
                1,366,694
                
                
                1,195,022Finished
                    goods
                
                
                21,317,403
                
                
                8,011,587Totals
                
                $
                23,866,808
                
                $
                10,730,941
  Inventories
        consist of supplies, raw materials and finished goods. Raw materials consist
        primarily of iron and steel used in production. The cost of finished goods
        included direct costs of raw materials as well as direct labor used in
        production. Indirect production costs such as utilities and indirect labor
        related to production such as assembling, shipping and handling costs are
        also
        included in the cost of inventory. No work in process inventory existed at
        June
        30, 2006 and December 31, 2005, as all inventory in process was completed
        and
        transferred to finished goods prior to the physical inventory count. The
        Company
        reviews its inventory annually for possible obsolete goods or to determine
        if
        any reserves are necessary for potential obsolescence. As of June 30, 2006
        and
        December 31, 2005, the Company has determined that no reserves are
        necessary.
 
 Financial
        instruments
 
 Statement
          of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
          Value of Financial Instruments” requires disclosure of the fair value of
          financial instruments held by the Company.
  F-12
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
        3 - Summary of significant accounting policies,
        (continued)**
 
 Financial
        instruments, continued
 
 SFAS
        107
        defines the fair value of financial instruments as the amount at which the
        instrument could be exchanged in a current transaction between willing parties.
        The Company considers the carrying amount of cash, accounts receivable,
        other **** receivables,
        accounts payable, accrued liabilities and other payables to approximate their
        fair values because of the short period of time between the origination of
        such
        instruments and their expected realization and their current market rate
        of
        interest.
 
 Intangible
          assets
 
 All
        land
        in the People’s Republic of China is owned by the government and cannot be sold
        to any individual or company. However, the government grants the user a “land
        use right” (the Right) to use the land. Daqiuzhuang Metal acquired land use
        rights during the years ended in 2000 and 2003 for a total amo unt
        of
        $2,870,902. The
        land
        use right is for 50 years. However, Daqiuzhuang Metal's initial business
        license
        had ten-year term. The management elected to amortize the land use rights
        over
        ten-year business term. Daqiuzhuang Metal became Sino Joint Venture in 2004
        as
        discussed in Note 1 and obtained a new business license for twenty years;
        however, the Company decided to continue amortizing the land use rights over
        the
        original ten-year business term.
 
 As
        of
        June 30, 2006 and December 31, 2005, accumulated amortization amounted to
        $1,059,812 and $902,550. The costs of these rights are being amortized over
        ten
        years using the straight-line method.
 
 Intangible
        assets of the Company are reviewed annually as to whether their carrying
        value
        has become impaired. The Company considers assets to be impaired if the carrying
        value exceeds the future projected cash flows from related operations. The
        Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of June 30, 2006, the Company expects these assets to be fully
        recoverable.
 
 Total
        amortization expense for the six months ended June 30, 2006 and 2005, amounted
        to $147,839 and $143,545, respectively.
 
 Shares
        subject to mandatory redemption
 
 The
          Company has adopted Statement of Financial Accounting Standards No. 150, “Accounting
          for Certain Financial Instruments with Characteristics of both Liabilities
          and
          Equity”. FAS 150 established classification and measurement standards for three
          types of freestanding financial instruments that have characteristics of
          both
          liabilities and equity. Instruments within the scope of FAS 150 must be
          classified as liabilities within the Company’s Consolidated Financial Statements
          and be reported at settlement date value. The provisions of FAS 150 are
          effective for (1) instruments entered into or modified after May 31, 2003,
          and
          (2) pre-existing instruments as of July 1, 2003. In November 2003, through
          the
          issuance of FSP 150-3, the FASB indefinitely deferred the effective date
          of
          certain provisions of FAS 150, including
          mandatory redeemable instruments as they relate to minority interests in
          consolidated finite-lived entities.
  F-13
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Shares
        subject to mandatory redemption, continued
 
 The
        Company issued new redeemable stock in September, 2005. The amount is presented
        as a liability on balance sheet at the fair market value on the date of issuance
        plus any interest amortized to the balance sheet date, see note 19.
 
 Income
          taxes
 
 The
        Company has adopted Statement of Financial Accounting Standards No. 109,
        “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of
        deferred income tax liabilities and assets for the expected future tax
        consequences of temporary differences between income tax basis and financial
        reporting basis of assets and liabilities. Provision for income taxes consist
        of
        taxes currently due plus deferred taxes. There are no deferred tax amounts
        at
        June 30, 2006 and December 31, 2005.
 
 The
        charge for taxation is based on the results for the year as adjusted for
        items,
        which are non-assessable or disallowed. It is calculated using tax rates
        that
        have been enacted or substantively enacted by the balance sheet
        date.
 
 Deferred
        tax is accounted for using the balance sheet liability method in respect
        of
        temporary differences arising from differences between the carrying amount
        of
        assets and liabilities in the financial statements and the corresponding
        tax
        basis used in the computation of assessable tax profit.
 
 In
        principle, deferred tax liabilities are recognized for all taxable temporary
        differences, and deferred tax assets are recognized to the extent that it
        is
        probably that taxable profit will be available against which deductible
        temporary differences can be utilized.
 
 Deferred
        tax is calculated at the tax rates that are expected to apply to the period
        when
        the asset is realized or the liability is settled. Deferred tax is charged
        or
        credited in the income statement, except when it related to items credited
        or
        charged directly to equity, in which case the deferred tax is also dealt
        with in
        equity.
 
 Deferred
        tax assets and liabilities are offset when they relate to income taxes levied
        by
        the same taxation authority and the Company intends to settle its current
        tax
        assets and liabilities on a net basis.
 
 Under
        the
        Income Tax Laws of PRC, the Company is generally subject to an income tax
        at an
        effective rate of 33% (30% state income taxes plus 3% local income taxes)
        on
        income reported in the statutory financial statements after appropriate tax
        adjustments, unless the enterprise is located in a specially designated region
        where it allows foreign enterprises a two-year income tax exemption and a
        50%
        income tax reduction for the following three years.
 
 F-14
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            3 - Summary of significant accounting policies,
            (continued)**
 
 Income
        taxes, continued
 
 The
        Company’s subsidiary, Daqiuzhuang Metal Sheet Co., Ltd., became a Chinese
        Sino-foreign joint venture at the time of the merger on October 14, 2004
        and it
        became eligible to receive a tax benefit. The Company is exempt from income
        taxes for the years ended December 31 ô 2005
        and
        2006 and 50% income tax reduction for the years ended December 31, 2007,
        2008
        and 2009. The Company received the tax exemption approval from the local
        tax
        authorities during the last quarter of 2005 and the Company had been recording
        a
        provision for income taxes for the first three quarters of 2005. During the
        last
        quarter of 2005 the Company reversed the provision for income taxes once
        they
        received the approval from the local tax authorities. The local Chinese tax
        authority waived the previously accrued tax accumulated prior to January
        1, 2005
        in the amount of $253,250 which was recorded as other nonoperating income
        for
        the six months ended June 30, 2006 for previously accrued income taxes.
 
