UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549







FORM
      10-Q/A





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





For
      the
      quarterly period ended September 30, 2006





 ̈ 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 September 30, 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 September 30, 2006**




**EXPLANATORY
      NOTE**




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 September 30, 2006, which was originally filed
      on
      November 14, 2006 (the “Original Filing”), to amend and restate in its entirety
      Part I. Item 1 and Part I. Item 2 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.





**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 September 30, 2006
      were translated at 7.90 RMB to $1.00 USD as compared to 8.06 RMB at December
      31,
      2005. The equity accounts were stated at their historical rate. The average
      translation rate of 8.00 RMB for the nine months ended September 30, 2006
      was applied to income statement accounts.





2
 
  GENERAL
        STEEL HOLDINGS, INC. AND
        SUBSIDIARIES
  ITEM
        1.
        FINANCIAL STATEMENTS




CONSOLIDATED
        BALANCE SHEETS


AS
        OF
        SEPTEMBER 30, 2006 AND DECEMBER 31, 2005


September
                30,
            
            December
                31,2006
            
            2005(Unaudited)
            
            (Restated)ASSETSCURRENT
                ASSETS:Cash
            
            $
            4,009,089
            
            $
            8,648,373Restricted
                cash
            
            
            2,874,199
            
            
            2,735,583Accounts
                  receivable, net of allowance for doubtful accounts of $1,403and
                  $1,371
                  as of September 30, 2006 and December 31, 2005,
                  respectively
            
            
            11,071,790
            
            
            993,417Notes
                receivable
            
            
            1,126,406
            
            
            4,960Note
                receivable - related party
            
            
            280,480
            
            
            2,976,000Other
                receivables
            
            
            119,644
            
            
            109,769Other
                receivables - related parties
            
            
            850,400
            
            
            -Inventories
            
            
            15,698,156
            
            
            10,730,941Advances
                on inventory purchases
            
            
            7,155,375
            
            
            10,716,293Short-term
                investment
            
            
            -
            
            
            37,200Prepaid
                expenses - current
            
            
            66,003
            
            
            64,647Total
                current assets
            
            
            43,251,542
            
            
            37,017,183PLANT
                AND EQUIPMENT, net
            
            
            22,914,574
            
            
            18,213,872OTHER
                ASSETS:Advance
                on equipment purchases
            
            
            -
            
            
            1,053,169Prepaid
                Expenses - non current
            
            
            771,161
            
            
            669,460Intangible
                assets - land use right, net of accumulated amortization
            
            
            1,857,014
            
            
            2,039,532Total
                other assets
            
            
            2,628,175
            
            
            3,762,161Total
                assets
            
            $
            68,794,291
            
            $
            58,993,216LIABILITIES
                AND SHARE HOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable
            
            $
            664,699
            
            $
            823,760Short
                term loans - bank
            
            
            31,548,720
            
            
            27,118,800Short
                term notes payable
            
            
            5,519,760
            
            
            5,406,400Other
                payables
            
            
            534,217
            
            
            69,667Other
                payable - related party
            
            
            -
            
            
            980,000Accrued
                liabilities
            
            
            1,768,695
            
            
            916,957





F-1


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES




ITEM
      1.
      FINANCIAL STATEMENTS




CONSOLIDATED
        BALANCE SHEETS


AS
        OF
        SEPTEMBER 30, 2006 AND DECEMBER 31, 2005




September
                30,
            
            December
                31,2006
            
            2005(Unaudited)
            
            (Restated)ASSETSCustomer
                deposits
            
            
            1,369,060
            
            
            1,276,536Deposits
                due to sales representatives
            
            
            1,833,168
            
            
            1,261,080Taxes
                payable
            
            
            4,363,420
            
            
            1,682,330Total
                current liabilities
            
            
            47,601,739
            
            
            39,535,530SHARES
                SUBJECT TO MANDATORY REDEMPTION
            
            
            2,065,053
            
            
            1,720,875Total
                liabilities
            
            
            49,666,792
            
            
            41,256,405MINORITY
                INTEREST
            
            
            5,853,861
            
            
            5,387,026SHAREHOLDERS'
                EQUITY:Common
                Stock, $0.01 par value, 75,000,000 shares authorized,32,426,665
                shares issued and outstanding
            
            
            31,250
            
            
            31,250Paid-in-capital
            
            
            6,871,358
            
            
            6,871,358Retained
                earnings
            
            
            4,726,036
            
            
            4,207,236Statutory
                reserves
            
            
            840,753
            
            
            840,753Accumulated
                other comprehensive income
            
            
            804,241
            
            
            399,188Total
                shareholders' equity
            
            
            13,273,638
            
            
            12,349,785Total
                liabilities and shareholders' equity
            
            $
            68,794,291
            
            $
            58,993,216




F-2




GENERAL
      STEEL HOLDINGS, INC. AND
      SUBSIDIARIES




CONSOLIDATED
                STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
                (UNAUDITED)




Three
                months ended
            
            Nine
                months endedSeptember
                30
            
            September
                302006
            
            2005
            
            2006
            
            2005REVENUES
            
            $
            46,957,797
            
            $
            26,032,015
            
            $
            96,998,657
            
            $
            72,021,091COST
                OF SALES
            
            
            45,404,450
            
            
            23,379,706
            
            
            92,486,613
            
            
            63,656,562GROSS
                PROFIT
            
            
            1,553,347
            
            
            2,652,309
            
            
            4,512,044
            
            
            8,364,529SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            605,801
            
            
            523,063
            
            
            2,155,612
            
            
            1,763,706INCOME
                FROM OPERATIONS
            
            
            947,546
            
            
            2,129,246
            
            
            2,356,432
            
            
            6,600,823OTHER
                EXPENSE, NET
            
            
            (623,105
            )
            
            (447,943
            )
            
            (1,370,798
            )
            
            (1,308,339
            )INCOME
                BEFORE PROVISION FOR INCOME TAXES
            
            
            324,441
            
            
            1,681,303
            
            
            985,634
            
            
            5,292,484AND
                MINORITY INTERESTPROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            548,972
            
            
            -
            
            
            1,815,968NET
                INCOME BEFORE MINORITY INTEREST
            
            
            324,441
            
            
            1,132,331
            
            
            985,634
            
            
            3,476,516LESS
                MINORITY INTEREST
            
            
            144,644
            
            
            350,118
            
            
            466,834
            
            
            1,121,834NET
                INCOME
            
            
            179,797
            
            
            782,213
            
            
            518,800
            
            
            2,354,682OTHER
                COMPREHENSIVE INCOME:Foreign
                currency translation adjustment
            
