**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




**Quarterly
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934**




**For
      the quarterly period ended September 30, 2008**





**Commission
      File Number 333-105903**




**General
      Steel Holdings, Inc.**


(Exact
      name of registrant as specified in its charter)




**Nevada**
              (State
                or other Jurisdiction of
              Incorporation
                or Organization)
            
            **412079252**
              (I.R.S.
                Employer Identification No.)




**Room
      2315, Kun Tai International Mansion Building,**


**Yi
      No 12, Chao Yang Men Wai Ave.**


**Chao
      Yang District, Beijing, China 100020**


(Address
      of Principal Executive Office, Including Zip Code)




**+86(10)58797346**


(Registrant's
      Telephone Number, Including Area Code)




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




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 filero
            Accelerated
                filero
            Non-accelerated
                filerx
            Smaller
                reporting companyo





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




As
      of
      November 14, 2008, 36,128,833 shares
      of common stock, par value $ 0.001 per
      share, were issued and outstanding.










**Table
      of Contents**





**Page**Part
                I: FINANCIAL INFORMATION:Item
                1. Financial Statements.
            
            2Consolidated
                Balance Sheets as of September 30, 2008 (Unaudited) and December 31,
                2007
            
            2Consolidated
                Statements of Operations and Other Comprehensive Income (Loss) (Unaudited)
                for the Three and Nine Months Ended September 30, 2008 and
                2007
            
            3Consolidated
                Statements of Shareholders’ Equity (Unaudited)
            
            4Consolidated
                Statements of Cash Flows (Unaudited) for the Nine Months Ended September
                30, 2008 and 2007
            
            5Notes
                to Consolidated Financial Statements (Unaudited)
            
            6Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations.
            
            40Item
                3. Quantitative and Qualitative Disclosures About Market
                Risks.
            
            61Item
                4. Controls and Procedures
            
            61Part
                II. OTHER INFORMATIONItem
                1. Legal Proceedings.
            
            62Item
                1A. Risk Factors
            
            62Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            71Item
                5. Other Information
            
            72Item
                6—Exhibits
            
            72Signatures
            
            73


-
          1
          -


**PART
      I – FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**


GENERAL
        STEEL HOLDINGS INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
  September 30,
              
              December 31,2008
              
              2007(Unaudited)ASSETSCURRENT
                  ASSETS:Cash
              
              $
              17,986,618
              
              $
              43,713,346Restricted
                  cash
              
              
              120,322,295
              
              
              8,391,873Accounts
                  receivable, net of allowance for doubtful accounts of
                  $295,896and
                  $148,224 as of September 30, 2008 and December 31, 2007,
                  respectively
              
              
              22,341,668
              
              
              11,225,678Accounts
                  receivable - related parties
              
              
              107,642
              
              
              565,631Notes
                  receivable
              
              
              27,872,010
              
              
              4,216,678Notes
                  receivable - restricted
              
              
              -
              
              
              12,514,659Short
                  term loan receivable - related parties
              
              
              -
              
              
              1,233,900Other
                  receivables
              
              
              4,513,675
              
              
              1,280,853Other
                  receivables - related parties
              
              
              806,758
              
              
              1,913,448Dividend
                  receivable
              
              
              628,762
              
              
              -Inventories
              
              
              123,139,732
              
              
              77,928,925Advances
                  on inventory purchases
              
              
              43,928,543
              
              
              58,170,474Advances
                  on inventory purchases - related parties
              
              
              8,119,284
              
              
              9,944,012Prepaid
                  expenses - current
              
              
              2,693,685
              
              
              1,109,222Deferred
                  tax assets
              
              
              2,151,690
              
              
              399,751374,612,362
              
              
              232,608,450PLANT
                  AND EQUIPMENT, net
              
              
              448,769,013
              
              
              218,263,367OTHER
                  ASSETS:Advances
                  on equipment purchases
              
              
              59,717
              
              
              742,061Investment
                  in unconsolidated subsidiaries
              
              
              9,903,047
              
              
              822,600Prepaid
                  expenses - non current
              
              
              529,959
              
              
              506,880Prepaid
                  expenses related party - non current
              
              
              256,025
              
              
              142,467Intangible
                  assets, net of accumulated amortization
              
              
              24,671,865
              
              
              21,756,709Note
                  issuance cost
              
              
              4,234,103
              
              
              3,564,546Total
                  other assets
              
              
              39,654,716
              
              
              27,535,263Total
                  assets
              
              $
              863,036,091
              
              $
              478,407,080LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              170,701,885
              
              $
              102,241,708Accounts
                  payable - related parties
              
              
              16,387,937
              
              
              14,302,738Short
                  term loans - bank
              
              
              82,705,042
              
              
              93,019,608Short
                  term loans - others
              
              
              62,093,562
              
              
              19,156,070Short
                  term loans - related parties
              
              
              3,394,160
              
              
              7,317,027Short
                  term notes payable
              
              
              185,654,700
              
              
              15,163,260Other
                  payables
              
              
              4,269,694
              
              
              3,343,684Other
                  payable - related parties
              
              
              4,883,327
              
              
              2,126,383Accrued
                  liabilities
              
              
              8,783,955
              
              
              5,248,863Customer
                  deposits
              
              
              123,483,928
              
              
              37,872,698Customer
                  deposits - related parties
              
              
              1,851,308
              
              
              9,211,736Deposits
                  due to sales representatives
              
              
              2,516,360
              
              
              3,068,298Taxes
                  payable
              
              
              23,468,246
              
              
              27,576,240Investment
                  payable
              
              
              7,022,400
              
              
              6,580,800Distribution
                  payable to minority shareholder
              
              
              5,211,577
              
              
              2,820,803Total
                  current liabilities
              
              
              702,428,081
              
              
              349,049,916NOTES
                  PAYABLE, net of debt discount of $27,035,121 and $34,559,584 as
                  ofSeptember
                  30, 2007 and December 31, 2007, respectively
              
              
              6,214,879
              
              
              5,440,416DERIVATIVE
                  LIABILITIES
              
              
              17,954,559
              
              
              28,483,308Total
                  liabilities
              
              
              726,597,519
              
              
              382,973,640MINORITY
                  INTEREST
              
              
              61,328,058
              
              
              42,044,266SHAREHOLDERS'
                  EQUITY:Preferred
                  stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899
                  sharesissued
                  and outstanding
              
              
              3,093
              
              
              3,093Common
                  Stock, $0.001 par value, 200,000,000 shares authorized, 35,916,283
                  and34,634,765
                  shares issued and outstanding as of September 30, 2008 andDecember
                  31, 2007, respectively
              
              
              35,916
              
              
              34,635Paid-in-capital
              
              
              36,303,329
              
              
              23,429,153Retained
                  earnings
              
              
              20,419,735
              
              
              22,686,590Statutory
                  reserves
              
              
              4,280,688
              
              
              3,632,325Contribution
                  receivable
              
              
              (959,700
              )
              
              (959,700
              )Accumulated
                  other comprehensive income
              
              
              15,027,453
              
              
              4,563,078Total
                  shareholders' equity
              
              
              75,110,514
              
              
              53,389,174Total
                  liabilities and shareholders' equity
              
              $
              863,036,091
              
              $
              478,407,080
 
 The
        accompanying notes are an integral part of these statements.
  -
            2
            -
 
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
 FOR
        THE
        THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (UNAUDITED)
 
 Three months ended
              
              Nine months endedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007REVENUES
              
              $
              325,911,063
              
              $
              345,384,337
              
              $
              781,918,147
              
              $
              504,247,052REVENUES
                  - RELATED PARTIES
              
              
              85,609,768
              
              
              -
              
              
              308,197,619
              
              
              -TOTAL
                  REVENUES
              
              
              411,520,831
              
              
              345,384,337
              
              
              1,090,115,766
              
              
              504,247,052COST
                  OF SALES
              
              
              335,945,348
              
              
              319,494,586
              
              
              762,394,709
              
              
              468,510,928COST
                  OF SALES - RELATED PARTIES
              
              
              81,923,077
              
              
              -
              
              
              298,217,731
              
              
              -TOTAL
                  COST OF SALES
              
              
              417,868,425
              
              
              319,494,586
              
              
              1,060,612,440
              
              
              468,510,928GROSS
                  PROFIT
              
              
              (6,347,594
              )
              
              25,889,751
              
              
              29,503,326
              
              
              35,736,124SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              12,327,687
              
              
              6,795,307
              
              
              28,363,729
              
              
              10,269,918INCOME
                  FROM OPERATIONS
              
              
              (18,675,281
              )
              
              19,094,444
              
              
              1,139,597
              
              
              25,466,206OTHER
                  EXPENSE (INCOME), NETInterest
                  income
              
              
              (646,330
              )
              
              (762,143
              )
              
              (2,103,747
              )
              
              (851,608
              )Interest/finance
                  expense
              
              
              6,872,475
              
              
              4,276,092
              
              
              19,148,850
              
              
              6,673,942Change
                  in fair value of derivative liabilities
              
              
              (29,884,899
              )
              
              -
              
              
              (4,769,030
              )
              
              -Gain
                  from debt extinguishment
              
              
              (7,168,500
              )
              
              -
              
              
              (7,168,500
              )
              
              -Other
                  nonoperating (income) expense, net
              
              
              (899,401
              )
              
              (597,181
              )
              
              (1,918,543
              )
              