 The
        provision for income taxes for the period ended June 30 consisted of the
        following:
 2006
                
                2005Unaudited
                
                UnauditedProvision
                    for China Income Tax
                
                $
                -
                
                $
                265,231Provision
                    for China Local Tax
                
                
                -
                
                
                29,470Total
                    provision for income taxes
                
                $
                -
                
                $
                294,701
  The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate for the six months ended June 30:
 
 2006
                
                2005U.S.
                    statutory rates
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recoginized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                -
                
                
                33.0Total
                    provision for income taxes
                
                
                -
                %
                
                33.0
                %
  The
        estimated tax savings for the six months ended June 30, 2006 amounted to
        $354,409. The net effect on earnings per share had the income tax been applied
        would decrease earnings per share from $0.02 to $0.01.
 
 Value
        added tax
 
 Enterprises
        or individuals who sell commodities, engage in repair and maintenance or
        import
        and export goods in the PRC are subject to a value added tax in accordance
        with
        Chinese laws. The value added tax standard rate is 17% of the gross sales
        price.
        A credit is available whereby VAT paid on the purchases of semi-finished
        products or raw materials used in the production of the Company’s finished
        products can be used to offset the VAT due on sales of the finished
        product.
 
 F-15
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 ,
 **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Value
        added taxes, continued
 
 Taxes
        payable consisted of the followings:
 June
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedVAT
                    taxes payable
                
                $
                2,611,609
                
                $
                1,290,982Income
                    taxes payable
                
                
                -
                
                
                385,510Misc
                    taxes
                
                
                1,784
                
                
                5,838Totals
                
                $
                2,613,393
                
                $
                1,682,330
  Recently
        issued accounting pronouncements
 
 In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
        for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
        No. 140, “Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
        simplify the accounting for certain hybrid instruments by permitting fair
        value
        remeasurement for any hybrid financial instrument that contains an embedded
        derivative, as well as, clarifies that beneficial interests in securitized
        financial assets are subject to FAS 133. In addition, FAS 155 eliminates
        a
        restriction on the passive derivative instruments that a qualifying
        special-purpose entity may hold under FAS 140. FAS 155 is effective for all
        financial instruments acquired, issued or subject to a new basis occurring
        after
        the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The adoption of SFAS No. 155 is not expected to have a
        material effect on the Company’s financial position or results of
        operations.
 
 In
        March
        2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
        Assets” (“FAS 156”), which amends SFAS No. 140. FAS 156 specifically
        provides guidance addressing the recognition and measurement of separately
        recognized servicing assets and liabilities, common with mortgage securitization
        activities, and provides an approach to simplify efforts to obtain hedge
        accounting treatment. FAS 156 is effective for all separately recognized
        servicing assets and liabilities acquired or issued after the beginning of
        an
        entity’s fiscal year that begins after September 15, 2006, with early
        adoption being permitted. The adoption of SFAS No. 156 is not expected to
        have a
        material effect on the Company’s financial position or results of
        operations.
 
 F-16
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Recently
          issued accounting pronouncements , continued
 
 In
          July
          2006, the FASB issued FASB Interpretation No. 48, “Accounting for
          Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
          recognized in a company’s financial statements in accordance with FAS 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
          measurement attribute for the financial statement recognition and measurement
          of
          a tax position taken or expected to be taken in a tax return. FIN 48 also
          provides guidance on derecognition, classification, interest and penalties,
          accounting in interim periods, disclosure and transition. The requirements
          of
          FIN 48 are effective for our fiscal year beginning January 1, 2007. The
          adoption of this interpretation is not expected to have a material effect
          on the
          Company’s financial position or results of operations.
 
 **Note
          4 - Consolidated financial statements and condensed
          footnotes**
 
 The
        interim consolidated financial statements presented herein have been prepared
        by
        the Company and include the unaudited accounts of the Company and its
        subsidiaries. All significant inter-company accounts and transactions have
        been
        eliminated in the consolidation.
 
 These
        consolidated financial statements have been prepared in accordance with
        generally accepted accounting principles in the United States for interim
        financial information and the instructions for Form 10-Q and Article 10 of
        Regulation S-X.
 
 Certain
        information and footnote disclosures that are normally included in financial
        statements presented in accordance with generally accepted accounting principles
        have been condensed or omitted. Management of the Company believes the
        disclosures made are adequate to make the information presented not misleading.
        The condensed consolidated financial statements should be read in conjunction
        with the Company’s audited financial statements included in its Annual Report on
        Form 10-K dated March 31, 2006.
 
 In
        the
        opinion of management, the unaudited consolidated financial statements reflect
        all adjustments (which include only normal recurring adjustments) necessary
        to
        present fairly the financial position of the Company as of June 30, 2006
        and
        December 31, 2005, and the results of operations, changes in shareholders’
equity and cash flows for the six months ended June 30, 2006 and 2005. Interim
        results are not necessarily indicative of full year performance because of
        the
        impact of seasonal and short-term variations.
 
 F-17
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
          5 - Earnings per share**
 
 The
        Company reports earnings per share in accordance with the provisions of SFAS
        No.
        128, "Earnings Per Share." SFAS No. 128 requires presentation of basic and
        diluted earnings per share in conjunction with the disclosure of the methodology
        used in computing such earnings per share. Basic earnings per share excludes
        dilution and is computed by dividing income available to common stockholders
        by
        the weighted average common shares outstanding during the period. Diluted
        earnings per share takes into account the potential dilution that could occur
        if
        securities or other contracts to issue common stock were exercised and converted
        into common stock.
  Under
        SFAS 150 " Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity", entities
        that have issued mandatory redeemable shares of common stock or entered into
        forward contracts that require physical settlement by repurchase of a fixed
        number of the issuer’s equity shares of common stock in exchange for cash shall
        exclude the common shares that are to be redeemed or repurchased in calculating
        basic and diluted earnings per share. Thus the 1,176,665 shares described
        in
        no te
        18
        have been excluded from the earnings per share calculation.
  The
        weighted average number of shares used to calculate EPS for the six months
        ended
        June 30, 2006 (31,250,000), 2005 (31,250,000) reflect only the shares
        outstanding for those periods.
  **Note
          6 - Supplemental disclosure of cash flow information**
 
 Interest
        paid amounted to $993,519 and $883,110 for the six months ended June 30,
        2006
        and 2005, respectively.
 
 Income
        tax payments amounted
        to $0 and $485,615 for the six months ended June 30, 2006 and 2005,
        respectively.
 