            
            222,417
            
            
            374,857
            
            
            405,053
            
            
            374,857COMPREHENSIVE
                INCOME
            
            $
            402,214
            
            $
            1,157,070
            
            $
            923,853
            
            $
            2,729,539WEIGHTED
                AVERAGE NUMBER OF SHARES
            
            
            31,250,000
            
            
            31,250,000
            
            
            31,250,000
            
            
            31,250,000EARNING
                PER SHARE, BASIC AND DILUTED
            
            $
            0.01
            
            $
            0.04
            
            $
            0.02
            
            $
            0.09





F-3




GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIES




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




Accumulated
                otherNumber
            
            Common
            
            Paid-in
            
            Statutory
            
            Retained
            
            comprehensiveof
                shares
            
            stock
            
            Capital
            
            reserves
            
            earnings
            
            income
            
            TotalsBALANCE,
                January 1, 2005, restated
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            154,794
            
            $
            2,152,976
            
            $
            -
            
            $
            9,210,378Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,354,682
            
            
            
            
            
            2,354,682Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            374,857
            
            
            374,857BALANCE,
                September 30, 2005, restated
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            154,794
            
            $
            4,507,658
            
            $
            374,857
            
            $
            11,939,917Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            385,537
            
            
            
            
            
            385,537Adjustment
                to statutory reserve
            
            
            
            
            
            
            
            
            
            
            
            685,959
            
            
            (685,959
            )
            
            
            
            
            -Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            24,331
            
            
            24,331BALANCE,
                December 31, 2005, restated
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            840,753
            
            $
            4,207,236
            
            $
            399,188
            
            $
            12,349,785Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            518,800
            
            
            
            
            
            518,800Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            405,053
            
            
            405,053BALANCE,
                September 30, 2006
            
            
            31,250,000
            
            $
            31,250
            
            $
            6,871,358
            
            $
            840,753
            
            $
            4,726,036
            
            $
            804,241
            
            $
            13,273,638





F-4


GENERAL
      STEEL HOLDINGS, INC. AND
      SUBSIDIARIES




CONSOLIDATED
                STATEMENTS OF CASH FLOWSFOR
                THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
                (UNAUDITED)




September
                30
            
            September
                302006
            
            2005(Restated)CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            518,800
            
            $
            2,354,682Adjustments
                to reconcile net income to cashprovided
                by (used in) operating activities:Minority
                Interest
            
            
            466,834
            
            
            1,121,834Depreciation
            
            
            1,008,036
            
            
            789,131Amortization
            
            
            222,400
            
            
            216,528Loss
                on disposal of equipment
            
            
            28,005
            
            
            34,399Interest
                expense accrued on mandatory redeemable stock
            
            
            344,178
            
            
            -(Increase)
                decrease in assets:Accounts
                receivable
            
            
            (9,928,845
            )
            
            23,126Increase
                in notes receivable
            
            
            (1,106,993
            )
            
            (2,501,624
            )Other
                receivables
            
            
            (7,476
            )
            
            (570,252
            )Other
                receivables - related parties
            
            
            (850,400
            )
            
            -Inventories
            
            
            (4,681,528
            )
            
            (716,098
            )Advances
                on inventory purchases
            
            
            3,737,173
            
            
            310,518Prepaid
                expense - non current
            
            
            (86,541
            )
            
            -Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            145,602
            
            
            (28,184
            )Other
                payables
            
            
            137,713
            
            
            (189,561
            )Other
                payable - related party
            
            
            (980,000
            )
            
            190,000Accrued
                liabilities
            
            
            821,858
            
            
            12,034Customer
                deposits
            
            
            64,917
            
            
            2,297,519Taxes
                payable
            
            
            2,611,959
            
            
            1,518,804Net
                cash (used in) provided by operating activities
            
            
            (7,534,308
            )
            
            4,862,856CASH
                FLOWS FROM INVESTING ACTIVITIES:Restriced
                cash
            
            
            (80,218
            )
            
            1,544,990Notes
                receivable - related party
            
            
            2,722,629
            
            
            -Increase
                in short term investment
            
            
            37,494
            
            
            -Deposits
                due to sales representatives
            
            
            538,664
            
            
            120,463Advance
                on equipment purchases
            
            
            1,061,493Additions
                to equipment
            
            
            (5,299,576
            )
            
            (1,588,947
            )Net
                cash (used in) provided by investing activities
            
            
            (1,019,514
            )
            
            76,506CASH
                FLOWS FINANCING ACTIVITIES:Borrowings
                on short term loans - bank
            
            
            21,309,090
            
            
            31,819,320Payments
                on short term loans - bank
            
            
            (17,497,200
            )
            
            (31,916,664
            )Borrowings
                on short term notes payable
            
            
            6,074,028
            
            
            6,522,048





F-5


GENERAL
        STEEL HOLDINGS, INC. AND
        SUBSIDIARIES
  CONSOLIDATED
                  STATEMENTS OF CASH FLOWSFOR
                  THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
                  (UNAUDITED)
  September
                  30
              
              September
                  302006
              
              2005(Restated)Payments
                  on short term notes payable
              
              
              (6,074,028
              )
              
              (9,126,000
              )Cash
                  received on issuance of mandatory redeemable stock
              
              
              
              
              
              1,606,150Net
                  cash provided by (used in) financing activities
              
              
              3,811,890
              
              
              (1,095,146
              )EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              102,648
              
              
              149,047(DECREASE)
                  INCREASE IN CASH
              
              
              (4,639,284
              )
              
              3,993,263CASH,
                  beginning of period
              
              
              8,648,373
              
              
              5,547,810CASH,
                  end of period
              
              $
              4,009,089
              
              $
              9,541,073
 
 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.
 
 On
        October 14, 2004, American Construction Company and General Steel Investment
        Co., Ltd. (referred to as General Steel) and Northwest Steel Company, a Nevada
        corporation, entered into an Agreement and Plan of Merger (the "Agreement")
        pursuant to which American Construction Company acquired General Steel, and
        it’s
        70% ownership in its subsidiary Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang
        Metal) in exchange for shares of the Company’s common stock, of which 22,040,000
        shares was a new issuance by the Company, and 7,960,000 shares are from certain
        shareholders of the Company, which in aggregate, constituted 96% of the total
        issued and outstanding shares of the Company.
 
 Under
        the
        terms of the Agreement, General Steel will remain a 100% owned subsidiary
        of the
        Company. The transaction contemplated by the Agreement was intended to be
        a
“tax-free" reorganization pursuant to the provisions of Section 351 and 368(a)
        (1) (A) of the Internal Revenue Code of 1986, as amended. The stockholders
        of
        General Steel, as of the closing date of the merger own approximately 96%
        of the
        Company's common stock outstanding as of October 15, 2004 (excluding any
        additional shares to be issued on outstanding options, warrants and other
        securities convertible into common stock).
 
 The
        accounting for these transactions is identical to that resulting from a
        reverse-acquisition, except that no goodwill or other intangible assets is
        recorded. Accordingly, the financial statements of General Steel Investment
        Co.,
        Ltd. are the historical financial statements of the Company, formerly the
        operations of Daqiuzhuang Metal Sheet Co., Ltd.
 
 Based
        on
        the Company's Plan of Merger with General Steel Investment Co., Ltd., the
        Board
        of Directors determined to change the Registrant's fiscal year end from January
        31 to December 31.
 