              (1,443,748
              )Total
                  other (income) expense, net
              
              
              (31,726,655
              )
              
              2,916,768
              
              
              3,189,030
              
              
              4,378,586INCOME
                  (LOSS) BEFORE PROVISION FORINCOME
                  TAXES AND MINORITY INTEREST
              
              
              13,051,374
              
              
              16,177,676
              
              
              (2,049,433
              )
              
              21,087,620PROVISION
                  FOR INCOME TAXESCurrent
              
              
              (812,532
              )
              
              2,025,389
              
              
              1,146,714
              
              
              3,359,271Deferred
              
              
              (1,271,269
              )
              
              -
              
              
              (1,693,902
              )
              
              -Total
                  provision for income taxes
              
              
              (2,083,801
              )
              
              2,025,389
              
              
              (547,188
              )
              
              3,359,271NET
                  INCOME (LOSS) BEFORE MINORITY INTEREST
              
              
              15,135,175
              
              
              14,152,287
              
              
              (1,502,245
              )
              
              17,728,349LESS
                  MINORITY INTEREST
              
              
              (5,329,099
              )
              
              6,151,792
              
              
              116,247
              
              
              7,359,688NET
                  INCOME (LOSS)
              
              
              20,464,274
              
              
              8,000,495
              
              
              (1,618,492
              )
              
              10,368,661OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustments
              
              
              (198,267
              )
              
              374,568
              
              
              10,464,375
              
              
              1,196,827COMPREHENSIVE
                  INCOME
              
              $
              20,266,007
              
              $
              8,375,063
              
              $
              8,845,883
              
              $
              11,565,488WEIGHTED
                  AVERAGE NUMBER OF SHARESBasic
              
              
              35,687,891
              
              
              32,343,332
              
              
              35,157,579
              
              
              31,704,912Diluted
              
              
              35,687,891
              
              
              32,343,332
              
              
              35,157,579
              
              
              31,704,912EARNING
                  PER SHAREBasic
              
              $
              0.573
              
              $
              0.247
              
              $
              (0.046
              )
              $
              0.327Diluted
              
              $
              0.573
              
              $
              0.247
              
              $
              (0.046
              )
              $
              0.327
 
 The
        accompanying notes are an integral part of these statements.
  -
            3
            -
 
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY
 
 AccumulatedPreferred stock
              
              Common stock
              
              
              
              Retained earnings
              
              
              
              otherPaid-in
              
              Statutory
              
              
              
              Subscriptions
              
              comprehensiveShares
              
              Par value
              
              Shares
              
              Par value
              
              capital
              
              reserves
              
              Unrestricted
              
              receivable
              
              income
              
              TotalBALANCE,
                  January 1, 2007
              
              
              -
              
              $
              -
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              1,107,010
              
              $
              4,974,187
              
              $
              -
              
              $
              1,076,688
              
              $
              14,060,493-Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,368,661
              
              
              
              
              
              
              
              
              10,368,661Preferred
                  stock issued for acquistion of minority interest ,
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -net
                  of dividend distribution to Victory New
              
              
              3,092,899
              
              
              3,093
              
              
              
              
              
              
              
              
              8,370,907
              
              
              
              
              
              (2,188,203
              )
              
              
              
              
              
              
              
              6,185,797Common
                  stock issued for conversion of
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -redeemable
                  stock, $1.95/share
              
              
              
              
              
              
              
              
              1,176,665
              
              
              1,177
              
              
              2,293,320
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,294,497Common
                  stock issued for service, $1.32/share
              
              
              
              
              
              
              
              
              18,000
              
              
              18
              
              
              23,742
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              23,760Conversion
                  of warrants, $2.50
              
              
              
              
              
              
              
              
              2,120,000
              
              
              2,120
              
              
              5,297,880
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,300,000Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,196,827
              
              
              1,196,827BALANCE,
                  September 30, 2007, unaudited
              
              
              3,092,899
              
              $
              3,093
              
              
              34,564,665
              
              $
              34,565
              
              $
              22,857,207
              
              $
              1,107,010
              
              $
              13,154,645
              
              $
              -
              
              $
              2,273,515
              
              $
              39,430,035Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,057,260
              
              
              
              
              
              
              
              
              12,057,260Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,525,315
              
              
              (2,525,315
              )
              
              
              
              
              
              
              
              -Registered
                  Capital to be received from
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Baotou
                  Steel by 05/21/09
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (959,700
              )
              
              
              
              
              (959,700
              )Common
                  stock issued for compensation, $8.16
              
              
              
              
              
              
              
              
              70,100
              
              
              70
              
              
              571,946
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              572,016Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,289,563
              
              
              2,289,563-BALANCE,
                  December 31, 2007
              
              
              3,092,899
              
              $
              3,093
              
              
              34,634,765
              
              $
              34,635
              
              $
              23,429,153
              
              $
              3,632,325
              
              $
              22,686,590
              
              $
              (959,700
              )
              $
              4,563,078
              
              $
              53,389,174Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,618,492
              )
              
              
              
              
              
              
              
              (1,618,492
              )Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              648,363
              
              
              (648,363
              )
              
              
              
              
              
              
              
              -Common
                  stock issued for compensation, $7.16
              
              
              
              
              
              
              
              
              76,600
              
              
              77
              
              
              548,379
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              548,456Common
                  stock issued for compensation, $10.43
              
              
              
              
              
              
              
              
              150,000
              
              
              150
              
              
              1,564,350
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,564,500Common
                  stock issued for compensation, $6.66
              
              
              
              
              
              
              
              
              87,400
              
              
              87
              
              
              581,997
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              582,084Common
                  stock issued for compensation, $10.29
              
              
              
              
              
              
              
              
              90,254
              
              
              90
              
              
              928,582
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              928,672Common
                  stock transferred by CEO for compensation, $6.91
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              138,200
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              138,200Common
                  stock issued at $5/share
              
              
              
              
              
              
              
              
              140,000
              
              
              140
              
              
              699,860
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              700,000Notes
                  converted to common stock
              
              
              
              
              
              
              
              
              541,299
              
              
              541
              
              
              6,102,691
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,103,232Make
                  whole shares issued on notes conversion
              
              
              
              
              
              
              
              
              195,965
              
              
              196
              
              
              2,310,117
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,310,313Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,464,375
              
              
              10,464,375BALANCE,
                  September 30, 2008, unaudited
              
              
              3,092,899
              
              $
              3,093
              
              
              35,916,283
              
              $
              35,916
              
              $
              36,303,329
              
              $
              4,280,688
              
              $
              20,419,735
              
              $
              (959,700
              )
              $
              15,027,453
              
              $
              75,110,514
 
 The
        accompanying notes are an integral part of these statements.
  -
            4
            -
 
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 FOR
        THE
        NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 (UNAUDITED)
 
 2008
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  (loss) income
              
              $
              (1,618,492
              )
              $
              10,368,661Adjustments
                  to reconcile net income (loss) to cashprovided
                  by (used in) operating activities:Minority
                  interest
              
              
              116,247
              
              
              7,359,688Depreciation
              
              
              14,746,357
              
              
              5,491,604Amortization
              
              
              695,672
              
              
              429,662Bad
                  debt allowance
              
              
              19,038
              
              
              -(Gain)
                  Loss from debt extinguishment
              
              
              (7,168,500
              )
              
              -(Gain)
                  Loss on disposal of equipment
              
              
              12,839
              
              
              (4,013
              )Stock
                  issued for services and compensation
              
              
              2,197,413
              
              
              33,332Interest
                  expense accrued on mandatory redeemable stock
              
              
              2,629,701
              
              
              114,726Interest
                  expense accrued on short term loan to related parties
              
              
              -
              
              
              424,580Amortization
                  of deferred note issuance cost
              
              
              33,634
              
              
              -Amortization
                  of discount on convertible notes
              
              
              -
              
              
              -Change
                  in fair value of derivative instrument
              
              
              (4,769,030
              )
              
              -Make
                  whole shares interest expense on notes conversion
              
              
              2,310,312
              
              
              -Deferred
                  tax assets
              
              
              (1,693,903
              )
              
              -Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              41,524,834
              
              
              8,679,486Accounts
                  receivable - related parties
              
              
              25,765,034
              
              
              (12,179,328
              )Notes
                  receivable
              
              
              (22,858,410
              )
              
              (7,984,262
              )Other
                  receivables
              
              
              (7,297,322
              )
              
              (1,428,924
              )Other
                  receivables - related parties
              
              
              1,207,156
              
              
              (456,000
              )Inventories
              
              
              (31,222,516
              )
              
              (7,110,388
              )Advances
                  on inventory purchases
              
              
              22,843,097
              
              
              (61,418,795
              )Advances
                  on inventory purchases - related parties
              
              
              2,442,105
              
              
              (11,329,255
              )Prepaid
                  expense - current
              
              
              (1,373,246
              )
              
              (282,484
              )Prepaid
                  expense - current- related parties
              
              
              (17,204
              )
              
              -Prepaid
                  expense - non current
              
              
              45,632
              
              
              -Prepaid
                  expense - non current - related parties
              
              
              (101,914
              )
              
              -Accounts
                  payable
              
              
              43,609,254
              
              
              84,348,627Accounts
                  payable - related parties
              
              
              (55,827,778
              )
              
              710,128Other
                  payables
              
              
              (3,037,525
              )
              