 **Note
          7 - Accounts receivable and allowance for doubled
          accounts**
 
 The
        Company conducts its business operations in the People’s Republic of China.
        Account receivables include trade accounts due from the customers. Management
        believes that the trade accounts are fully collectible as these amounts are
        being collected throughout the year. Also, management reviews its accounts
        receivable on a regular basis to determine if the bad debt allowance is adequate
        and adjusts the allowance amount at the year end. The allowance for doubtful
        accounts as of June 30, 2006 and December 31, 2005 amounted to $ 1,414 and
        $1,371 respectively.
 
 F-18
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          8 - Notes receivable and note receivable - related
          party**
 
 Notes
        receivable represents trade accounts receivable due from various customers
        where
        the customers’ bank has guaranteed the payment of the receivable. This amount is
        non-interest bearing and is normally paid within three to six months. The
        Company has the ability to submit their request for payment to the customer’s
        bank earlier than the scheduled payment date. However the Company will incur
        an
        interest charge and a processing fee when they submit a payment request early.
        The Company had $568,784
        and $4,960 outstand ing
        as of
        June 30, 2006 and December 31, 2005, respectively.
 
 The
        note
        receivable from related party represents a note from Yang Pu Automotive
        Investment Limited for business purpose on November 15, 2005. The note is
        in the
        amount of RMB 24,000,000, translated to $2,995,200, for one year with an
        interest rate at 7% and due at maturity. On June 26, 2006, Yang Pu Automotive
        Investment Limited paid $999,662 towards the principal of the loan. The Company
        will calculate the interest based on the new balance. The Company periodically
        reviews the financial statements of Yang Pu Automotive Investment Limited
        to
        determine its ability to repay the debt.
  **Note
          9 - Prepaid expenses**
 
 Prepaid
        expenses at June 30, 2006 consisted of the followings:
 Current
                
                Long-term
                
                TotalRent
                
                $
                45,072
                
                $
                291,991
                
                $
                337,063Land
                    use right
                
                
                20,201
                
                
                493,185
                
                
                513,386Total
                
                $
                65,273
                
                $
                785,176
                
                $
                850,449
 The
        Company rented a dormitory for its employees during 2005. The rent is for
        ten
        years starting on January 1, 2006 at RMB 90,000 per quarter or RMB 360,000
        per
        year. The Company's prepayment at June 30, 2006 a mounted
        to RMB 3,034,000 or $337,063.
 
 The
        Company also entered into another rental agreement on July 21, 2005 to rent
        the
        land use right for its manufacture expansion. The total amount of the rental
        is
        RMB 8,067,400 for a period of 50 years starting on September 1, 2005. The
        Company made a prepayment of RMB 4,234,981 or $528,505 and prepaid balance
        remained at June 30, 2006 amoun ted
        to
        RMB 4,194,644 or $513,386.
  **Note
          10 - Advances on inventory purchases**
 
 Advances
        on inventory purchases are monies deposited or advanced to outside vendors
        or
        related parties on future inventory purchases. Due to the high shortage of
        steel
        in China, most of the Company’s vendors require a certain amount of money to be
        deposited with them as a guarantee that the Company will receive their purchases
        on a
 timely
        basis.
 
 F-19
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
          10 - Advances on inventory purchases (continued)**
 
 This
        amount is refundable and bears no interest. The Company has a legal binding
        contract with their vendors for the guarantee deposit, which is to be returned
        to the Company at the end of the contract. The inventory is normally delivered
        within one month
        after the monies has been advanced. The total outstanding amount was $6,861,664
        and $10,716,293 as of June 30, 2006 and December 31, 2005,
        respectively.
 
 **Note
          11 - Related party transactions**
 
 The
        Company has a short term loan from Golden Glister Holdings Limited. .Golden
        Glister holdings limited is incorporated in the territory of the British
        Virgin
        Islands which our president Yu Zuo Sheng is the majority shareholder. The
        amount
        was loaned to General Steel Investment Co., Ltd. for business operations.
        In the
        second quarter of 2006, General Steel Investment Co., Ltd. advanced $1,300,000
        to Golden Glister Holdings Limited for its operations. Golden Glister has
        agreed
        to pay back the amount in short term. The Compan y
        had a
        receivable from Golden Glister for $970,000 and a payable to Golden Glister
        for
        $980,000 as of June 30, 2006 and December 31, 200 5,
        respectively. These receivable and payable are short-term and are non interest
        bearing.
 
 **Note
          12 - Short term loans - bank**
 
 Short
        term loans - bank represent amounts due to various banks which are due on
        demand
        or normally within one year. These loans can be renewed, are short term bearing
        no interest and has not due date. The table below summarizes the loans
        outstanding at June 30, 2006 and December 31, 2005.
 
 F-20
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            12 - Shorterm loans - bank (continued)**
 June
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedLoans
                    from China Bank, JingHai Branch,dueNovember
                    2006. Monthly interest only payment at6.138%
                    per annum, secured by equipmentand
                    property
                
                $
                1,126,800
                
                $
                1,116,000Loans
                    from Agriculture Bank, DaQiuZhuang Branch, duevarious
                    dates from October 2006 to April 2007.Monthly
                    interest only payments in 2005 ranging fromfrom6.696%
                    to 6.975% per annum, guaranteed by anunrelated
                    third party and secured by property andequipment
                
                
                9,771,860
                
                
                10,068,800Loan
                    from Construction Bank of China, JinHai Branch, dueAugust
                    15,
                    2006.
                    Monthly interst only payment at7.4604%
                    per annum, secured by properties
                
                
                1,014,120
                
                
                1,004,400Loans
                    from ShangHai PuFa Bank, due various dates fromJuly2006to
                    March 2007.Monthly interest onlypayments
                    ranging from6.138%
                    to 6.42% per month,guaranteed
                    by an unrelated thirdparty
                
                
                6,260,000
                
                
                6,200,000Loans
                    fromChina
                    MerchantsBank, due various dates fromAugust2006toJune2007.Quarterly
                    interest onlypayments,
                    annual interest rate of 5.859%
                    to6.1425%,guaranteed
                    by an unrelated thirdparty
                
                
                7,512,000
                
                
                8,060,000Loan
                    from Construction Bank of China, dueAugust
                    21,
                    2006Monthly
                    interest only payment at7.4604%per annum,guaranteed
                    by an unrelated third party
                
                
                676,080
                
                
                669,600Loans
                    from Shenzhen Development Bank, Tianjin Branchdue
                    various datesfrom February to March 2007Quarterly
                    interest only payments rangingfrom
                    5.856% to 5.859%, secured by inventories
                
                
                5,008,000
                
                
                -Totals
                
                $
                31,368,860
                
                $
                27,118,800
 
 F-21
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          13 - 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
          deposit at the bank deposit as a guarantee deposit.
  The
        Company has the following short term notes payable outstanding as for June
        30,
        2006 and December 31, 2005:
  June
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedChina
                    Bank, Jing Hai Branch, various amounts, dueOctober
                    2006, restricted cash required 50% of loanamount,
                    secured by land and property
                
                $
                1,452,320
                
                $
                1,438,400Agricultural
                    Bank of China, various amounts, due datesranging
                    between July and October 2006,restricted
                    cash required of 50% of loan amount,secured
                    by land and property1,001,600
                
                
                1,488,000ShangHai
                    PuFa Bank, due November 2006, restrictedcash
                    required of 50% of loan balance, guaranteedby
                    an unrelated third party
                
                
                2,504,000
                
                
                2,480,000Totals
                
                $
                4,957,920
                
                $
                5,406,400
  Total
        interest expense for the six months ending June 30, 2006 and 2005 on all
        debt
        amounted to $993,519
        and $883,110 ,
        respectively.
 