 The
        Company through its subsidiary Daqiuzhuang Metal principally engages in the
        manufacturing of hot rolled carbon and silicon steel sheets which are mainly
        used on tractors, agricultural vehicles and in other specialty markets. The
        Company sells its products through both retailers and wholesalers.
 
 Daqiuzhuang
        Metal Sheet Co., Ltd. (referred to as Daqiuzhuang Metal) was established
        on
        August 18, 2000 in
        Jinghai county, Tianjin city, Hebei province, the People’s Republic of China
        (PRC). The Articles of Corporation provides for a 10 year operating term
        beginning on August 18, 2000 with registered capital of $ 9,583,200. The
        Company is a Chinese registered limited liability company with a legal structure
        similar to a limited liability company organized under state laws in the
        United
        States of America. There is no discriminatory provision for the minority
        shareholders and the 30% shareholders will receive their distribution of
        retained earnings according to their ownership percentage in Daqiuzhuang
        Metal.
  F-7
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **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
                  )
                  $
                  4,207,236Consolidated
                      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
  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****
  F-8
  GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          2 - Restatement of financial statements (continued)**
 
 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:
 Subsidiary
                
                %
                    OwnershipGeneral
                    Steel Investment Co., Ltd.
                
                
                British
                    Virgin Islands
                
                
                100.0
                %Tianjin
                    Daqiuzhuang Metal Sheet Co., Ltd.
                
                
                P.R.C.
                
                
                70.0
                %
  The
        accompanying financial statements have been prepared in accordance with
        accounting principles generally accepted in the United States of America.
        The
        accompanying consolidated financial statements include the accounts of General
        Steel Investment Co., Ltd. and Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
        (collectively the “Company”). All material intercompany transactions and
        balances have been eliminated in the consolidation.
 
 Revenue
        recognition
 
 The
        Company recognizes revenue when the goods are delivered and title has passed.
        Sales revenue represents the invoiced value of goods, net of a value-added
        tax
        (VAT). All of the Company’s products that are sold in the PRC are subject to a
        Chinese value-added tax at a rate of 17% of the gross sales price. This VAT
        may
        be offset by VAT paid by the Company on raw materials and other materials
        included in the cost of producing their finished product.
 
 Accounts
          receivables and allowance for doubtful accounts.
 
 Management
          regularly reviews aging of receivables for changes in payment trends by
          its
          customers, and records a reserve when they believe collection of amounts
          due are
          at risk. Accounts considered uncollectible are written off. At September
          30,
          2006, no accounts were over 90 days past due.
 
 Foreign
        currency translation
 
 The
        reporting currency of the Company is the US dollar. The Company uses their
        local
        currency, Renminbi (RMB), as their functional currency. Results of operations
        and cash flow are translated at average exchange rates during the period,
        and
        assets and liabilities are translated at the unified exchange rate as quoted
        by
        the People’s Bank of China at the end of the period.
  F-9
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Foreign
          currency translation (continued)
 
 Translation
        adjustments resulting from this process are included in accumulated other
        comprehensive income in the statement of shareholders’ equity. Transaction gains
        and losses that arise from exchange rate fluctuations on transactions
        denominated in a currency other than the functional currency are included
        in the
        results of operations as incurred.
 
 Translation
        adjustments resulting from this process are included in accumulated other
        comprehensive income in the consolidated statement of shareholders' equity
        and
        amounted to $405,053
        an d
        $374,857 as of September 30, 2006 and 2005, respectively. The balance sheet
        amounts with the exception of equity at September 30, 2006 were translated
        at
        7.90 RMB to $1.00 USD as compared to 8.06 RMB at December 31, 2005. The equity
        accounts were stated at their historical rate. The average translation rate
        of
        8.00 RMB for the nine months ended September 30, 2006 was applied to income
        statement accounts.
 
 Plant
        and equipment, net
 
 Plant
        and
        equipment are stated at cost less accumulated depreciation. Depreciation
        is
        computed using the straight-line method over the estimated useful lives of
        the
        assets with 3% residual value. The depreciation expense for the nine months
        ended September 30, 2006 and 2005 amounted to
        $1,008,036 and $789,131, respe ctively.
 
 Estimated
        useful lives of the assets are as follows:
 Estimated
                      Useful LifeBuildings
                  
                  
                  10-30
                      yearsMachinery
                      and equipment
                  
                  
                  8-15
                      yearsOther
                      equipment
                  
                  
                  5-8
                      yearsTransportation
                      equipment
                  
                  
                  10-15
                      years
 
 Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company’s plant facilities. No depreciation is
        provided for construction in progress until such time as the assets are
        completed and are placed into service.
 
 The
        cost
        and related accumulated depreciation of assets sold or otherwise retired
        are
        eliminated from the accounts and any gain or loss is included in the statements
        of operations. Maintenance, repairs and minor renewals are charged directly
        to
        expenses as incurred. Major additions and betterment to buildings and equipment
        are capitalized.
 
 F-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)
 
 Long-term
          assets of the Company are reviewed annually as to whether their carrying
          value
          has become impaired. The Company considers assets to be impaired if the
          carrying
          value exceeds the future projected cash flows from related operations.
          The
          Company also re-evaluates the periods of amortization to determine whether
          subsequent events and circumstances warrant revised estimates of useful
          lives.
          As of September
          30, 2006, the Company expects these assets to be fully
          recoverable.
 
 Plant
        and
        equipment consisted of the following:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedBuildings
                    and improvements
                
                $
                8,474,423
                
                $
                5,391,378Transportation
                    equipment
                
                
                882,941
                
                
                485,699Machinery
                
                
                19,263,323
                
                
                12,752,995Construction
                    in progress
                
                
                29,553
                
                
                4,231,318Totals
                
                
                28,650,240
                
                
                22,861,390Less
                    accumulated depreciation
                
                
                5,735,666
                
                
                4,647,518Totals
                
                $
                22,914,574
                
                $
                18,213,872
 
 Use
        of
        estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles of the United States of America requires management
        to
        make estimates and assumptions that affect the amounts reported in the combined
        financial statements and accompanying notes. Management believes that the
        estimates utilized in preparing its financial statements are reasonable and
        prudent. Actual results could differ from these estimates.
 
 Cash
        and concentration of risk
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with
        state **** owned
        banks within the People’s Republic of China and Hong Kong. Total cash (including
        restricted cash balances) in these banks at September 30, 2006 and December
        31,
        2005, amounted to $6,905,104 and $11,446,120, respectively of which no deposits
        are covered by insurance. The Company has not experienced any losses in such
        accounts and believes it is not exposed to any risks on its cash in bank
        accounts.
 
 Restricted
        cash
 
 The
        Company through its bank agreements is required to keep certain amounts on
        deposit that are subject to withdrawal restrictions and these amoun ts
        are
        $2,874,199 and
        $2,735,583 as of September 30, 2006 and December 31, 2005,
        respectively.
  F-11
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Inventories
 
 Inventories
          are stated at the lower of cost or market using the weighted average method.
 