              4,353,966Other
                  payable - related parties
              
              
              2,641,961
              
              
              (63,100,758
              )Accrued
                  liabilities
              
              
              1,079,105
              
              
              5,182,043Dividends
                  payable
              
              
              (463,548
              )
              
              -Customer
                  deposits
              
              
              77,729,355
              
              
              16,307,900Customer
                  deposits - related parties
              
              
              (7,818,786
              )
              
              -Taxes
                  payable
              
              
              (12,922,209
              )
              
              10,887,436Net
                  cash provided by (used in) operating activities
              
              
              83,458,363
              
              
              (10,602,368
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Cash
                  acquired from subsidiary
              
              
              2,767,004
              
              
              680,132Increase
                  in investment payable
              
              
              -
              
              
              6,270,720Advance
                  on equipment purchases
              
              
              717,477
              
              
              (207,056
              )Deposits
                  due to sales representatives
              
              
              (742,657
              )
              
              (332,087
              )Cash
                  proceeds from sale of equipment
              
              
              126,756
              
              
              43,652Purchase
                  of equipment
              
              
              (145,800,109
              )
              
              (12,159,159
              )Intangible
                  assets purchases
              
              
              (233,490
              )
              
              -Payment
                  to original shareholders
              
              
              (7,092,000
              )
              
              -Net
                  cash used in provided by investing activities
              
              
              (150,257,019
              )
              
              (5,703,798
              )CASH
                  FLOWS FINANCING ACTIVITIES:Restricted
                  cash
              
              
              (76,828,246
              )
              
              (1,633,346
              )Borrowings
                  from related parties
              
              
              -
              
              
              18,550,906Notes
                  receivable- restricted
              
              
              13,086,993
              
              
              -Borrowings
                  on short term loans - bank
              
              
              58,486,358
              
              
              52,924,877Payments
                  on short term loans - bank
              
              
              (76,145,055
              )
              
              (63,199,713
              )Borrowings
                  on short term loan - others
              
              
              59,267,608
              
              
              5,225,600Payments
                  on short term loans - others
              
              
              (50,134,207
              )
              
              (1,437,040
              )Borrowings
                  on short term loans - related parties
              
              
              3,326,184
              
              
              -Payments
                  on short term loans - related parties
              
              
              (7,651,657
              )
              
              -Borrowings
                  on short term notes payable
              
              
              193,373,616
              
              
              42,484,128Payments
                  on short term notes payable
              
              
              (78,079,302
              )
              
              (40,001,968
              )Cash
                  received on stock issuance
              
              
              -
              
              
              5,290,428Cash
                  received from shareholder
              
              
              -
              
              
              1,500,000Cash
                  contribution received from minority shareholders
              
              
              -
              
              
              783,840Cash
                  received from warrants conversion
              
              
              700,000
              
              
              -Payment
                  to minority shareholders
              
              
              -
              
              
              (4,291,634
              )Net
                  cash provided by financing activities
              
              
              39,402,292
              
              
              16,196,078EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              1,669,636
              
              
              59,978INCREASE
                  (DECREASE) IN CASH
              
              
              (25,726,728
              )
              
              (50,110
              )CASH,
                  beginning of period
              
              
              43,713,346
              
              
              6,831,549CASH,
                  end of period
              
              $
              17,986,618
              
              $
              6,781,439
 
 The
        accompanying notes are an integral part of these statements.
  -
            5
            -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 **Note
          1 – Background**
 
 General
          Steel Holdings, Inc. (the “Company”) was incorporated on August 5, 2002 in the
          state of Nevada. The Company through its 100% owned subsidiary, General
          Steel
          Investment operates a portfolio of Chinese steel companies serving various
          industries. The Company presently has four production subsidiaries: Daqiuzhuang
          Metal, Baotou Steel **–** General Steel Special Steel Pipe Joint
          Venture Co., Ltd., (“Baotou Steel Pipe Joint Venture”), Shaanxi Longmen Iron and
          Steel Co., Ltd. (“Longmen Joint Venture”), and Maoming Hengda Steel Group Co.,
          Ltd. The Company’s main products include rebar, hot-rolled carbon and silicon
          sheets and spiral-weld pipes.
 
 The
          following table reflects the Company’s current organization structure:
 
 
 
 On
          April
          27, 2007, Daqiuzhuang Metal and Baotou Iron and Steel Group Co., Ltd. ("Baotou
          Steel") entered into an Amended and Restated Joint Venture Agreement (the
          "Agreement"), amending the September 28, 2005 Joint Venture Agreement ("Original
          Joint Venture Agreement") which established Baotou Steel Pipe Joint Venture,
          a
          PRC limited liability company. The Agreement increased Daqiuzhuang Metal's
          ownership interest in the Joint Venture to 80%. Baotou Steel Pipe Joint
          Venture
          obtained its business license from the PRC on May 25, 2007 and started
          its
          normal operation in July 2007. See more discussion in Note 19 – Business
          combinations.
  -
              6
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 Baotou
          Steel Pipe Joint Venture is located in Kundulun District, Baotou city,
          Inner
          Mongolia, China. It produces and sells spiral welded steel pipes and primarily
          serves customers in the oil, gas and petrochemical markets.
 
 On
          May
          18, 2007, General Steel entered into a Purchase Agreement with Victory
          New
          Holdings Limited (“Victory New”), a British Virgin Islands registered company
          under the control of the Company’s Chairman, CEO and majority shareholder,
          Zuosheng Yu to acquire Victory New’s 30% interest in Tianjin Daqiuzhuang Metal
          Sheet Co. Ltd. (“Daqiuzhuang Metal”). General Steel agreed to issue to Victory
          New an aggregate of 3,092,899 shares of Series A preferred stock with a
          fair
          value of $8,374,000, and voting power of 30% of the combined voting power
          of
          General Steel’s common and preferred stock while outstanding. As a result of the
          acquisition, Daqiuzhuang Metal is a wholly owned subsidiary of the Company.
          See
          details in Note 20 – Business combinations.
 
 On
          May
          18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co.,
          Ltd.
          (“Yangpu Investment”) and injected registered capital totaling $13,030,000 (RMB
          110 million), into the investment. The total registered capital of Yangpu
          Investment is $14,333,000 (RMB 111 million), and Daqiuzhuang Metal has
          a 99.1%
          ownership interest in Yangpu Investment. The rest of Yangpu Investment
          is
          indirectly owned by , Zuosheng Yu, our Chairman and CEO.
  Qiu
          Steel
          Investment Co., Ltd. (“Qiu Steel Investment”) was founded on June 1, 2006. In
          June 2007, Yangpu Investment agreed to invest approximately $19,284,400
          (RMB 148
          million) through a capital injection and equity transfer with former
          shareholders. The total registered capital of Qiu Steel Investment is
          $19,545,000 (RMB150,000,000). As a result of the above mentioned equity
          transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel Investment
          making Qiu Steel Investment a subsidiary of Yangpu Investment and Daqiuzhuang
          Metal. The rest of Qiu Steel Investment is indirectly owned by , Zuosheng
          Yu,
          our Chairman and CEO.
 
 Yangpu
          Investment and Qiu Steel Investment are Chinese registered limited liability
          companies formed to acquire other businesses.
 
 On
          June
          15, 2007, General Steel and Shaanxi Longmen Iron and Steel (Group) Co.,
          Ltd., a
          PRC limited liability company (“Longmen Group”), formed Longmen Joint Venture
          effective June 1, 2007. General Steel contributed RMB300 million or
          approximately $39,450,000 through its subsidiaries, Daqiuzhuang Metal and
          Qiu
          Steel Investment, to the Longmen Joint Venture. General Steel and Longmen
          Group
          own a 60% and 40% ownership interest, respectively, in Longmen Joint Venture.
          The Longmen Joint Venture obtained its business license from the PRC on
          June 22,
          2007. See more discussion in Note 20 – Business combinations.
 
 Longmen
          Joint Venture is located in Hancheng city, Shaanxi province, China. Longmen
          Joint Venture is the largest integrated steel producer in Shaanxi province
          that
          uses iron ore and coke as primary raw materials for steel production. Longmen
          Joint Venture produces pig iron, crude steel, reinforced bars and high-speed
          wire. Longmen Joint Venture is also engaged in several other business
          activities, most of which are related to steel manufacturing. These include
          the
          production of coke and the production of iron ore pellets from taconite,
          transportation services and real estate and hotel operations. These operations
          are all located in Hancheng city and primarily serve regional customers
          in the
          construction industry.
  -
              7
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 On
          September 24, 2007, Longmen Joint Venture acquired 74.92% ownership interest
          in
          Environmental Protection Industry Development Co., Ltd., a PRC limited
          liability
          company (“EPID”) engaging in recycling steel production waste, for $2.4 million
          (RMB 18 million), and a 36% equity interest in Hualong Fire Retardant Materials
          Co., Ltd., a PRC limited liability company (“Hualong”) engaging in producing
          fire retardant material for steel production, for $430,000 (RMB 3 million).
          The
          parties agreed to make the effective date of the transaction July 1,
          2007.
 
 On
          January 14, 2008, the Company, through Longmen Joint Venture, completed
          its
          acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co.,
          Ltd.
          (“Tongxing”). The joint venture contributed its land use right of 217,487 square
          meters (approximately 53 acres) with appraised value of approximately $4.1
          million (RMB 30 million). Pursuant to the agreement, the land will be converted
          into shares valued at approximately $3.1 million (RMB 23 million), providing
          the
          Joint Venture stake of 22.76% ownership in Tongxing and making it Tongxing’s
          largest and controlling shareholder. The parties agreed to make the effective
          date of the transaction January 1, 2008. The acquisition is accounted for
          as
          acquisition under common control. See more detail in Note 19 – Business
          combinations.
 