 **Note
          14 - Customer deposits**
 
 Customer
        deposits represent amounts advanced by customers on product orders. The product
        normally is shipped within six months after receipt of the advance payment
        and
        the related sale is recognized in accordance with the Company’s revenue
        recognition policy. As of June 30, 2006 and December 31, 2005, customer deposits
        amounted to $1,966,463
        and $1,276,536, re spectively.
 
 F-22
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          15 - Deposits due to sales representatives**
 
 The
        Company has entered into agreements with various entities to act as the
        Company’s exclusive sales agent in a specified area. These exclusive sales
        agents must meet certain criteria and are required to deposit a certain amount
        of money with the Company. In return the sales agents receive exclusive sales
        rights to a specified area and discounted prices on products they order.
        These
        deposits bear no interest and are required to be returned to the sales agent
        once the agreement has been terminated. The Company had $1,712,736 and
        $1,261,080 in deposits due to sales representatives outstanding as of June
        30,
        2006 and December 31, 2005, respectively.
  **Note
          16 - Major customers and suppliers**
 
 The
        Company has 5 major customers which represent approximately 35% and 47% of
        the
        Company’s total sales for the six months ended June 30, 2006 and 2005,
        respectively. The Company did not have any one significant customer that
        represented more than 10% of the total sales for the two quarters ended June
        30,
        2006 and 2005.
 
 For
        the
        six months ended June 30, 2006 and 2005, the Company purchases approximately
        97%
        and 80%, respectively, of their raw materials from four major
        suppliers.
 
 **Note
          17 - Minority interest**
 
 Minority
        interest represents the outside shareholders’ 30% interest in Tianjin
        Daqiuzhuang Metal Sheet Co., Ltd.
 
 **Note
          18 - Other expenses and income, net**
 
 Other
        income and expense for the six months ended June 30 consist of the
        following:
 2006
                
                2005Unaudited
                
                UnauditedFinance/interest
                    expense
                
                $
                (1,222,971
                )
                $
                (886,873
                )Interest
                    income
                
                
                133,710
                
                
                30,504Other
                    nonoperating income
                
                
                392,873
                
                
                12,063Other
                    nonoperating expense
                
                
                (51,305
                )
                
                (16,089
                )Total
                    other expense
                
                $
                (747,693
                )
                $
                (860,395
                )
  Other
        nonoperating income includes the previously accrued income tax. During 2005,
        the
        company has approved from the P.R.C. local government for two years income
        tax
        exempt and three years of 50% income tax reduction. The
        local
        Chinese tax authority waived the previously accrued tax accumulated prior
        to
        January 1, 2005 in the amount of $253,250 which was recorded as other
        nonoperating income for the six months ended June 30, 2006 for previously
        accrued income taxes.
  F-23
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          19** **-** **Reclassifications**
 
 Certain
        amounts for the six months ended June 30, 2005 in the accompanying financial
        statements have been reclassified to conform to the 2006 presentation. These
        reclassifications have no effect on net income or cash flows.
 
 **Note
          20 - Private Offering of Redeemable Stock**
 
 The
        Company has offered an aggregate of 3,333,333 shares of Common Stock par
        value
        $0.001 in a private placement to investors at a purchase price of $1.50 per
        share. On September 18, 2005, the Company entered into a subscription agreement
        with certain investors to sell a total of 1,176,665 shares of common stock
        at
        $1.50 per share. In addition, two warrants are attached to each share of
        common
        stock and each warrant gives the warrant holder the right to purchase an
        additional share of common stock or a total of 2,353,330 of common stock
        in the
        future. The warrants can be exercised on the second anniversary date at $2.50
        per share and on the third anniversary date at $5.00 per share. The number
        of
        shares attached to the warrants will be adjusted due to dividends and changes
        in
        the capital stock structure changes. At the option of the investors the Company
        maybe required to repurchase the 1,176,665 shares of common stock 18 months
        after the closing date at a per share price of $1.95.
 
 Under
        this private offering, the Company raised a total of $1,765,000 and received
        net
        proceeds of $1,606,150 net of $158,850 of commissions paid.
 
 In
        accordance with Accounting Principles Board Opinion No. 14, the Company
        determined the fair value of the detachable warrants issued with redeemable
        stock using the Black-Scholes option pricing model under the following
        assumptions: risk free interest rate of 3.85%, dividend yield of 0% and
        volatility of 11%. The estimated value of the warrants is zero.
 
 In
        accordance with SFAS 150, the Company has recorded this stock
        issuanc e as
        a
        liability in the financial statements due to the mandatory redemption provision.
        The shares were recorded at fair market value on the date of issuance, which
        is
        the net cash proceeds, plus any accrued interest up to December 31, 2005.
        The
        difference between the net proceeds, $1,606,150, and the redemption amount,
        $2,294,497, which is $688,347, will be accrued and amortized as interest
        expense
        over an 18 months period beginning in October 2005 and ending in March 2007.
        The
        following table reconciles the June 30, 2006 carrying amount:
  Balance
                  at 12/31/2005
              
              $
              1,720,875Interest
                  amortized during the firstsix
                  months
              
              
              229,452Balace
                  at 6/30/2006
              
              $
              1,950,327
 F-24
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          20 - Private Offering of Redeemable Stock
          (continued)**
 
 Total
          interest amortized since issuance to June 30, 2006 amounted to $344,178
          and
          $344,169 is the remaining amount left to be accrued and amortized through
          March
          2007. The Company amended its financial statements for the periods ended
          December 31, 005 and March 31, 2006 to reflect the changes made to the
          accounting treatment of the redeemable stock. The original accounting treatment
          was to record the amount discounted at an average market rate as a liability
          with the difference between the discounted amount and the cash received
          treated
          as reduction in paid-in-capita and the difference between discounted amount
          and
          redemption value to be amortized over the 18 months from issuance
          date.
  **Note
          21 - Retirement plan**
 
 Regulations
        in the People’s Republic of China require the Company to contribute to a defined
        contribution retirement plan for all employees. All Joint Venture employees
        are
        entitled to a retirement pension amount calculated based upon their salary
        at
        their date of retirement and their length of service in accordance with a
        government managed pension plan. The PRC government is responsible for the
        pension liability to the retired staff.
 