 Inventories
        consisted of the following:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedSupplies
                
                $
                1,186,486
                
                $
                1,524,332Raw
                    materials
                
                
                2,142,447
                
                
                1,195,022Finished
                    goods
                
                
                12,369,223
                
                
                8,011,587Totals
                
                $
                15,698,156
                
                $
                10,730,941
  Inventories
        consist of supplies, raw materials and finished goods. Raw materials consist
        primarily of iron and steel used in production. The cost of finished goods
        included direct costs of raw materials as well as direct labor used in
        production. Indirect production costs such as utilities and indirect labor
        related to production such as assembling, shipping and handling costs are
        also
        included in the cost of inventory. No work in process inventory existed at
        September 30, 2006 and December 31, 2005, as all inventory in process was
        completed and transferred to finished goods prior to the physical inventory
        count. The Company reviews its inventory annually for possible obsolete goods
        or
        to determine if any reserves are necessary for potential obsolescence. As
        of
        September 30, 2006 and December 31, 2005, the Company has determined that
        no
        reserves are necessary.
 
 Financial
        instruments
 
 Statement
        of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
        Value of Financial Instruments” requires disclosure of the fair value of
        financial instruments held by the Company. SFAS 107 defines the fair value
        of
        financial instruments as the amount at which the instrument could be exchanged
        in a current transaction between willing parties. The Company considers the
        carrying amount of cash, accounts receivable, other **** receivables,
        accounts payable, accrued liabilities and other payables to approximate their
        fair values because of the short period of time between the origination of
        such
        instruments and their expected realization and their current market rate
        of
        interest.
 
 F-12
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Intangible
        assets
 
 All
        land
        in the People’s Republic of China is owned by the government and cannot be sold
        to any individual or company. However, the government grants the user a “land
        use right” (the Right) to use the land. Daqiuzhuang Metal acquired land use
        rights during the years ended in 2000 and 2003 for a total amo unt
        of
        $2,870,902. The
        land
        use rights have a 50 year term. However, Daqiuzhuang Metal's initial business
        license had a ten-year term. Management elected to amortize the land use
        rights
        over the ten-year business term.
 
 Daqiuzhuang
        Metal became Sino Joint Venture in 2004 as discussed in Note 1 and obtained
        a
        new business license for twenty years; however, the Company decided to continue
        amortizing the land use rights over the original ten-year business
        term.
 
 As
        of
        September 30, 2006 and December 31, 2005, accumulated amortization amounted
        to
        $1,146,757 and $902,550. The costs of these rights are being amortized over
        ten
        years using the straight-line method.
 
 Intangible
        assets of the Company are reviewed annually as to whether their carrying
        value
        has become impaired. The Company considers assets to be impaired if the carrying
        value exceeds the future projected cash flows from related operations. The
        Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of September 30, 2006, the Company expects these assets to be fully
        recoverable.
 
 Total
        amortization expense for the nine months ended September 30, 2006 and 2005,
        amounted to $222,400 and $216,528, respectively.
 
 Shares
        subject to mandatory redemption
 
 The
        Company has adopted Statement of Financial Accounting Standards No. 150, “Accounting
        for Certain Financial Instruments with Characteristics of both Liabilities
        and
        Equity”. FAS 150 established classification and measurement standards for three
        types of freestanding financial instruments that have characteristics of
        both
        liabilities and equity. Instruments within the scope of FAS 150 must be
        classified as liabilities within the Company’s Consolidated Financial Statements
        and be reported at settlement date value. The provisions of FAS 150 are
        effective for (1) instruments entered into or modified after May 31, 2003,
        and
        (2) pre-existing instruments as of July 1, 2003. In November 2003, through
        the
        issuance of FSP 150-3, the FASB indefinitely deferred the effective date
        of
        certain provisions of FAS 150, including mandatory redeemable instruments
        as
        they relate to minority interests in consolidated finite-lived
        entities.
 
 The
        Company issued new redeemable stock in September, 2005. The amount is presented
        as a liability on balance sheet at the fair market value on the date of issuance
        plus any interest amortized to the balance sheet date, see note 19.
 
 F-13
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Income
        taxes
 
 The
        Company has adopted Statement of Financial Accounting Standards No. 109,
        “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of
        deferred income tax liabilities and assets for the expected future tax
        consequences of temporary differences between income tax basis and financial
        reporting basis of assets and liabilities. Provision for income taxes consist
        of
        taxes currently due plus deferred taxes. There are no deferred tax amounts
        at
        September 30, 2006 and December 31, 2005.
 
 The
        charge for taxation is based on the results for the year as adjusted for
        items,
        which are non-assessable or disallowed. It is calculated using tax rates
        that
        have been enacted or substantively enacted by the balance sheet
        date.
 
 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 nine months ended September 30, 2006 for previously accrued income
          taxes.
 
 The
        provision for income taxes for the period ended September 30 consisted of
        the
        following
  2006
                
                2005Unaudited
                
                RestatedProvision
                    for China Income Tax
                
                $
                -
                
                $
                1,634,371Provision
                    for China Local Tax
                
                
                -
                
                
                181,597Total
                    provision for income taxes
                
                $
                -
                
                $
                1,815,968
  The
        following table reconciles the U.S. statutory rates to the Company’s effective
        tax rate for the nine months ended September 30:
 2006
                
                2005U.S.
                    statutory rates
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recoginized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                -
                
                
                33.0Effective
                    tax rate
                
                
                -
                %
                
                33.0
                %
  The
        estimated tax savings for the nine months ended September 30, 2006 amounted
        to
        $513,518. The net effect on earnings per share had the income tax been applied
        would decrease earnings per share from $0.03 to $0.005.
 
 Value
        added tax
 
 Enterprises
        or individuals who sell commodities, engage in repair and maintenance or
        import
        and export goods in the PRC are subject to a value added tax in accordance
        with
        Chinese laws. The value added tax standard rate is 17% of the gross sales
        price.
        A credit is available whereby VAT paid on the purchases of semi-finished
        products or raw materials used in the production of the Company’s finished
        products can be used to offset the VAT due on sales of the finished
        product.
  F-15
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          3 - Summary of significant accounting policies,
          (continued)**
 
 Taxes
        payable consisted of the followings:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedVAT
                    taxes payable
                
                $
                4,362,558
                
                $
                1,290,982Income
                    taxes payable
                
                
                -
                
                
                385,510Misc
                    taxes
                
                
                862
                
                
                5,838Totals
                
                $
                4,363,420
                
                $
                1,682,330
  Recently
        issued accounting pronouncements
 
 In
        February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
        Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
        for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
        No. 140, “Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
        simplify the accounting for certain hybrid instruments by permitting fair
        value
        remeasurement for any hybrid financial instrument that contains an embedded
        derivative, as well as, clarifies that beneficial interests in securitized
        financial assets are subject to FAS 133. In addition, FAS 155 eliminates
        a
        restriction on the passive derivative instruments that a qualifying
        special-purpose entity may hold under FAS 140. FAS 155 is effective for all
        financial instruments acquired, issued or subject to a new basis occurring
        after
        the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The adoption of SFAS No. 155 is not expected to have a
        material effect on the Company’s financial position or results of
        operations.
 