 On
          June
          25, 2008, the Company and Tianjin Qiu Steel Investment (“Qiu Steel Investment”)
          entered into an equity purchase agreement (the “Purchase Agreement”) with
          Maoming Hengda Steel Group Limited (the “Henggang”), in which the Company
          contributed $7.1 million (RMB 50 million) through its subsidiary, Qiu Steel,
          to
          Henggang original shareholders in exchange for 99% of the equity of Henggang.
          The acquisition was completed and became effective June 30, 2008. See
          Note 19 – Business combinations. Henggang is a steel products processor
          located in Maoming city, Guangdong province, in China’s southern coastal region.
          Production capacity at the facility is 1.8 million tons annually, with
          the
          majority of production focused on high-speed wire, an industrial steel
          product
          used in construction. The facility has been operating at approximately
          10% of
          production capacity due to a redirection of corporate focus by the previous
          owners.
 
 On
          August
          11, 2008, the Company through its subsidiary, Longmen Joint Venture, completed
          its acquisition of a controlling interest in Beijing Hua Tian Yu Long
          International Steel Trade Co., Ltd. The Longmen Joint Venture paid $128,265
          (RMB
          876,731.71) for 50% equity based on the appraisal value on June 30,
          2008.
 
 **Note
          2 – Summary of significant accounting policies**
 
 Basis
          of presentation
 
 The
          consolidated financial statements of the Company reflect the activities
          of the
          following directly and indirectly owned subsidiaries:
 
 PercentageSubsidiary
                
                
                
                Of
                    OwnershipGeneral
                    Steel Investment Co., Ltd.
                
                
                British Virgin Islands
                
                
                100.0
                %Tianjin
                    Daqiuzhuang Metal Sheet Co., Ltd.
                
                
                P.R.C.
                
                
                100.0
                %Baotou
                    Steel – General Steel Special Steel Pipe Joint Venture Co.,
                    Ltd.
                
                
                P.R.C.
                
                
                80.0
                %Yangpu
                    Shengtong Investment Co., Ltd.
                
                
                P.R.C.
                
                
                99.1
                %Qiu
                    Steel Investment Co., Ltd.
                
                
                P.R.C.
                
                
                98.7
                %Shaanxi
                    Longmen Iron and Steel Co. Ltd.
                
                
                P.R.C.
                
                
                60.0
                %Maoming
                    Hengda Steel Group Co., Ltd.
                
                
                P.R.C.
                
                
                99.0
                %
  -
              8
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          accompanying financial statements have been prepared in accordance with
          accounting principles generally accepted in the United States of America.
          The
          accompanying consolidated financial statements include the accounts of
          all
          directly and indirectly owned subsidiaries listed above. All material
          intercompany transactions and balances have been eliminated in the
          consolidation.
 
 Management
          has included all normal recurring adjustments considered necessary to give
          a
          fair presentation of operating results for the periods presented. Interim
          results are not necessarily indicative of results for a full year. The
          information included in this Form 10-Q should be read in conjunction with
          information included in the 2007 annual report filed on Form 10-K.
 
 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
          financial
          statements and accompanying notes. Significant accounting estimates reflected
          in
          the Company’s financial statements include the useful lives of and impairment
          for property, plant and equipment, potential losses on uncollectible receivables
          and the fair value of financial instruments. Actual results could differ
          from
          these estimates.
 
 Concentration
          of risks
 
 The
          Company's operations are carried out in the PRC. Accordingly, the Company's
          business, financial condition and results of operations may be influenced
          by the
          political, economic and legal environment in the PRC, and by the general
          state
          of the PRC's economy. The Company's operations in the PRC are subject to
          specific considerations and significant risks not typically associated
          with
          companies in North America and Western Europe. The Company's results may
          be
          adversely affected by changes in governmental policies with respect to
          laws and
          regulations, anti-inflationary measures, currency conversion and remittance
          abroad, and rates and methods of taxation, among other things.
 
 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 on September
          30, 2008 and December
          31, 2007 amounted
          to $138,308,913 and
          $53,817,485, respectively, of which no deposits are covered by insurance.
          The
          Company has not experienced any losses in such accounts and believes it
          is not
          exposed to any risks on its cash in bank accounts.
 
 The
          Company had five major customers, which represented approximately 41% and
          63% of
          the Company’s total sales for the three months ended September
          30, 2008 and 2007 ,
          respectively, and approximately 36% and 58% of the Company’s total sales for the
          nine months ended September
          30, 2008 and 2007 ,
          respectively. Five customers accounted for 0.5% and 0% of total accounts
          receivable as of September
          30, 2008 ,
          and December
          31, 2007 ,
          respectively.
  -
              9
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          purchase of raw materials from five major suppliers represent approximately
          34%
          and 26% of the Company’s total purchase for the three months ended September 30,
          2008 and 2007, respectively, and 32% and 53% of the Company’s total purchase for
          the nine months ended September 30, 2008 and 2007. Five vendors accounted
          for
          4.6% and 11% of total accounts payable as of September
          30, 2008 and December
          31, 2007 ,
          respectively.
 
 Revenue
          recognition
 
 The
          Company's revenue recognition policies are in compliance with Staff Accounting
          Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
          customers when a formal arrangement exists, the price is fixed or determinable,
          the delivery is completed, no other significant obligations of the Company
          exist
          and collectability is reasonably assured. Payments received before all
          of the
          relevant criteria for revenue recognition are recorded as customer deposits.
          Sales revenue represents the invoiced value of goods, net of value-added
          tax
          (VAT). All of the Company’s products sold in the PRC are subject to a Chinese
          value-added tax at a rate of 13% to 17% of the gross sales price. This
          VAT may
          be offset by VAT paid by the Company on raw materials and other materials
          included in the cost of producing the finished product.
 
 Foreign
          currency translation and other comprehensive income
 
 The
          reporting currency of the Company is the US dollar. The Company uses the
          local
          currency, Renminbi (RMB), as its functional currency. Assets and liabilities
          are
          translated at the unified exchange rate as quoted by the People’s Bank of China
          at the end of the period. Translation adjustments resulting from this process
          are included in accumulated other comprehensive income in the statement
          of
          shareholders’ equity. Transaction gains and losses that arise from exchange rate
          fluctuations on transactions denominated in a currency other than the functional
          currency are included in the results of operations as incurred.
 
 Translation
          adjustments resulting from this process are included in accumulated other
          comprehensive income and amounted to ($198,267) and $374,568 for the three
          months ended September 30, 2008 and 2007, respectively and $10,464,375
          and
          $1,196,827 for the nine months ended September
          30, 2008 and
          2007, respectively. The balance sheet amounts, with the exception of equity
          at September
          30, 2008 and December
          31, 2007 were
          translated at 6.82 RMB and 7.29 RMB to $1.00, respectively. The equity
          accounts
          were stated at their historical rate. The average translation rates applied
          to
          income statement accounts for the nine months ended September
          30, 2008 and 2007 were
          6.97 RMB, and 7.66 RMB, respectively. Cash flows are also translated at
          average
          translation rates for the period, therefore, amounts reported on the statement
          of cash flows will not necessarily agree with changes in the corresponding
          balances on the balance sheet.
 
 Financial
          instruments
 
 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.
  -
              10
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          Company considers the carrying amount of cash, accounts receivable, other
          receivables, accounts payable, accrued liabilities, 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.
 
 The
          Company also analyzes all financial instruments with features of both
          liabilities and equity under SFAS 150, “Accounting for Certain Financial
          Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
          Settled in, a Company’s Own Stock.” Additionally, the Company analyzes
          registration rights agreements associated with any equity instruments issued
          to
          determine if penalties triggered for late filing should be accrued under
          FSP
          EITF 00-19-2, “Accounting for Registration Payment Arrangements.”
 
 In
          December 2007, the Company issued convertible notes totaling $40,000,000
          (“Notes”) and 1,154,958 warrants. Both the warrants and the conversion option
          embedded in the Notes meet the definition of a derivative instrument in
          SFAS
          133, “Accounting for Derivative Instruments and Hedging Activities.” Therefore
          these instruments are accounted for as derivative liabilities and
          marked-to-market each reporting period. The change in the value of the
          derivative liabilities is charged against or credited to income.
 
 The
          Company adopted SFAS 157, “Fair Value Measurements” on January 1, 2008. SFAS 157
          defines fair value, establishes a three-level valuation hierarchy for
          disclosures of fair value measurement and enhances disclosures requirements
          for
          fair value measures. The three levels are defined as follow:
 
 Level
          1
          inputs to the valuation methodology are quoted prices (unadjusted) for
          identical
          assets or liabilities in active markets.
 
 Level
          2
          inputs to the valuation methodology include quoted prices for similar assets
          and
          liabilities in active markets, and inputs that are observable for the assets
          or
          liability, either directly or indirectly, for substantially the full term
          of the
          financial instruments.
 
 Level
          3
          inputs to the valuation methodology are unobservable and significant to
          the fair
          value.
 
 The
          Company’s investment in unconsolidated subsidiaries amounted to $9,903,047 as of September
          30, 2008 .
          Since
          there is no quoted or observable market price for the fair value of similar
          long
          term investment, the Company then used the level 3 inputs for its valuation
          methodology. The determination of the fair value was based on the capital
          investment that the Company contributed. The carrying value of the long
          term
          investments approximated the fair value as of September 30, 2008.
 