 The
        Company became a foreign joint venture entity in the year of 2004. For the
        year
        ended December 31, 2005, it was the first year the Company was required to
        make
        contributions to the state retirement plan at 20% of the employees’ monthly
        salary. Employees are required to contribute 7% of their salary to the plan.
        Total pension expense incurred by the Company amounted to
        $157,178 and $0 for the
        six months ended June 30, 2006 and 2005, respectively. No contribution was
        made
        during the first six months of 2005 because the Company contributed the total
        amount near year end of 2005.
  **Note
          22 - Joint venture agreement with Baotou Steel**
 
 On
        September 28, 2005, General Steel Investment Co., Ltd., a wholly owned
        subsidiary of General Steel Holdings, Inc., entered into a certain Baotou-GSHI
        Special Steel Joint Venture Agreement (the "Agreement") with Daqiuzhuang
        Metal
        Sheet Co., Ltd., and Baotou Iron and Steel (Group) Co., Ltd., a limited
        liability company formed under the laws of the People's Republic of China
        (the
        "Baotou Steel"). The name of the joint venture will be Baotou Steel-General
        Steel Special Steel Joint Venture Company Limited.
 
 The
          Joint
          Venture Company will be located at Kundulun District, Baotou City, Inner
          Mongolia, China. The stated purposes of the Joint Venture Company are,
          among
          others, to produce and sell special steel and to improve the product quality
          and
          the production capacity and competitiveness by adopting advanced technology
          in
          the production of steel products. The Joint Venture Company shall have
          a
          capacity of producing 600,000 tons of specialty steel products a year.
 
 F-25
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          22 - Joint venture agreement with Baotou Steel,
          (continued)**
 
 The
        registered capital of the joint venture will be approximately $24,000,000.
        The
        products of the joint venture will be sold in the Chinese market and abroad.
        The
        ownership will be comprised of the following:
 %
                      OwnershipBaotou
                      Iron and Steel (Group) Co., Ltd.
                  
                  
                  49
                  %General
                      Steel Investment Co., Ltd.
                  
                  
                  31
                  %Da
                      Qiu Zhuang Metal Sheet Co., Ltd
                  
                  
                  20
                  %
 Baotou
          Steel shall contribute land, existing equipment and materials at an estimated
          value of approximately $12,000,000 which will be contributed to the joint
          venture at the date of the approval of Joint Venture or issuance of the
          business
          license. The value of the assets to be contributed by Baotou Steel will
          be
          stated at fair market value. General Steel Investment Co., Ltd. will contribute
          approximately $7,500,000 of cash and Daqiuzhuang Metal will contribute
          approximately $5,000,000 cash. These contributions will be required to
          be made
          on the following payment schedule 30% of their capital contribution within
          30
          days of the date of approval of the Joint Venture; 30% of their capital
          contribution within 3 months of the date of approval of the Joint Venture;
and
          40% of their capital contribution within 6 months of the date of approval
          of the
          Joint Venture. The Company will use the consolidation method to account
          for the
          joint venture.
 
 These
          contributed assets will be used to commence a new operation. The joint
          venture
          will purchase a 100-ton electric furnace and a refiner furnace to produce
          high
          quality specialty steel using advanced technology. This type of specialty
          steel
          has not bee previously produced by Baotou Steel. This advanced technology
          has
          not been previously utilized by Baotou Steel. This new joint venture will
          aim to
          enter into a new market segment of high-end specialty steel.
 
 This
          contemplated transaction is not considered a business combination as defined
          under Article 11 of Regulation S-X. The revenue producing activity for
          the new
          entity will be different from that of the existing companies. New high-end
          special steel products will be produced and marketed to new customers.
          In order
          to produce these new products, the new entity will build new facilities
          on the
          land to be contributed by Baotou Steel. It will take some equipment to
          be
          contributed by Baotou Steel, which are to be substantially modified, and
          add a
          100-ton electric furnace and a refiner to create a new production line.
          A new
          sales force will be built to identify and target new customers. The new
          entity
          will not carry the names of either of its future owners.
 
 This
          contemplated transaction is not considered as a business acquisition through
          a
          non-monetary exchange under EITF 98-3 because it does not meet the relevant
          definition thereunder. The assets to be contributed do not include systems,
          standards, protocols, conventions and rules that act to define the process
          necessary for normal, self-sustaining operations, such as (i) strategic
          management processes, (ii) operational processes, and (iii) resource management
          processes. The assets to be contributed do not include the ability to obtain
          access to the customers that purchase the outputs of the assets to be
          contributed. Additionally, while the newly formed entity will receive certain
          tangible assets, it will be a start-up company.
  F-26
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            22 - Joint venture agreement with Baotou Steel,
            (continued)**
 
 It
          will
          need to attract and retain talent to install/modify/acquire equipment,
          manage
          operations, as well as to manufacture market and sell products to newly
          identified customers. The assets to be contributed by Baotou Steel are
          insignificant compared to the total assets of Baotou Steel. Baotou Steel
          will
          continue to operate at its historical levels even assuming the consummation
          of
          the contemplated transactions. The respective future owners who will contribute
          certain assets to the new entity will continue to operate as separate entities.
          They will not reduce or transfer any of their respective workforces as
          a result
          of this transaction. They will continue to operate their existing businesses
          at
          their historical levels.
 
 Upon
          the
          commencement of the joint venture, the rights of the minority shareholders
          of
          Daqiuzhuang Metal Sheet Co. Ltd. will be limited to receiving a distribution
          of
          profits from the joint venture; the minority shareholders will not have
          any
          voting rights
 
 As
          of
          June 30, 2006, the Company has not received the approval of the Baotou
          Steel
          Joint venture and it is still under government review and may be subject
          to
          further industry sector review by the relevant authorities in China in
          view of
          the sensitive nature of the steel industry. The management at this point
          is
          uncertain if and when the government approval will be granted. Currently
          none of
          the financials of Baotou Steel is incorporated into the Company’s financial
          statements as there is no ownership or control relationship between the
          Company
          and Baotou Steel at this time.
 
 F-27
  **Item
          2. Management's Discussion and Analysis of Financial Condition and Results
          of
          Operations**
 
 The
          following is management's discussion and analysis of certain significant
          factors
          which have affected our financial position and operating results during
          the
          periods included in the accompanying consolidated financial statements,
          as well
          as information relating to the plans of our current management. The following
          discussion and analysis should be read in conjunction with our consolidated
          financial statements and the related notes thereto and other financial
          information contained elsewhere in this Form 10Q.
 
 **Overview**
 
 Following
            the acquisition of ownership in General Steel Investment Co., Ltd. in
            October
            2004, we have shifted its main business focus to general steel products
            and
            steel manufacturing. As the core-operating unit , Tianjin Daqiuzhuang
            Metal
            Sheet Co., Ltd. (herein referred to
            as
            "Daqiuzhuang Metal") started its operation in 1988. Daqiuzhuang Metal's
            core
            business is the manufacturing of high quality hot rolled carbon and silicon
            steel sheets which are mainly used in the production of tractors, agricultural
            vehicles, shipping containers and in other specialty markets.
 