 In
        March
        2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
        Assets” (“FAS 156”), which amends SFAS No. 140. FAS 156 specifically
        provides guidance addressing the recognition and measurement of separately
        recognized servicing assets and liabilities, common with mortgage securitization
        activities, and provides an approach to simplify efforts to obtain hedge
        accounting treatment. FAS 156 is effective for all separately recognized
        servicing assets and liabilities acquired or issued after the beginning of
        an
        entity’s fiscal year that begins after September 15, 2006, with early
        adoption being permitted. The adoption of SFAS No. 156 is not expected to
        have a
        material effect on the Company’s financial position or results of
        operations.
 
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in a company’s financial statements in accordance with FAS 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
        measurement attribute for the financial statement recognition and measurement
        of
        a tax position taken or expected to be taken in a tax return. FIN 48 also
        provides guidance on derecognition, classification, interest and penalties,
        accounting in interim periods, disclosure and transition. The requirements
        of
        FIN 48 are effective for our fiscal year beginning January 1, 2007. The
        adoption of this interpretation is not expected to have a material effect
        on the
        Company’s financial position or results of operations.
  F-16
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 In
        September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
        which
        addresses the measurement of fair value by companies when they are required
        to
        use a fair value measure for recognition or disclosure purposes under GAAP.
        SFAS
        No. 157 provides a common definition of fair value to be used throughout
        GAAP
        which is intended to make the measurement of fair value more consistent and
        comparable and improve disclosures about those measures. SFAS No. 157 will
        be
        effective for an entity's financial statements issued for fiscal years beginning
        after November 15, 2007. The Company is currently evaluating the effect SFAS
        No.
        157 will have on its consolidated financial position, liquidity, or results
        of
        operations.
 
 In
        September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
        Defined
        Benefit Pension and Other Postretirement Plans−−an amendment of FASB Statements
        No. 87, 88, 106, and 132(R)". One objective of this standard is to make it
        easier for investors, employees, retirees and other parties to understand
        and
        assess an employer's financial position and its ability to fulfill the
        obligations under its benefit plans. SFAS No. 158 requires employers to fully
        recognize in their financial statements the obligations associated with
        single−employer defined benefit pension plans, retiree healthcare plans, and
        other postretirement plans. SFAS No. 158 requires an employer to fully recognize
        in its statement of financial position the overfunded or under funded status
        of
        a defined benefit postretirement plan (other than a multiemployer plan) as
        an
        asset or liability and to recognize changes in that funded status in the
        year in
        which the changes occur through comprehensive income. This Statement also
        requires an employer to measure the funded status of a plan as of the date
        of
        its year-end statement of financial position, with limited exceptions. SFAS
        No.
        158 requires an entity to recognize as a component of other comprehensive
        income, net of tax, the gains or losses and prior service costs or credits
        that
        arise during the period but are not recognized as components of net periodic
        benefit cost pursuant to SFAS No. 87.
 
 This
        Statement requires an entity to disclose in the notes to financial statements
        additional information about certain effects on net periodic benefit cost
        for
        the next fiscal year that arise from delayed recognition of the gains or
        losses,
        prior service costs or credits, and transition asset or obligation. Management
        does not currently believe adoption will have a material impact on the Company's
        financial position or results of operations.
 
 **Note
          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.
 
 F-17
 
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
          4 - Consolidated financial statements and condensed footnotes,
          (continued)**
 
 These
        consolidated financial statements have been prepared in accordance with
        generally accepted accounting principles in the United States for interim
        financial information and the instructions for Form 10-Q and Article 10 of
        Regulation S-X.
 
 Certain
        information and footnote disclosures that are normally included in financial
        statements presented in accordance with generally accepted accounting principles
        have been condensed or omitted. Management of the Company believes the
        disclosures made are adequate to make the information presented not misleading.
        The condensed consolidated financial statements should be read in conjunction
        with the Company’s audited financial statements included in its Annual Report on
        Form 10-K dated March 31, 2006.
 
 In
        the
        opinion of management, the unaudited consolidated financial statements reflect
        all adjustments (which include only normal recurring adjustments) necessary
        to
        present fairly the financial position of the Company as of September 30,
        2006
        and December 31, 2005, and the results of operations, changes in shareholders’
equity and cash flows for the nine months ended September 30, 2006 and 2005.
        Interim results are not necessarily indicative of full year performance because
        of the impact of seasonal and short-term variations.
 
 **Note
          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
        19
        have been excluded from the earnings per share calculation.
  The
        weighted average number of shares used to calculate EPS for the nine months
        ended September 30, 2006 (31,250,000), 2005 (31,250,000) reflect only the
        shares
        outstanding for those periods.
  F-18
 
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
          6 - Supplemental disclosure of cash flow information**
 
 Interest
        paid amounted to $1,376,863 and $1,344,433 for the nine months ended September
        30, 2006 and 2005, respectively.
 
 Income
        tax payments amounted
        to $0 and $488,344 for the nine months ended September 30, 2006 and 2005,
        respectively.
 
 **Note
          7 - Accounts receivable and allowance for doubtful
          accounts**
 
 The
        Company conducts its business operations in the People’s Republic of China.
        Account receivables include trade accounts due from the customers. Management
        believes that the trade accounts are fully collectible as these amounts are
        being collected throughout the year. Also, management reviews its accounts
        receivable on a regular basis to determine if the bad debt allowance is adequate
        and adjusts the allowance amount at the year end. The allowance for doubtful
        accounts as of September 30, 2006 and December 31, 2005 amounted to $1,403
        and
        $1,371, respectively.
 
 **Note
          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 $1,126,406
        and $4,960 outstand ing
        as of
        September 30, 2006 and December 31, 2005, respectively.
 
 The
          note
          receivable from related party represents a note from Yang Pu Automotive
          Investment Limited. Yang Pu Automotive Investment Limited is a Chinese
          registered limited liability company which is 100% indirectly owned by
          Mr. Yu
          Zuo Sheng. This loan was given to the Yang Pu for business purposes on
          November
          15, 2005. The note is in the amount of RMB 24,000,000, translated to $2,995,200,
          for one year with an interest rate at 7% and due at maturity. In 2006,
          Yang Pu
          Automotive Investment Limited paid $2,757,920 towards the principal of
          the loan.
          The Company will calculate the interest based on the new balance. The Company
          periodically reviews the financial statements of Yang Pu Automotive Investment
          Limited to determine its ability to repay the debt.
  F-19
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          9 - Prepaid expenses**
 
 Prepaid
        expenses at September 30, 2006 consisted of the followings:
  Current
                
                Long-term
                
                TotalRent
                
                $
                45,576
                
                $
                277,568
                
                $
                323,144Land
                    use right
                
                
                20,427
                
                
                493,593
                
                
                514,020Total
                
                $
                66,003
                
                $
                771,161
                
                $
                837,164
 The
        Company rented a dormitory for its employees during 2005. The rent is for
        ten
        years starting on January 1, 2006 at RMB 90,000 per quarter or RMB 360,000
        per
        year. The Company's prepayment at September 30, 2006 a mounted
        to RMB 2,552,470 or $323,144.
 