 In
          2007,
          the Company issued convertible notes in the aggregate principal amount
          of
          $40,000,000 and warrants to purchase 1,154,958 shares of common stock of
          the
          Company. Pursuant to SFAS 133 and EITF 00-19, the Company determined that
          both
          the warrants and the conversion option embedded in the notes meet the definition
          of a derivative instrument and must be carried as a liability and marked
          to
          market for each reporting period. As of September 30, 2008, the Company
          revalued
          the derivative liabilities using Cox Rubenstein Binomial Model, defined
          in SFAS
          157 as level 3 inputs, and recorded the change in earnings. As a result,
          the
          derivative liability is carried on the balance sheet at its fair value.
  -
              11
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 As
          of
          September 30, 2008, the carrying value of the convertible notes amounted
          to $6,214,879 .
          The
          Company determined the fair value of the convertible notes using the level
          three
          inputs to the Binomial Model and determined that the fair value amounted
          to
          approximately $18 million due to the increase in the Company’s common stock
          price.
 
 Carrying Value
                  as of
                  September 30,
                  2008
                
                Fair Value Measurements at September 30,
                  2008 Using Fair Value HierarchyLevel
                    1
                
                
                Level
                    2
                
                
                Level
                    3AssetsLong
                    term investments
                
                $
                9,903,047
                
                
                
                
                
                
                
                $
                9,903,047LiabilitiesDerivative
                    liabilities
                
                $
                17,954,559
                
                
                
                
                
                
                
                $
                17,954,559Convertible
                    notes payable
                
                $
                6,214,879
                
                
                
                
                
                
                
                $
                6,214,879
 
 Except
          for the investments and derivative liabilities, the Company did not identify
          any
          other assets or liabilities that are required to be presented on the balance
          sheet at fair value in accordance with SFAS 157.
 
 Cash
          and cash equivalents
 
 Cash
          and
          cash equivalents include cash on hand and demand deposits in banks with
          maturities of less than three months.
 
 Restricted
          cash
 
 The
          Company has notes payable outstanding with various banks and is required
          to keep
          certain amounts on deposit that are subject to withdrawal
          restrictions.
 
 Accounts
          receivable and allowance for doubtful accounts
  The
          Company conducts its business operations in the People’s Republic of China.
          Accounts receivable include trade accounts due from the customers. An allowance
          for doubtful account is established and recorded based on managements’
assessment of potential losses based on the credit history and relationship
          with
          the customers. Management reviews its accounts receivable on a regular
          basis to
          determine if the bad debt allowance is adequate, and adjusts the allowance
          when
          necessary. The Company writes off receivables and any related allowance
          when
          uncollectible amounts become known.
 
 Notes
          receivable
 
 Notes
          receivable represent trade accounts receivable due from various customers
          where
          the customers’ banks have guaranteed the payment of the receivables. This amount
          is non-interest bearing and is normally paid within three to six months.
          The
          Company has the ability to submit request for payment to the customer’s bank
          earlier than the scheduled payment date, but will incur an interest charge
          and a
          processing fee. The Company had $27,872,010 and
          $4,216,678 of notes receivable outstanding as of September
          30, 2008 and December
          31, 2007 ,
          respectively.
  -
              12
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 Restricted
          notes receivable represents notes pledged as collateral for short term
          loans
          from banks. As of September
          30, 2008 and December
          31, 2007 ,
          restricted notes receivable amounted to $0 and $12,514,659, respectively.
 
 Inventories
 
 Inventories
          are stated at the lower of cost or market using weighted average method.
          Management reviewed inventories for obsolescence or cost in excess of net
          realizable value periodically and determined that inventories as of September
          30, 2008 is fully realizable.
 
 Shipping
          and handling
 
 Shipping
          and handling for raw materials purchased are included in cost of goods
          sold.
          Shipping and handling cost incurred for shipping of finished products to
          customers are included in selling expenses. Shipping and handling expenses
          related to purchases of material and sales of finished goods for the three
          months ended September 30, 2008 and 2007 amounted to $2,215,280 and $987,724,
          respectively. Shipping and handling for the nine months ended September
          30, 2008
          and 2007 amounted to $3,837,572 and $1,360,302, respectively.
 
 Intangible
          assets
 
 All
          land
          in the People’s Republic of China is owned by the government. However, the
          government grants “land use right” to use the land. Daqiuzhuang Metal acquired
          land use rights during the years ended 2000 and 2003 for a total of $3,167,483.
          These land use rights are for 50 years and expire in 2050 and 2053. However,
          Daqiuzhuang Metal's initial business license had a ten-year term. Therefore,
          management elected to amortize the land use rights over the ten-year business
          term. Daqiuzhuang Metal became a Sino-Foreign Joint Venture in 2004, and
          obtained a new business license for twenty years; however, the Company
          decided
          to continue amortizing the land use rights over the original ten-year business
          term. Longmen
          Group contributed land use rights for a total amount of $19,823,885 to
          the
          Longmen Joint Venture. The land use rights are for 50 years and expire
          in 2048
          to 2052. Henggang has land use rights amounted to $2,037,560 for 50 years
          and
          expire in 2054.
 
 Entity
                
                Original Cost
                
                Years of ExpirationDaqiuzhuang
                    Metal
                
                $
                3,167,483
                
                
                2050 & 2053Longmen
                    Joint Venture
                
                $
                19,823,885
                
                
                2048 & 2052Maoming
                    Hengda Steel Group Co., Ltd
                
                $
                2,037,560
                
                
                2054
 
 Plant
          and equipment, net
 
 Plant
          and
          equipment are stated at cost less accumulated depreciation. Depreciation
          is
          computed using the straight-line method over the estimated useful lives
          of the
          assets with 3%-5% residual value.
  -
              13
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          estimated useful lives are as follows:
 
 Property
                    and plant
                
                
                10-40
                    YearsMachinery
                    & Equipment
                
                
                10-30
                    YearsOffice
                    equipment and furniture
                
                
                5
                    YearsMotor
                    vehicles
                
                
                5
                    Years
 
 Construction
          in progress represents the costs incurred in connection with the construction
          of
          buildings or new additions to the Company’s plant facilities. No depreciation is
          provided for construction in progress until such time as the assets are
          completed and are placed into service. Maintenance, repairs and minor renewals
          are charged directly to expense as incurred. Major additions and betterment
          to
          buildings and equipment are capitalized. Interest incurred during construction
          is capitalized into construction in progress. All other interest is expensed
          as
          incurred.
 
 Long
          lived assets, including plant, equipment and intangible assets are reviewed
          annually or more often if necessary, to determine whether their carrying
          value
          has become impaired. The Company considers assets to be impaired if the
          carrying
          value exceeds the future projected cash flows from related operations.
          The
          Company also re-evaluates the periods of depreciation and amortization
          to
          determine whether subsequent events and circumstances warrant revised estimates
          of useful lives. As of September 30, 2008, the Company expects these assets
          to
          be fully recoverable.
 
 Investments
          in unconsolidated subsidiaries
 
 Subsidiaries
          in which the Company has the ability to exercise significant influence,
          but does
          not have a controlling interest is accounted for using the equity method.
          Significant influence is generally considered to exist when the Company
          has an
          ownership interest in the voting stock between 20% and 50%, and other factors,
          such as representation on the Board of Directors, voting rights and the
          impact
          of commercial arrangements, are considered in determining whether the equity
          method of accounting is appropriate. In December 2007, the Company acquired
          27%
          of ownership interest in Xi’an Delong Powder Engineering Materials Co., Ltd.,
          through its subsidiary EPID, for $875,400. This investment is accounted
          for by
          the equity method.
 
 The
          Company’s newly acquired subsidiary, Hancheng Tongxing Metallurgy Co., Ltd.
          invested in several companies from 2004 to 2007; investments in these
          unconsolidated subsidiaries totaled $ 9,903,047 as of
          September 30, 2008. Since Tongxing does not have the ability to exercise
          control
          or significant influence over the investee companies, therefore, the investments
          are accounted for under the cost method.
 
 Unconsolidated subsidiary
                
                Year acquired
                
                Amount invested
                
                % ownedShanxi
                    Daxigou Mining Co.,Ltd
                
                
                2004
                
                $
                729,500
                
                
                11Shanxi
                    Xinglong Thermoelectric Co.,Ltd
                
                
                2004-2007
                
                
                4,832,208
                
                
                37.6Shanxi
                    Longgang Group Baoji roll-forming steel Co.,Ltd
                
                
                2005
                
                
                612,780
                
                
                23.81Shanxi
                    Longgang Group Xian steel Co.,Ltd
                
                
                2005
                
                
                145,900
                
                
                10Shanxi
                    Longgang Group Co.,Ltd
                
                
                2003-2004
                
                
                1,889,405
                
                
                3.8Huashan
                    Metallurgical Equipment Co. Ltd.
                
                
                2003
                
                
                72,950
                
                
                25Hejin
                    Liyuan Washing Coal Co.Ltd.
                
                
                2006
                
                
                218,850
                
                
                38Hancheng
                    Jinma Coking Co.Ltd.
                