 Daqiuzhuang
          Metal uses a traditional rolling mill production sequence, such as heating,
          rolling, cutting, annealing, and flattening to process slabs into steel
          sheets.
          The sheet sizes are approximately 2,000 mm (length) x 1,000 mm (width)
          x 0.75 to
          2.0 mm (thickness). Limited size adjustments are possible to meet order
          requirements. "Qiu Steel" is the registered name for the products of Daqiuzhuang
          Metal.
 
 Daqiuzhuang
            Metal has recently completed an expansion program to build a new plant
            next to
            the existing facility with four new production lines to increase its
            hot-rolled
            steel sheet production capacity by 150,000 tons. We now operate 10 steel
            production lines capable of processing 400,000 tons of 0.75-2.0 mm hot-rolled
            carbon steel sheets per year, maintaining a 50% market share of all hot
            rolled
            steel sheets used in the production of agricultural vehicles in
            China.
  On
            September 28, 2005, we signed a joint venture agreement (the Joint Venture)
            with
            Baotou Iron and Steel Group (Baotou Steel), to form Baotou Steel - General
            Steel
            Special Steel Joint Venture Company Limited, a limited liability company
            formed
            under the laws of the People’s Republic of China (the Joint Venture Company).
            The Joint Venture Company has not been launced and is not operational
            yet.
 
 This
            contemplated transaction is not considered a business combination as
            defined
            under Article 11 of Regulation S-X. The revenue producing activity for
            the new
            entity will be different from that of the existing companies. New high-end
            special steel products will be produced and marketed to new customers.
            In order
            to produce these new products, the new entity will build new facilities
            on the
            land to be contributed by Baotou Steel. It will take some equipment to
            be
            contributed by Baotou Steel, which are to be substantially modified,
            and add a
            100-ton electric furnace and a refiner to create a new production line.
            A new
            sales force will be built to identify and target new customers. The new
            entity
            will not carry the names of either of its future owners.
  This
            contemplated transaction is not considered as a business acquisition
            through a
            non-monetary exchange under EITF 98-3 because it does not meet the relevant
            definition thereunder. The assets to be contributed do not include systems,
            standards, protocols, conventions and rules that act to define the process
            necessary for normal, self-sustaining operations, such as (i) strategic
            management processes, (ii) operational processes, and (iii) resource
            management
            processes. The assets to be contributed do not include the ability to
            obtain
            access to the customers that purchase the outputs of the assets to be
            contributed. Additionally, while the newly formed entity will receive
            certain
            tangible assets, it will be a start-up company. It will need to attract
            and
            retain talent to install/modify/acquire equipment, manage operations,
            as well as
            to manufacture, market and sell products to newly identified customers.
            The
            assets to be contributed by Baotou Steel are insignificant compared to
            the total
            assets of Baotou Steel. Baotou Steel will continue to operate at its
            historical
            levels even assuming the consummation of the contemplated transaction.
            The
            respective future owners who will contribute certain assets to the new
            entity
            will continue to operate as separate entities. They will not reduce or
            transfer
            any of their respective workforces as a result of this transaction. They
            will
            continue to operate their existing businesses at their historical
            levels.
 
 3
  The
            total
            investment in the Joint Venture Company may be up to US$ 30,000,000,
            with an
            anticipated registered capital of approximately US$24,000,000. Pursuant
            to the
            Joint Venture Agreement, Baotou Steel will contribute land, existing
            equipment
            and materials whereas General Steel Investment and Daqiuzhuang Metal
            will each
            contribute cash capital to the Joint Venture Company. The completion
            of this
            transaction is subject to the provision to both General Steel Investment
            and
            Daqiuzhuang Metal by Baotou Steel of relevant financial statements and
            an
            independent appraisal of the assets to be contributed to the Joint Venture
            Company, which have not been produced thus far. In addition, China’s State
            Assets Supervision and Administration Committee will need to assign an
            independent appraisal of the assets contributed by Baotou Steel. At this
            time,
            we are still waiting for the Chinese government to appoint an appraisal
            firm to
            complete the appraisal and the evaluation process of the joint venture
            project.
            As a result, at this moment we are not in a position to determine the
            amount of
            cash capital General Steel Investment and Daqiuzhuang metal will be required
            to
            contribute to the Joint Venture Company. We are working to encourage
            relevant
            parties to provide the requisite documentation and initiate the needed
            procedures. However, if the relevant documents cannot be produced and
            the
            required procedures will not be initiated within a reasonable amount
            of time, we
            are prepared to terminate the Joint Venture Agreement.
  %
                      OwnershipBaotou
                      Iron and Steel (Group) Co.,Ltd.
                  
                  
                  49
                  %General
                      Steel Investment Co., Ltd.
                  
                  
                  31
                  %Daqiuzhuang
                      Metal Sheet Co., Ltd.
                  
                  
                  20
                  %
  On
          September 18, 2005, we entered into a certain Subscription Agreement with
          certain investors and sold an aggregate of 1,176,665 shares of our common
          stock,
          in a private placement under Rule 506 under the Securities Act at a purchase
          price of $1.50 per share. Under this private placement, we raised $1,765,000
          in
          the aggregate, with a net proceeds of $ 1,606,150 after deducting $158,850
          paid
          for commissions.
 
 **Results
          of Operations**
 
 The
          results of operations of the Company are largely dependent on the level
          of
          general economic activity in China. Economic forecasts indicate continued
          fast
          pace growth in China in 2006. As a result, the consumption of our steel
          products
          is expected to remain at a high level. We believe that we have successfully
          positioned ourselves within the Chinese agricultural vehicle market. As
          this
          market continues to demonstrate increased demand for steel products, we
          remain
          focused on building our leadership position by enhancing the quality of
          our
          products and expanding our production capacity. However, the Company does
          believe that the highly competitive market will exist throughout 2006,
          with
          pressures for shipment volumes and prices. In view of that, the Company
          will
          continue to focus on cost control and new market development. The management
          will concentrate on increasing customer base and breaking into new
          markets.
 
 Our
            sales
            revenue mainly comes from the sale of metal sheets in different specifications
            and steel scrap generated in the cutting process. Our cost of sales includes
            the
            cost of its primary raw materials, rollers, energy cost, labor cost,
            the cost of
            warehousing and handling finished steel products and freight
            costs.
 
 **Net
          sales and gross profit**
 
 Net
          sales
          for the three months ended June 30, 2006 were approximately $29.4 million
          compared to $25.3 million in the same period of 2005. Shipments for the
          three
          months ended June 30, 2006 climbed 42% to 66,359 tons from 46,574 tons
          due to
          overall increase in producing capacity, productivity, and market development.
          Average selling price per ton including sale of scrap for the three months
          ended
          June 30, 2006 slipped to $443 from $543 in the same period of 2005. The
          decrease
          in sales price mainly resulted from the overall steel market downturn,
          but the
          impact was offset by the increase in sales volume. This is why our net
          sales
          amount is still in line with the same period last year.
 