 The
          Company also entered into another rental agreement on July 21, 2005 to
          rent the
          land use right for its manufacture expansion. The total amount of the rental
          is
          RMB 8,067,400 for a period of 50 years starting on September 1, 2005. The
          Company’s prepayment at September 30, 2006 amoun ted
          to
          RMB 4,060,187 or $514,020.
 
 **Note
          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.
 
 This
        amount is refundable and bears no interest. The Company has a legal binding
        contract with their vendors for the guarantee deposit, which is to be returned
        to the Company at the end of the contract. The inventory is normally delivered
        within one month
        after the monies have been advanced. The total outstanding amount was $7,155,375
        and $10,716,293 as of September 30, 2006 and December 31, 2005,
        respectively.
 
 **Note
          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. This
        amount was loaned to General Steel Investment Co., Ltd. for business operations.
        In the second quarter of 2006, General Steel Investment Co., Ltd. advanced
        $1,300,000 to Golden Glister Holdings Limited for its operations. Golden
        Glister
        has agreed to pay back the amount on a short term basis. The Compan y
        had a
        receivable from Golden Glister for $850,400 and a payable to Golden Glister
        for
        $980,000 as of September 30, 2006 and December 31, 200 5,
        respectively. These receivable and payable are short term and are non interest
        bearing.
 
 F-20
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **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 and bear no interest
        rate. The table below summarizes the loans outstanding at September 30, 2006
        and
        December 31, 2005.
 
 F-21
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          12 - Short term loans - bank (continued)**
 September
                      30,
                  
                  December
                      31,2006
                  
                  2005Unaudited
                  
                  RestatedLoans
                      from China Bank, JingHai Branch, due November 2006. Monthly
                      interest only
                      payment at 6.138% per annum, secured by equipment and
                      property
                  
                  $
                  1,139,400
                  
                  $
                  1,116,000Loans
                      from Agriculture Bank, DaQiuZhuang Branch, due various dates
                      from October
                      2006 to April 2007. Monthly interest only payments in 2005
                      ranging from
                      from 6.696% to 6.975% per annum, guaranteed by an unrelated
                      third party
                      and secured by property and equipment
                  
                  
                  9,881,130
                  
                  
                  10,068,800Loan
                      from Construction Bank of China, JinHai Branch, due August
                      15, 2007.
                      Monthly interst only payment at 7.4604% per annum, secured
                      by
                      properties
                  
                  
                  1,538,190
                  
                  
                  1,004,400Loans
                      from ShangHai PuFa Bank, due various dates from November 2006
                      to July
                      2007. Monthly interest only payments ranging from 6.138% to
                      6.435% per
                      month, guaranteed by an unrelated third party
                  
                  
                  6,330,000
                  
                  
                  6,200,000Loans
                      from China Merchants Bank, due various dates from May 2007
                      to September
                      2007. Quarterly interest only payments, annual interest rate
                      of 6.1425%,
                      guaranteed by an unrelated third party
                  
                  
                  7,596,000
                  
                  
                  8,060,000Loan
                      from Construction Bank of China, due August 21, 2006 Monthly
                      interest only
                      payment at 7.4604% per annum, guaranteed by an unrelated third
                      party
                  
                  
                  -
                  
                  
                  669,600Loans
                      from Shenzhen Development Bank, Tianjin Branch due various
                      dates from
                      February to March 2007 Quarterly interest only payments ranging
                      from
                      5.856% to 5.859%, secured by inventories
                  
                  
                  5,064,000
                  
                  
                  -Totals
                  
                  $
                  31,548,720
                  
                  $
                  27,118,800
 
 F-22
  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
        at the bank as a guarantee deposit which is classified on the balance sheet
        as
        restricted cash.
 
 The
        Company has the following short term notes payable outstanding as for September
        30, 2006 and December 31, 2005:
 September
                    30,
                
                December
                    31,2006
                
                2005Unaudited
                
                RestatedChina
                    Bank, Jing Hai Branch, various amounts, due October 2006, restricted
                    cash
                    required 50% of loan amount, secured by land and property
                
                $
                1,468,560
                
                $
                1,438,400Agricultural
                    Bank of China, various amounts, due dates ranging between July
                    and October
                    2006, restricted cash required of 50% of loan amount, secured
                    by land and
                    property
                
                
                1,519,200
                
                
                1,488,000ShangHai
                    PuFa Bank, due November 2006, restricted cash required of 50%
                    of loan
                    balance, guaranteed by an unrelated third party
                
                
                2,532,000
                
                
                2,480,000Totals
                
                $
                5,519,760
                
                $
                5,406,400
  Total
          interest expense for the nine months ending September 30, 2006 and 2005
          on all
          debt amounted to $1,531,447
          and $1,344,433 ,
          respectively.
 
 **Note
          14 - Customer deposits**
 
 Customer
        deposits represent amounts advanced by customers on product orders. The product
        normally is shipped within nine months after receipt of the advance payment
        and
        the related sale is recognized in accordance with the Company’s revenue
        recognition policy. As of September 30, 2006 and December 31, 2005, customer
        deposits amounted to $1,369,060
        and $1,276,536, re spectively.
 
 F-23
  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 $1,833,168 and
        $1,261,080 in deposits due to sales representatives outstanding as of September
        30, 2006 and December 31, 2005, respectively.
 
 **Note
          16 - Major customers and suppliers**
 
 The
        Company has 5 major customers which represent approximately 31% and 41% of
        the
        Company’s total sales for the nine months ended September 30, 2006 and 2005,
        respectively. The Company did not have any one significant customer that
        represented more than 10% of the total sales for the three quarters ended
        September 30, 2006 and 2005.
 
 Four
        Customers accounted for 54% and 43% of total accounts receivable as of September
        30, 2006 and December 31, 2005, respectively.
 
 For
        the
        nine months ended September 30, 2006 and 2005, the Company purchases
        approximately 95% and 78%, respectively, of their raw materials from four
        major
        suppliers.
 
 **Note
          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 nine months ended September 30 consist of the
        following:
 2006
                
                2005Unaudited
                
                RestatedFinance/interest
                    expense
                
                $
                (1,880,668
                )
                $
                (1,348,949
                )Interest
                    income
                
                
                154,584
                
                
                45,279Other
                    nonoperating income
                
                
                408,240
                
                
                12,441Other
                    nonoperating expense
                
                
                (52,954
                )
                
                (17,110
                )Total
                    other expense
                
                $
                (1,370,798
                )
                $
                (1,308,339
                )
  Other
        nonoperating income includes the previously accrued income tax. During 2005,
        the
        Company has received approval from the P.R.C. local government for a two
        years
        income tax exemption and three years of 50% income tax rate reduction. The
        local
        Chinese tax authority waived the previously accrued tax accumulated prior
        to
        January 1, 2005 in the amount of $253,250 which was recorded as other
        nonoperating income for the nine months ended September 30, 2006 for previously
        accrued income taxes.
  F-24
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
          19** **-** **Reclassifications**
 
 Certain
        amounts for the nine months ended September 30, 2005 in the accompanying
        financial statements have been reclassified to conform to the 2006 presentation.
        These reclassifications have no effect on net income or cash flows.
 