                
                2006
                
                
                498,979
                
                
                40Xian
                    Delong Powder Engineering Materials Co., Ltd.,
                
                
                2006
                
                
                902,475
                
                
                27Total
                
                
                
                
                $
                9,903,047
  -
              14
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 Total
          investment in unconsolidated subsidiaries amounted to $9,903,047 and
          $822,600 as of September 30, 2008 and December 31, 2007, respectively.
 
 Short-term
          notes payable
 
 Short-term
          notes payable are lines of credit extended by banks. When purchasing raw
          materials, the Company often issues a short-term note payable to the vendor.
          This short-term note payable bears no interest and is guaranteed by the
          bank for
          its complete face value and usually mature within three to six months period.
          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.
 
 Earnings
          per share
 
 The
          Company reports earnings per share in accordance with the provisions of
          SFAS
          128, "Earnings Per Share." SFAS 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 are 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.
 
 Income
          taxes
 
 Deferred
          income taxes are recognized for temporary differences between the tax bases
          of
          assets and liabilities and their reported amounts in the financial statements,
          net operating loss carry forwards and credits, by applying enacted statutory
          tax
          rates applicable to future years. Deferred tax assets are reduced by a
          valuation
          allowance when, in the opinion of management, it is more likely than not
          that
          some portion or all of the deferred tax assets will not be realized. Current
          income taxes are provided for in accordance with the laws of the relevant
          taxing
          authorities.
 
 The
          Company reports income taxes pursuant to SFAS 109, “Accounting for Income
          Taxes”. SFAS 109 requires the recognition of deferred income tax liabilities
          and
          assets for the expected future tax consequences of temporary differences
          between
          income tax basis and financial reporting basis of assets and liabilities.
          Provision for income taxes consists of taxes currently due plus deferred
          taxes.
          The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in
          Income Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as
          a benefit only if it is “more likely than not” that the tax position would be
          sustained in a tax examination, with a tax examination being presumed to
          occur.
          The amount recognized is the largest amount of tax benefit that is greater
          than
          50% likely of being realized on examination. For tax positions not meeting
          the
“more likely than not” test, no tax benefit is recorded. The adoption had no
          effect on the Company’s financial statements.
  -
              15
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 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. Deferred
          tax assets are recognized to the extent that it is probable that taxable
          profit
          will be available against which deductible temporary differences can be
          utilized. Deferred tax is calculated using tax rates that are expected
          to apply
          to the period when the asset is realized or the liability is settled. Deferred
          tax is charged or credited in the income statement, except when it is related
          to
          items credited or charged directly to equity, in which case the deferred
          tax is
          also dealt with in equity. Deferred tax assets and liabilities are offset
          when
          they relate to income taxes levied by the same taxation authority and the
          Company intends to settle its current tax assets and liabilities on a net
          basis.
 
 Share-based
          compensation
 
 The
          Company accounts for equity instruments issued in exchange for the receipt
          of
          goods or services from other than employees in accordance with SFAS 123R,
          “Accounting for Stock-Based Compensation,” and the conclusions reached by EITF
          96-18, “Accounting for Equity Instruments That Are Issued to Other Than
          Employees for Acquiring or in Conjunction with Selling Goods or Services.” Costs
          are measured at the estimated fair market value of the consideration received
          or
          the estimated fair value of the equity instruments issued, whichever is
          more
          reliably determinable. The value of equity instruments issued for consideration
          other than employee services is determined on the earlier of a performance
          commitment or completion of performance by the provider of goods or services
          as
          defined by EITF 96-18. In the case of equity instruments issued to consultants,
          the fair value of the equity instrument is recognized over the term of
          the
          consulting agreement.
 
 Minority
          interest
 
 Minority
          interest consists of the interest of minority shareholders in the subsidiaries
          of the Company. As of September
          30, 2008 and December
          31, 2007 ,
          minority interest amounted to $61,328,058 and
          $42,044,266, respectively.
 
 Reclassifications
 
 Certain
          prior period amounts have been reclassified to conform to the current period
          presentation. These reclassifications have no effect on net income or cash
          flows.
 
 Recently
          issued accounting pronouncements
 
 In
          February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
          Assets and Financial Liabilities—including an amendment of FASB Statement No.
          115 (“FAS 159”). SFAS 159 permits companies to choose to measure many financial
          instruments and certain other items at fair value that are not currently
          required to be measured at fair value. The objective of SFAS 159 is to
          provide
          opportunities to mitigate volatility in reported earnings caused by measuring
          related assets and liabilities differently without having to apply hedge
          accounting provisions. SFAS 159 also establishes presentation and disclosure
          requirements designed to facilitate comparisons between companies that
          choose
          different measurement attributes for similar types of assets and liabilities.
          SFAS 159 will be effective in the first quarter of fiscal 2009. The Company
          chose not to elect the option to measure the fair value of eligible financial
          assets and liabilities
  -
              16
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 In
          December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
          Consolidated Financial Statements - an amendment of Accounting Research
          Bulletin
          No. 51”, which establishes accounting and reporting standards for ownership
          interests in subsidiaries held by parties other than the parent, the amount
          of
          consolidated net income attributable to the parent and to the noncontrolling
          interest, changes in a parent’s ownership interest and the valuation of retained
          non-controlling equity investments when a subsidiary is deconsolidated.
          The
          Statement also establishes reporting requirements that provide sufficient
          disclosures that clearly identify and distinguish between the interests
          of the
          parent and the interests of the non-controlling owners. SFAS 160 is effective
          for fiscal years beginning after December 15, 2008. The Company has not
          determined the effect that the application of SFAS 160 will have on its
          consolidated financial statements.
 
 In
          December 2007, Statement of Financial Accounting Standards 141(R), *Business
          Combinations* ,
          was
          issued. SFAS 141R replaces SFAS 141, *Business
          Combinations.* SFAS
          141R
          retains the fundamental requirements in SFAS 141 that the acquisition method
          of
          accounting (which SFAS 141 called the *purchase
          method* )
          be used
          for all business combinations and for an acquirer to be identified for
          each
          business combination. SFAS 141R requires an acquirer to recognize the assets
          acquired, the liabilities assumed, and any noncontrolling interest in the
          acquiree at the acquisition date, measured at their fair values as of that
          date,
          with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
          required the cost of an acquisition to be allocated to the individual assets
          acquired and liabilities assumed based on their estimated fair values.
          SFAS 141R
          also requires the acquirer in a business combination achieved in stages
          (sometimes referred to as a step acquisition) to recognize the identifiable
          assets and liabilities, as well as the noncontrolling interest in the acquiree,
          at the full amounts of their fair values (or other amounts determined in
          accordance with SFAS 141R). SFAS 141R applies prospectively to business
          combinations for which the acquisition date is on or after the beginning
          of the
          first annual reporting period beginning on or after December 15, 2008.
          An entity
          may not apply it before that date. The Company is currently evaluating
          the
          impact that adopting SFAS No. 141R will have on its financial
          statements.
 
 In
          March
          2008, the
          FASB
          issued SFAS 161, “Disclosures about Derivative Instruments and Hedging
          Activities – an amendment of FASB Statement No. 133”, which changes the
          disclosure requirements for derivative instruments and hedging activities.
          Entities are required to provide enhanced disclosures about (a) how and
          why an
          entity uses derivative instruments, (b) how derivative instruments and
          related
          hedged items are accounted for under Statement 133 and its related
          interpretations, and (c) how derivative instruments and related hedged
          items
          affect an entity’s financial position, financial performance and cash flows.
          SFAS 161 is effective for financial statements issued for fiscal years
          and
          interim periods beginning after November 15, 2008. The
          Company is currently evaluating the impact that adopting SFAS No. 161 will
          have
          on its financial statements.
  -
              17
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 In
          April
          2008, the FASB issued FSP 142-3 “Determination of the useful life of Intangible
          Assets”, which amends the factors a company should consider when developing
          renewal assumptions used to determine the useful life of an intangible
          asset
          under SFAS 142. This Issue is effective for financial statements issued
          for
          fiscal years beginning after December 15, 2008, and interim periods within
          those
          fiscal years. SFAS 142 requires companies to consider whether renewal can
          be
          completed without substantial cost or material modification of the existing
          terms and conditions associated with the asset. FSP 142-3 replaces the
          previous
          useful life criteria with a new requirement—that an entity consider its own
          historical experience in renewing similar arrangements. If historical experience
          does not exist then the Company would consider market participant assumptions
          regarding renewal including 1) highest and best use of the asset by a market
          participant, and 2) adjustments for other entity-specific factors included
          in
          SFAS 142. The Company is currently evaluating the impact that adopting
          SFAS
          142-3 will have on its financial statements
 
 In
          May
          2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
          Principles.” This Statement identifies the sources of accounting principles and
          the framework for selecting the principles to be used in the preparation
          of
          financial statements of nongovernmental entities that are presented in
          conformity with generally accepted accounting principles (GAAP) in the
          United
          States (the GAAP hierarchy). The Company is currently evaluating the impact
          that
          adopting SFAS No. 162 will have on its financial statements.
 
 In
          May
          2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee Insurance
          Contracts, an interpretation of FASB Statement No. 60.” The scope of this
          Statement is limited to financial guarantee insurance (and reinsurance)
          contracts, as described in this Statement, issued by enterprises included
          within
          the scope of Statement 60. Accordingly, this Statement does not apply to
          financial guarantee contracts issued by enterprises excluded from the scope
          of
          Statement 60 or to some insurance contracts that seem similar to financial
          guarantee insurance contracts issued by insurance enterprises (such as
          mortgage
          guaranty insurance or credit insurance on trade receivables). This Statement
          also does not apply to financial guarantee insurance contracts that are
          derivative instruments included within the scope of FASB Statement No.
          133,
“Accounting for Derivative Instruments and Hedging Activities.” This Statement
          will not have and impact on the Company’s financial statements.
 