 4
  Net
          sales
          for the six months ended June 30, 2006 were approximately $50 million compared
          to $46 million in the same period of 2005. Shipments for the six months
          ended
          June 30, 2006 climbed 36% to 119,906 tons from 87,995 tons. Average selling
          price per ton including sale of scrap for the six months ended June 30,
          2006
          slipped to $417 from $523 in the same period of 2005.
 
 Gross
            profit for the three months ended June 30, 2006 was approximately $1.59
            million,
            a decrease of 58.6% or $2.25 million from $3.84 million for the same
            period last
            year. Gross profit margin decreased to 5.4% from 15.2% for the three
            months
            ended June 30, 2006 and 2005. This decrease in gross profit margin is
            mainly due
            to the decrease in average selling price. Since April 2005, the price
            of steel
            products has been decreasing globally due to the overall increase in
            steel
            supply. We have to adjust its products’ prices in order to stay competitive in
            this market. The management expects that the pressure on the selling
            price will
            be mitigated in later 2006 as a result of steel industry consolidation
            in China
            and overall increase in demand.
 
 Gross
          profit for the six months ended June 30, 2006 was approximately $3 million,
          a
          decrease of 47% or $2.7 million from $5.7 million for the same period last
          year.
          Gross profit margin decreased to 6% from 12.4% for the six months ended
          June 30,
          2006 and 2005.
 
 **Cost
          of sales**
 
 Overall
          cost of sales increased to $27.8 million or 29.7% for the three months
          ended
          June 30, 2006 from $21.4 million for the same period of 2005. Cost of sales
          as
          percentage of sales increased from 84.8% to 94.6%. Average cost per ton
          was $419
          and $460, respectively for the three months ended June 30, 2006 and 2005.
          In
          summary, although the average unit cost dropped, the cost of sales increased
          in
          the second quarter of 2006 due to the increase in the sales volume.
 
 Overall
          cost of sales increased to $47 million or 16.6% for the six months ended
          June
          30, 2006 from $40.3 million for the same period of 2005. Cost of sales
          as
          percentage of sales increased from 87.6% to 93.9%. Average cost per ton
          was $393
          and $457, respectively for the six months ended June 30, 2006 and
          2005.
 
 **Selling,
          General and Administrative Expenses**
 
 Selling,
          general and administrative expenses, such as executive compensation, office
          expenses, legal and accounting charges, travel charges, and various taxes
          were
          $0.81 million for the three months ended June 30, 2006, compared to $0.59
          million for the same period of 2005, a 38% increase. A large component
          of the
          increase came from the legal and accounting expenses and investor and public
          relations charges for the public listed company.
 
 Selling,
          general and administrative expenses were $1.55 million for the six months
          ended
          June 30, 2006, compared to $1.24 million for the same period of 2005, a
          25%
          increase.
 
 **Other
          income (expense)**
 
 Other
          income (expense) for the three months ended June 30, 2006 consisted mainly
          of
          finance charges, interest income and other non-operating income (expense).
          Interest expense was $0.76 million for the three months ended June 30,
          2006,
          compared to $0.45 million for the same period in 2005. This increase was
          because
          the outstanding bank loans increased to $31.4 million from $27.1 million
          as of
          June 30, 2006 and 2005, respectively. This increase in debt borrowing was
          mainly
          used for the construction of the new production lines.
 
 Interest
          expense was $1.22 million for the six months ended June 30, 2006, a 37%
          increase
          compared to $0.89 million for the same period in 2005.
 
 5
  **Income
          taxes**
 
 We
            did
            not carry on any business and did not maintain any branch office in the
            United
            States during the six months ended June 30, 2006 and 2005. Therefore,
            no
            provision for withholding or U.S. federal income taxes or tax benefits
            on the
            undistributed earnings and/or losses of the Company has been made.
 
 Pursuant
            to the relevant laws and regulations in the People's Republic of China,
            Daqiuzhuang Metal, as a foreign owned enterprise in the People's Republic
            of
            China, is entitled to an exemption from the PRC enterprise income tax
            for two
            years commencing from its first profitable year. We have been approved
            for this
            tax benefit and will be exempt from income tax for the years ended December
            31,
            2005 and 2006 and 50% income tax reduction for the years ended December
            31,
            2007, 2008 and 2009.
 
 **Liquidity
          and capital resources**
 
 Due
            to
            the good market demand for our steel products, we have increased our
            production
            capacity by adding four new production lines. 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 because they are renewable
            with the
            banks every year. Due to the recent joint venture agreement with Baotou
            Iron and
            Steel (Group) Co., Ltd., the Company is reserving cash for the first
            30% of its
            capital contribution, approximately $3.7 million, which needs to be paid
            when
            the business license for the joint venture is issued. Cash balance including
            restricted cash amounted to $4.3 million and $11.8 million as of June
            30, 2006
            and 2005.
 
 **Operating
          activities**
 
 Net
            cash
            used in operating activities for the six months ended June 30, 2006 was
            $7.37
            million compared to $1.62 million provided by operating, activities in
            the same
            period last year. This change was mainly due to increase in inventory.
            As the
            new production lines are now in full operation, approximately 13,000
            tons of
            extra products are now being produced every month. The finished goods
            inventories started to increase since the sales, department hasn’t been fully
            able to sell all of these extra products. The finished goods inventories
            at June
            30, 2006 was 50,425 tons compared to 20,726 tons at December 31, 2005.
            The value
            of finished goods inventories also increased to $21.3 million as of June
            30,
            2006 from $8.01 million as of December 31, 2005. Additionally, the raw
            materials
            price has been going up since March this year. Average purchase price
            of steel
            slabs has been going up to approximately $345 in June from $316 in March,
            the
            management decided to stock up raw materials inventories in order to
            maximize
            the profitability.
 
 **Accounts
          Receivable**
 
 Accounts
            receivable was $4.25 million as of June 30, 2006 compared to $993,417
            at
            December 31, 2005. This is partly due to the credit sales extended to
            Shanghai
            Qiugang Metal Sheet Co., Ltd. in the amount of $1,700,812. We usually
            collect
            the deposit from our customers in advance. We granted credit sales to
            Shanghai
            Qiu Steel Sales Co., Ltd. due to long business relationships between
            both
            companies.
 