 **Note
          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
          issuance  as
          a
          liability in the financial statements due to the mandatory redemption provision.
          The shares were recorded at fair market value on the date of issuance,
          which is
          the net cash proceeds, plus any accrued interest up to December 31, 2005.
          The
          difference between the net proceeds, $1,606,150, and the redemption amount,
          $2,294,497, which is $688,347, will be accrued and is amortized as interest
          expense over an 18 months period beginning in October 2005 and ending in
          March
          2007. The following table reconciles the September 30, 2006 carrying
          amount:
 Balance
                    at December 31, 2005
                
                $
                1,720,875Interest
                    amortized during the first nine months
                
                
                344,178Balance
                    at September 30, 2006
                
                $
                2,065,053
  F-25
  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 September 30, 2006 amounted to $458,898
          and
          $229,449 is the remaining amount left to be accrued and amortized through
          March
          2007. The Company amended its financial statements for the periods ended
          December 31, 2005 and March 31, 2006 to reflect the changes made to the
          accounting treatment of the redeemable stock. The original accounting treatment
          was to record the amount discounted at an average market rate as a liability
          with the difference between the discounted amount and the cash received
          treated
          as reduction in paid-in-capital and the difference between discounted amount
          and
          redemption value to be amortized over the 18 months from issuance
          date.
 
 **Note
          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
        $336,629 and $0 for the
        nine months ended September 30, 2006 and 2005, respectively. No contribution
        was
        made during the first nine months of 2005 because the Company contributed
        the
        total amount near year end of 2005.
  **Note
          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-26
 
 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-tonne electric furnace and a refiner furnace to produce
          high
          quality specialty steel using advanced technology. This type of specialty
          steel
          has not been 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.
 
 F-27
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          22 - Joint venture agreement with Baotou Steel
          (continued)**
 
 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 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
          September 30, 2006, the Company has not received the approval of the Baotou
          Steel Joint Venture and it is still under government review and maybe subject
          to
          further industry sector review by the relevant authorities in China in
          view of
          the sensitive nature of the steel industry. The management at this point
          is
          uncertain if and when the government approval will be granted. Currently
          none of
          the operations of Baotou Steel is consolidated into the Company’s financial
          statements as there is no ownership or control relationship between the
          Company
          and Baotou Steel at this time.
 
 F-28
  ITEM
          2.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
          OPERATIONS
 
 The
          following is management's discussion and analysis of certain significant
          factors
          that have affected our financial position and operating results during
          the
          periods included in the accompanying consolidated financial statements,
          as well
          as information relating to the plans of our current management. The following
          discussion and analysis should be read in conjunction with our consolidated
          financial statements and the related notes thereto and other financial
          information contained elsewhere in this Form 10Q.
 
 **Overview**
 
 Following
            the acquisition of ownership in General Steel Investment Co., Ltd. in
            October
            2004, we have shifted our main business focus to general steel products
            and
            steel manufacturing. As our 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 agricultural vehicles, tractors, shipping containers
            and in
            other specialty products.
 
 Daqiuzhuang
            Metal uses a traditional rolling mill production sequence, such as heating,
            rolling, cutting, annealing, and flattening to process slabs into steel
            sheets.
            The sheet sizes are approximately 2,000 mm (length) x 1,000 mm (width)
            x 0.75 to
            2.0 mm (thickness). Limited size adjustments are possible to meet order
            requirements. "Qiu Steel" is the registered name for our
            products.
 
 Daquizhuang
            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 operates on 10
            steel
            production lines capable of processing 400,00 tons
            of
            0.75-2.0 mm hot-rolled carbon steel sheets per year. By our estimate,
            we now
            maintain 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
            Agreement”) 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 launched 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 lad, 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 of 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 net proceeds of $1,606,150 after deducting $158,850 paid
            for
            commissions.
 
 **Results
          of Operations**
 
 Our
            results of operations are largely dependent on the level of general economic
            activity in China. Economic forecasts indicate continued fast pace growth
            in
            China in 2006. As a result, consumption of our steel products is expected
            to
            remain at a high level. We believe that we have successfully positioned
            itself
            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 its products and
            expanding
            production capacity. However, we do believe that the highly competitive
            market
            will exist throughout 2006, with pressures for shipment volumes and prices.
            In
            view of that, we will continue to focus on cost control and new market
            development. The management will concentrate on increasing sales by continuing
            to sign new distributors in new markets and continuing to establish provincial
            branch sales offices.
 
 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
          increased $21 million, or 80.38% from $26 million for the three months
          ended
          September 30, 2005 to $47 million for the three months ended September
          30, 2006.
          Shipments for the three months ended September 30, 2006 climbed 100% to
          109,912
          tons from 54,740 tons due to increased production capacity brought about
          by the
          four new production lines and increased productivity and market development.
          Average selling price per ton including sale of scrap for the three months
          ended
          September 30, 2006 decreased to $427 from $463 in the same period of 2005.
 
 Net
          sales
          increased $25 million, 34.68% from $72 million for the nine months ended
          September 30, 2005 to $97 million for the nine months ended September 30,
          2006.
          Shipments for the nine months ended September 30, 2006 climbed 61% to 229,819
          tons from 142,735 tons. Average selling price per ton including sale of
          scrap
          for the nine months ended September 30, 2006 decreased to $420 from $500
          in the
          same period of 2005. The decrease in sales price mainly resulted from the
          overall steel market downturn, but the impact was offset by the increase
          in
          sales volume.
  4
 
 Gross
          profit for the three months ended September 30, 2006 was approximately
          $1.55
          million, a decrease of 41.43% or $1.1 million from $2.65 million for the
          same
          period last year. Gross profit margin decreased to 3.3% from 10.2% for
          the three
          months ended September 30, 2006 and 2005.
 
 Gross
          profit for the nine months ended September 30, 2006 was approximately $4.5
          million, a decrease of 46% or $3.9 million from $8.4 million for the same
          period
          last year. Gross profit margin decreased to 4.7% from 11.6% for the nine
          months
          ended September 30, 2006 and 2005.
 
 This
            decrease in gross profit margin is mainly due to the decrease in average
            selling
            price. Since April 2005, the price of steel products has been decreasing
            globally due to the overall increase in steel supply. We have to adjust
            our
            products’ prices in order to stay competitive in this market.
 
 Management
            expects that the pressure on the selling price will be mitigated in the
            4th
            quarter of 2006 as a result of steel industry consolidation in China
            and overall
            increase in demand.
 