 In
          June
          2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
          an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
          No. 07-5”). This Issue is effective for financial statements issued for fiscal
          years beginning after December 15, 2008, and interim periods within those
          fiscal
          years. Early application is not permitted. Paragraph 11(a) of Statement
          of
          Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
          Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
          definition of a derivative but is both (a) indexed to the Company’s own
          stock and (b) classified in stockholders’ equity in the statement of
          financial position would not be considered a derivative financial instrument.
          EITF No.07-5 provides a new two-step model to be applied in determining
          whether
          a financial instrument or an embedded feature is indexed to an issuer’s own
          stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
          This standard will triggere liability accounting on all options and warrants
          exercisable at strike prices denominated in any currency other than the
          functional currency of the operating entity in China (Renminbi). The Company
          is
          currently evaluating the impact that adopting EITF 07-5 will have on its
          financial statements.
 
 In
          June
          2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
          Issue No. 98-5”. The objective of EITF 08-4 is to provide transition
          guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
          Securities with Beneficial Conversion Features or Contingently Adjustable
          Conversion Ratios”, that result from EITF 00-27 “Application of Issue No. 98-5
          to Certain Convertible Instruments”, and SFAS 150, “Accounting for Certain
          Financial Instruments with Characteristics of both Liabilities and Equity”. This
          Issue is effective for financial statements issued for fiscal years ending
          after
          December 15, 2008. Early application is permitted. The Company is currently
          evaluating the impact that adopting EITF 08-4 will have on its financial
          statements.
  -
              18
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 On
          October 10, 2008, the FASB issued FSP 157-3, “ Determining
          the Fair Value of a Financial Asset When the Market for That Asset Is Not
          Active ,”
which
          clarifies the application of SFAS 157 in a market that is not active and
          provides an example to illustrate key considerations in determining the
          fair
          value of a financial asset when the market for that financial asset is
          not
          active. FSP 157-3 became effective on October 10, 2008, and its adoption
          did not
          have a material impact on our financial position or results for the quarter
          ended September 30, 2008.
 
 **Note
          3 – Accounts receivable and allowance for doubtful
          accounts**
 
 Accounts
          receivable, including related party receivables, net of allowance for doubtful
          accounts consists of the following:
 
 September 30, 2008
                  (Unaudited)
                
                December 31, 2007Accounts receivable
                
                $
                22,745,206
                
                $
                11,939,533Less:
                    allowance for doubtful accounts
                
                
                295,896
                
                
                148,224Net
                    accounts receivable
                
                $
                22,449,310
                
                $
                11,791,309
 
 Movement
          of allowance for doubtful accounts is as follows:
 
 September 30, 2008
                  (Unaudited)
                
                December 31, 2007Beginning
                    balance
                
                $
                148,224
                
                $
                137,132Charge
                    to expense
                
                
                19,038
                
                
                751Written-off
                
                
                -
                
                
                -Addition
                    from acquisition
                
                
                118,373
                
                
                -Exchange
                    rate effect
                
                
                10,261
                
                
                10,341Ending
                    balance
                
                $
                295,896
                
                $
                148,224
 
 **Note
          4 – Inventory**
 
 Inventory
          consists of the following:
 
 September 30, 2008
                  (Unaudited)
                
                December 31,
                  2007Supplies
                
                $
                1,913,672
                
                $
                1,829,551Raw
                    materials
                
                
                63,119,865
                
                
                42,919,783Work
                    in process
                
                
                606,191
                
                
                82,439Finished
                    goods
                
                
                57,500,004
                
                
                33,097,152Totals
                
                $
                123,139,732
                
                
                77,928,925
  -
              19
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 Raw
          materials consist primarily of iron ore and coke at Long Men Joint Venture,
          steel strip at Daqiuzhuang Metal and billet at Henggang. Work in process
          primarily consists of pig iron and other semi-finished products. The cost
          of
          finished goods includes direct costs of raw materials as well as direct
          labor
          used in production. Indirect production costs such as utilities and indirect
          labor related to production such as assembling, shipping and handling costs
          are
          also included in the cost of inventory. The Company reviews its inventory
          periodically for possible obsolete goods and to determine if any reserves
          are
          necessary for potential obsolescence.
 
 Due
          to
          the fact that the Company’s overall finished goods inventory represents only
          slightly more than half (55%) of one months sales (based on 3 rd Quarter
          average sales), management has decided no further inventory reserves are
          required for finished goods. A complete analysis of overall inventory will
          be
          performed at year end. Due to the nature of the Company’s raw materials which
          can vary in tonnage based on a number of factors such as weather, temperature
          and humidity, an outside expert is required to evaluate our raw materials
          inventory and determine raw material gains or losses.
 
 **Note
          5 – Advances on inventory purchases**
 
 Advances
          on inventory purchases are monies deposited or advanced to outside vendors
          or
          related parties on future inventory purchases. Due to the high shortage
          of steel
          in China, most of the Company’s vendors require a certain amount of money to be
          deposited with them as a guarantee that the Company will receive its purchases
          on a timely basis.
 
 This
          amount is refundable and bears no interest. The Company has legally binding
          contracts with its vendors, which required the deposit to be returned to
          the
          Company when the contract ends. The inventory is normally delivered within
          one
          month after the monies have been advanced. The total outstanding amount,
          including advances to related parties, was $52,047,827 and
          $68,114,486 as of September
          30, 2008 and December
          31, 2007 ,
          respectively.
 
 **Note
          6 – Plant and equipment, net**
 
 Plant
          and
          equipment consist of the following:
 
 September 30, 2008(Unaudited)
                
                December 31, 2007Buildings
                    and improvements
                
                $
                118,294,625
                
                $
                71,265,004Machinery
                
                
                222,549,003
                
                
                134,716,437Transportation
                    equipment
                
                
                7,224,575
                
                
                4,232,556Other
                    equipment
                
                
                3,295,559
                
                
                1,310,489Construction
                    in process
                
                
                154,349,613
                
                
                24,574,027Totals
                
                
                505,713,375
                
                
                236,098,513Less
                    accumulated depreciation
                
                
                (56,944,362
                )
                
                (17,835,146
                )Totals
                
                
                448,769,013
                
                $
                218,263,367
  -
              20
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 Long
          Men
          JV is in the process of constructing two blast furnaces and a sintering
          system.
          All the costs related to the construction have been capitalized as construction
          in progress amounted to $151,968,100 as of September 30, 2008. The remaining
          balance in construction in progress is mostly from Henggang.
 
 Depreciation,
          including amounts in cost of sales, for the three months ended September
          30,
          2008 and 2007 amount to $5,877,415 and $3,512,420, respectively, and for
          the
          nine months ended September 30, 2008 and 2007, amounted to $14,746,357
          and
          $5,491,604, respectively.
 
 **Note
          7 – Intangible assets**
 
 The
          Company’s intangible assets are as follows:
 
 September 30, 2008
                
                December 31, 2007(Unaudited)Land
                    use right
                
                $
                27,292,936
                
                $
                23,629,059Software
                
                
                291,895
                
                
                71,978Accumulated
                    Amortization
                
                
                (2,912,966
                )
                
                (1,944,328
                )Total
                
                
                24,671,865
                
                $
                21,756,709
 
 Total
          amortization expense for the three months ended September 30, 2008 and
          2007
          amounted to $264,285 and $234,832, respectively, and for nine months ended September
          30, 2008 and 2007 ,
          amounted to $695,672 and $429,662, respectively.
 
 **Note
          8 – Debt**
 
 Short
          term loans
 
 Short
          term loans represent amounts due to various banks, other companies and
          individuals, and related parties normally due within one year. The principles
          of
          loans are due at maturity. However, the loans can be renewed with the banks,
          related parties and other parties.
 
 -
              21
              -
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 September
            30, 2008
 (UNAUDITED)
 The
          loans
          due to banks, related parties and other parties consisted of the following:
 Septembter 30,
                    2008
                  
                  December 31,(Unaudited)
                  
                  2007Loan
                      from banks  in China, due various dates from October 2008 to
                      September 2009. Weighted average interest rate 8.23% per annum,
                      either
                      guaranteed by another company or secured by equipment/inventory.
                  
                  $
                  31,697,358
                  
                  $
                  31,955,268Loan
                      from banks in China, due various dates from October 2008 to
                      August 2009.
                      Weighted average interest rate 8.31% per annum, either guaranteed
                      by
                      another company or secured by equipment/buildings/land use
                      right.
                  
                  
                  49,319,193
                  
                  
                  61,064,340Loan
                      from banks in China, due March 2009. Annual interest rate of
                      12%,
                      Guaranteed by another company and secured by equipment.
                  
                  
                  225,491
                  
                  
                  -Loan
                      from banks in China, due January 2009. Annual interest rate
                      of 7.47%,
                      guaranteed by another company.
                  