 We
            recognize the revenue when we ship out products and passed the titles
            of the
            products to our customers and distributors. We have increased production
            capacity since April this year. To enhance sales, we extended more short
            term
            credits to our customers and distributors with good reputations and long
            term
            business relationship by offering them a one-month period to pay for
            the
            purchase in arrear. Based on our experience, these accounts were normally
            collected in one month. We have not experienced any bad debt in these
            accounts.
            Also we review our accounts receivable on a regular basis to determine
            if the
            bad debt allowance is adequate and adjusts to allowance amount if needed.
            We
            believe that accounts receiveable is collectible. Therefore we have not
            provided
            any allowance for our accounts receivable balance. In addition, the accounts
            receivable balance in the fourth quarter has been decreasing since most
            of our
            customers are paying us back.
 
 6
  **Investing
          activities**
 
 Net
            cash
            used in investing activities was $2.31 million for the six months ended
            June 30,
            2006 compared to $0.71 million provided by investing activities in the
            same
            period last year. The cash has been spent on the construction of the
            new plant.
            As of June 30, 2006, all construction in progress has
            been
            reclassified to fixed assets subject to depreciation.
 
 **Financing
          activities**
 
 Net
          cash
          provided by financing activities was $3.47 million for the six months ended
          June
          30, 2006 compared to $0.42 million provided by investing activities in
          the same
          period last year. The Company signed a new borrowing agreement with Shenzhen
          Development Bank to borrow $4,992,000 in the first quarter. The proceeds
          were
          mainly used to pay for inventory purchases and the construction of the
          new
          plant.
 
 **Compliance
          with environmental laws and regulations**
 
 Based
            on
            the equipment, technologies and measures adopted, we are not considered
            a
            high-pollution factory in China. The production process does not need
            much water
            and produces only a minimal amount of chemical pollution. We use gas-fired
            reheat furnaces recommended by the State Environmental Protection Agency
            to heat
            our raw materials and semi-finished products.
 
 In
            2005,
            the Daqiuzhuang County ordered an environmental clean-up campaign and
            required
            harmless waste water discharge. In order to meet these requirements,
            we invested
            $94,190 to remodel our industrial water recycling system to reduce new
            water
            consumption and industrial water dischargeThis wastewater recycling system
            is
            able to process 350 tons waste water everyday. We can realize approximately
            $10,000 savings per year using this system.
 
 As
            for
            the remodeling of gas furnace and desulphurization of discharged gas,
            the local
            government has not posted any control measures currently and we have
            no plans to
            proceed with this remodeling until such time regulations have been implemented.
            We believe that future costs relating to environmental compliance will
            not have
            a material adverse effect on our financial position. There is always
            the
            possibility, however, that unforeseen changes, such as new laws or enforcement
            policies, could result in material adverse costs.
 
 **Impact
          of inflation**
 
 We
            are
            subject to commodity price risks arising from price fluctuations in the
            market
            prices of the raw materials. We have generally been able to pass on cost
            increases through price adjustments. However, the ability to pass on
            these
            increases depends on market conditions driven by the overall economic
            conditions
            in China. We manage the price risks through productivity improvements
            and
            cost-containment measures.
 
 Management
          does not believe that inflation risk is material to our business or our
          financial position, results of operations or cash flows.
 
 **OUTLOOK**
 
 Certain
          statements contained herein constitute "forward-looking statements" within
          the
          meaning of the Private Securities Litigation Reform Act of 1995. Such
          forward-looking statements involve known and unknown risks, uncertainties
          and
          other factors, which may cause the actual results, performance or achievements
          of General Steel Holdings, Inc. ("the Company”) or industry results, to be
          materially different from any future results, performance, or achievements
          expressed or implied by such forward-looking statements. The Company's
          future
          operating results are dependent upon many factors, including but not limited
          to
          the risk factors discussed in this periodic report and developments beyond
          the
          Company's control as well as other risk factors discussed in the Company's
          periodic filings with the Securities and Exchange Commission which are
          available
          for review at www.sec.gov under "Search for Company Filings."
 
 7
  We
          are
          expecting strong results in the third quarter of 2006 as shipments and
          average
          realized prices are expected to improve compared to the first six months
          of
          2006. We have stepped up our effort on sales distribution by breaking into
          new
          markets and setting up new regional offices in some major cities in
          China.
 
 **ACCOUNTING
          STANDARDS**
 
 CRITICAL
          ACCOUNTING POLICIES
 
 Management's
          discussion and analysis of its financial condition and results of operations
          are
          based upon our consolidated financial statements, which have been prepared
          in
          accordance with accounting principles generally accepted in the United
          States.
          Our financial statements reflect the selection and application of accounting
          policies which require management to make significant estimates and judgments.
          See note 2 to our consolidated financial statements, "Summary of Significant
          Accounting Policies." Management bases its estimates on historical experience
          and on various other assumptions that are believed to be reasonable under
          the
          circumstances. Actual results may differ from these estimates under different
          assumptions or conditions.
 
 We
          believe that the following reflect the more critical accounting policies
          that
          currently affect our financial condition and results of operations.
 
 Revenue
          recognition
 
 The
          Company recognizes revenue when the goods are delivered and title has passed.
          Sales revenue represents the invoiced value of goods, net of a value-added
          tax
          (VAT). All of the Company’s products that are sold in the PRC are subject to a
          Chinese value-added tax at a rate of 17% of the gross sales price. This
          VAT may
          be offset by VAT paid by the Company on raw materials and other materials
          included in the cost of producing their finished product.
 
 **Accounts
            receivables and allowance for doubtful accounts**
 
 During
            2006, the Company began extending credit terms to its major customers,
            who have
            demonstrated creditworthiness based on business practices and longstanding
            good
            relations. Managemetn regularly reviews ageing of receivables for changes
            in
            payment trends by its customers, and records a reserve when they believe
            collection of amounts due are at risk.
 
 Use
          of
          estimates
 
 The
          preparation of financial statements in conformity with generally accepted
          accounting principles of the United States of America requires management
          to
          make estimates and assumptions that affect the amounts reported in the
          combined
          financial statements and accompanying notes.
 
 Management
          believes that the estimates utilized in preparing its financial statements
          are
          reasonable and prudent. Actual results could differ from these
          estimates.
 
 Inventories
 
 We
          record
          reserves against our inventory to provide for estimated obsolete or unsalable
          inventory based on assumptions about future demand for its products and
          market
          conditions. If future demand and market conditions are less favorable than
          management's assumptions, additional reserve could be required. Likewise,
          favorable future demand and market conditions could positively impact future
          operating results if previously reserved for inventory is sold.
 
 8
  **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.
   9




**PART
        II.  OTHER INFORMATION**
  **ITEM
        6. EXHIBITS**




(a)
      Exhibits




31.1
      Certification of Chief Executive Officer;




31.2
      Certification of Chief Financial Officer;




32.1
      Certification of Chief Executive Officer; and




32.2
      Certification of Chief Financial Officer.





10


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:
                February 12, 2007
            By:
            /s/
              Zuo Sheng YuZuo
                Sheng Yu
              Chief
                Executive Officer and President


Date:
                  February 12, 2007
            By:
            /s/
              John ChenJohn
                  Chen
                Director
                  and Chief Financial Officer




11