 **Cost
          of sales**
 
 Overall
          cost of sales increased to $45.4 million or 94% for the three months ended
          September 30, 2006 from $23.4 million for the same period of 2005. Cost
          of sales
          as percentage of sales increased from 89.8% to 96.7%. Average cost per
          ton was
          $413 and $427, respectively for the three months ended September 30, 2006
          and
          2005. In summary, although the average unit cost dropped, the cost of sales
          increased in the third quarter of 2006 due to the increase in the sales
          volume.
 
 Overall
          cost of sales increased to $92.4 million or 45.1% for the nine months ended
          September 30, 2006 from $63.7 million for the same period of 2005. Cost
          of sales
          as percentage of sales increased from 88.3% to 95.3%. Average cost per
          ton was
          $402 and $446, respectively for the nine months ended September 30, 2006
          and
          2005.
 
 **Selling,
          General and Administrative Expenses**
 
 Selling,
          general and administrative expenses, such as executive compensation, office
          expenses, legal and accounting charges, travel charges, and various taxes
          were
          $0.61 million for the three months ended September 30, 2006, compared to
          $0.52
          million for the same period of 2005, a 17.3% increase. A large component
          of the
          increase came from the legal and accounting expenses and investor and public
          relations charges for the public listing of the company.
 
 Selling,
          general and administrative expenses were $2.16 million for the nine months
          ended
          September 30, 2006, compared to $1.76 million for the same period of 2005,
          a
          22.7% increase.
 
 **Other
          income (expense)**
 
 Other
          income (expense) for the three months ended September 30, 2006 consisted
          mainly
          of finance charges, interest income and other non-operating income (expense).
          Interest expense was $0.65 million for the three months ended September
          30,
          2006, compared to $0.46 million for the same period in 2005. This increase
          was
          because the outstanding bank loans increased to $31.5 million from $26.2
          million
          as of September 30, 2006 and 2005, respectively. This increase in debt
          borrowing
          was mainly used for the construction of the four new production
          lines.
 
 Interest
          expense was $1.88 million for the nine months ended September 30, 2006,
          a 39.3%
          increase compared to $1.35 million for the same period in 2005.
 
 **Income
          taxes**
 
 We
            did
            not carry on any business and did not maintain any branch office in the
            United
            States during the nine months ended September 30, 2006 and 2005. Therefore,
            no
            provision for withholding or U.S. federal income taxes or tax benefits
            on the
            undistributed earnings and/or losses of the Company has been
            made.
  5
 
 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 been approved
            for
            this tax benefit and will be exempt from income tax for the years ended
            December
            31, 2005 and 2006 and 50% income tax reduction for the years ended December
            31,
            2007, 2008 and 2009.
 
 **Liquidity
          and capital resources**
 
 Due
            to
            the strong market demand for our products, we increased production capacity
            by
            adding four new production lines. We plan to maintain a higher-than-average
            debt
            to equity ratio to better position itself in this fast growing market.
            The bank
            loans are considered short term for the purpose of the preparation of
            the
            financial statements because they are renewable with the banks every
            year. Due
            to the recent joint venture agreement with Baotou Steel the Company is
            reserving
            cash for the first 30% of its capital contribution, approximately $3.7
            million,
            which needs to be paid when the business license for the Joint Venture
            is
            issued. Cash balance including restricted cash amounted to $6.9 million
            and
            $11.6 million as of September 30, 2006 and 2005.
 
 **Operating
          activities**
 
 Net
            cash
            used in operating activities for the nine months ended September 30,
            2006 was
            $7.53 million compared to $4.86 million provided by operating activities
            in the
            same period last year. This change was mainly due to increases in accounts
            receivable and inventory. Accounts receivable increased by $9.9 million
            compared
            to December 31, 2005. The increase is due to the credit sales we extended
            to our
            major customers and distributors as incentives starting from the second
            quarter
            of 2006. As the new production lines are now in full operation, approximately
            13,000 tons of additional products are now being produced monthly. Finished
            goods inventories have increased and the sales department has, since
            the
            beginning of second quarter, established 3 provincial sales offices to
            help
            increase sales and reduce these inventories. The finished goods inventory
            value
            on September 30, 2006 was 29,597 tons compared to 20,726 tons at December
            31,
            2005. The value of finished goods inventories also increased to $12.1
            million as
            of September 30, 2006 from $8.01 million as of December 31,
            2005.
 
 **Accounts
          Receivable**
 
 Accounts
            receivable were $11.07 million as of September 30, 2006 compared to $993,417
            at
            December 31, 2005. We previously collected deposits from our customers
            in
            advance. This increase in accounts receivable is mainly due to a change
            in the
            company’s collection approach. Starting in the second quarter of 2006, we have
            gone with a different collection methodology. As opposed to receiving
            deposits
            from its customers, we have extended credit sales to our major customers.
            We now have four new production lines in operation. The management is
            now taking
            measures to secure the existing customer base and attract new customers.
            One of
            the approaches is to extend credit sales to our major customers and distributors
            as incentives for buying our products. Extending credit to our major
            customers
            and distributors is also in line with a growing industrial trend in this
            competitive market. Our top four customers constitute 54% of our total
            accounts
            receivable balance as of September 30, 2006.
 
 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 within 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 adequant and adjusts the allowance amount
            if
            needed. We believe the accounts receivable is collectible. At September
            30,
            2006, no accounts were over 90 days past due.
 
 **Investing
          activities**
 
 Net
          cash
          used in investing activities was $1.02 million for the nine months ended
          September 30, 2006 compared to $0.08 million provided by investing activities
          in
          the same period last year. The cash has been spent on the construction
          of the
          new plant.
  6
 
 **Financing
          activities**
 
 Net
            cash
            provided by financing activities was $3.81 million for the nine months
            ended
            September 30, 2006 compared to $1.10 million used in investing activities
            in the
            same period last year. We signed a borrowing agreement with Shenzhen
            Development
            Bank to borrow $5,064,000 in the first quarter. The proceeds were mainly
            used to
            pay for inventory purchases and the construction of the new
            plant.
 
 **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
            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 its industrial water recycling system to reduce new
            water
            consumption and industrial water discharge.
 
 This
            wastewater recycling system is able to process 350 tons of wastewater
            daily. 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 are mandated.
            We
            believe that future costs relating to environmental compliance will not
            have a
            materially 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 materially 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 price risks chiefly 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."
 
 We
            expect
            better results in the fourth quarter of 2006 as average overall market
            prices
            improve compared to the first nine months of 2006. We also expect solid
            sales
            contribution as our three newly established provincial sales offices
            and six new
            distributors gain traction in their respective markets.
  7
 
 **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. Management regularly reviews aging of receivables for changes
            in
            payment trends by its customers, and records a reserve when they believe
            collection of amounts due are at risk. Accounts considered uncollectible
            are
            written off. At September 30, 2006, no accounts were over 90 days past
            due.
 
 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





**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.





9


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




10