                  
                  1,463,000
                  
                  
                  -Subtotal
                      – bank loans
                  
                  
                  82,705,042
                  
                  
                  93,019,608Related
                      party loan from Tianjin Heng Ying, due June 2009. Annual interest
                      rate of
                      10%, and interest starts accrual on July, 2008
                  
                  
                  3,394,160
                  
                  
                  -Loan
                      from various other companies and individuals
                  
                  
                  62,093,562
                  
                  
                  26,473,097Grand
                      totals
                  
                  $
                  148,192,764
                  
                  $
                  **119,492,705**
 
 The
          Company had various loans from other companies and individuals. The balances
          amounted to $62,093,562 and
          $26,473,097 as of September 30, 2008 and December 31, 2007, respectively.
          Out of
          the $62,093,562 current
          period balance, $29,313,921 new additions carries no interest, and the
          remaining
          $32,779,641 carries annual interest rates ranging from 8% to 12%. All prior
          year
          balances of $26,473,097 are subject to interest rates ranging from 8% to
          12%.
          All short term loans from unrelated companies and individuals are due on
          demand
          and unsecured.
 
 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
          funded with draws on the lines of credit. This short term note payable
          is
          guaranteed by the bank for its complete face value. The banks usually do
          not
          charge interest on these notes but require the Company to deposit a certain
          amount of cash at the bank as a guarantee deposit which is classified on
          the
          balance sheet as restricted cash.
  -
              22
              -
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          Company had the following short term notes payable:
 
 September
                    30, 2008
                
                December
                    31, 2007(Unaudited)Notes
                    payable from banks in China, due various dates from October 2008
                    to March
                    2009. Restricted cash required of $10,270,261 and $4,278,873
                    for September
                    30, 2008 and 2007, respectively and either guaranteed by another
                    company
                    or secured by buildings.
                
                $
                13,459,600
                
                $
                8,308,260Notes
                    payable from banks in China, due various dates from October 2008
                    to March
                    2009. Restricted cash of $88,072,073 and $4,113,000 for September
                    30, 2008
                    and 2007, respectively and either guaranteed by another company
                    or secured
                    by equipment, or no guarantee.
                
                
                139,277,600
                
                
                6,855,000Notes
                    payable from banks in China, due January 2009. Restricted cash
                    of
                    $5,126,645 and $0 for September 30, 2008 and 2007, respectively
                    and
                    guaranteed by buildings.
                
                
                7,315,000
                
                
                -Notes
                    payable from banks in China, due various dates from October 2008
                    to March
                    2009. Restricted cash of
                    $16,853,316 and $0 for September 30, 2008 and 2007 and guaranteed
                    by
                    buildings.
                
                
                25,602,500
                
                
                -Grand
                    totals
                
                $
                185,654,700
                
                $
                15,163,260
 
 Total
          interest expense for the three months ended September 30, 2008 and 2007
          for the
          debt listed above amounted to $4,593,450 and $1,944,274, respectively;
          and for
          the nine months ended September 30, 2008 and 2007, interest expense amounted
          to
          $13,176,623 and $4,284,413, respectively.
 
 Capitalized
          interest amounted to $3,762,837 and $656,471 for the three months ended
          September 30, 2008 and 2007, respectively, and $6,538,228 and $656,471
          for the
          nine months ended September 30, 2008 and 2007, respectively.
 
 **Note
          9 – Customer deposits**
 
 Customer
          deposits represent amounts advanced by customers on product orders. The
          product
          normally is shipped within six months after receipt of the advance payment,
          and
          the related sale is recognized in accordance with the Company’s revenue
          recognition policy. As of September
          30, 2008 and December
          31, 2007 ,
          customer deposits amounted to $125,335,236 and
          $47,084,434, including related parties deposits $1,851,308 and
          $9,211,736, respectively.
  -
              23
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 **Note
          10 – Deposits due to sales representatives**
 
 Daqiuzhuang
          Metal and one of Longmen Joint Venture’s subsidiaries, Yuxin Trading, entered
          into agreements with various entities to act as the Company’s exclusive sales
          agent in a specified area. These exclusive sales agents must meet certain
          criteria and are required to deposit a certain amount of money with the
          Company.
          In return the sales agents receive exclusive sales rights to a specified
          area
          and discounted prices on products they order. These deposits bear no interest
          and are required to be returned to the sales agent once the agreement has
          been
          terminated. The Company had $2,516,360 and
          $3,068,298 in deposits due to sales representatives outstanding as of September
          30, 2008 and December
          31, 2007 ,
          respectively.
 
 **Note
          11 – Investment payable**
 
 In
          June
          2007, Yangpu Investment and the former shareholders of Qiu Steel Investment
          entered into an agreement. Pursuant to this agreement, Yangpu Investment
          received 98.7% of the total equity of Qiu Steel Investment for $19,284,400
          (RMB
          148 million). As of September
          30, 2008 ,
          Yangpu
          Investment had payables of $7,022,400 (RMB
          48
          million).
 
 **Note
          12 – Convertible notes**
 
 On
          December 13, 2007, the Company entered into a Securities Purchase Agreement
          (the
“Agreement”) with certain institutional investors (the “Buyers”) issuing
          $40,000,000 (“Notes”) and 1,154,958 warrants (the “Warrants”). The warrants can
          be converted to common stock through May 13, 2013 at $13.51 per
          share.
  The
          Notes
          bear initial interest at 3% per annum, which will be increased each year
          as
          specified in the Notes, payable semi-annually in cash or shares of the
          Company’s
          common stock. The Notes have a five year term through December 12, 2012.
          They
          are convertible into shares of the common stock, subject to customary
          anti-dilution adjustments. The initial conversion price is $12.47. The
          Company
          may redeem the Notes at 100% of the principal amount, plus any accrued
          and
          unpaid interest, beginning December 13, 2008, provided the market price
          of the
          common stock is at least 150% of the then applicable conversion price for
          30
          consecutive trading days prior to the redemption.
 
 The
          Notes
          are secured by a first priority, perfected security interest in certain
          shares
          of common stock of , Zuosheng Yu, as evidenced by the pledge agreement.
          The
          Notes are subject to events of default customary for convertible securities
          and
          for a secured financing.
 
 In
          connection with this transaction, the Company and the Buyers entered into
          a
          registration rights agreement. The Company agreed to register within 60
          calendar
          days common stock issuable to the Buyers for resale on a registration statement
          to be effective by 90 calendar days or 120 days if the registration statement
          is
          subject to a full review by the U.S. Securities and Exchange Commission.
          The
          Company is required to register at least 120% of the sum of shares issuable
          upon
          conversion of the Notes, the exercise of the Warrants and the payment of
          interest accrued on the Notes. The registration rights are subject to customary
          exceptions and qualifications and compliance with certain registration
          procedures. The Company was required to file the registration statement
          on
          February 11, 2008. The Company filed the registration statement on February
          13,
          2008, which was two days after the required filing date. The Company reached
          an
          agreement with all note holders to waive the related penalty of
          $427,000.
  -
              24
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 In
          addition, certain management members of the Company also entered into a
          lock-up
          agreement with the Company pursuant to which each person agreed not to
          sell any
          personally owned shares one year after the initial effective date of the
          resale
          registration statement described above.
 
 Pursuant
          to APB 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase
          Warrants,” the Company discounted the Notes equal to the fair value of the
          warrants. The Notes were further discounted for the fair value of the conversion
          option. The combined discount is being amortized to interest expense over the
          life of the Notes using the effective interest method.
 
 The
          fair
          value of conversion option and the warrants were calculated using the Cox
          Rubenstein Binomial model based on the following variables:
 
 ·
                Expected
                    volatility of 105%
 ·
                Expected
                    dividend yield of 0%
 ·
                Risk-free
                    interest rate of 2.89%
 ·
                Expected
                    lives of five years
 ·
                Market
                    price at issuance date of $10.43
 ·
                Strike
                    price of $12.47 and $13.51, for the conversion option and the
                    warrants,
                    respectively
 
 Pursuant
          to SFAS 133 and EITF 00-19, the Company determined that both the warrants
          and
          the conversion option embedded in the Notes meet the definition of a derivative
          instrument and must be carried as a liability and marked to market each
          reporting period.
 
 On
          December 13, 2007, the Company recorded $34,719,062 as derivative liability,
          including $9,298,044 for the fair value of the warrants and $25,421,018
          for fair
          value of the conversion option. The initial carrying value of the Notes
          was
          $5,280,938. The financing cost of $5,159,000 was recorded as note issuance
          cost
          and is being amortized to interest expense over the term of the Notes using
          the
          effective interest method.
 
 During
          the quarter ended September 30, 2008, $6,750,000 of notes was converted
          to
          541,299 shares of common stock at a conversion price of $12.47. Pursuant
          to EITF
          00-19, the Company valued the conversion option at note conversion date,
          and
          recorded $21,090,722 gain from changes in fair value of derivative. A total
          of
          $6,103,232 of carrying value and derivative liability had been reclassified
          into
          equity. In addition, 195,965 shares of common stock were issued as make
          whole
          interest expense of $2,310,313.
 
 On
          September 30, 2008, in accordance with SFAS 133, the fair value of derivative
          liabilities was recalculated and decreased by $29,884,898 during the period,
          including $8,794,176 for the decrease in fair value of the warrants and
          $21,090,722 for the decrease in fair value of the conversion option.
 
 As
          of
          September 30, 2008, the balance of derivative liabilities was $17,954,559 ,
          which
          consisted of $5,540,560 for the warrants and $12,413,998 for the conversion
          option, and the carrying value of the notes was $6,214,879 .
          The
          effective interest charges on notes totaled $896,850 for the three months
          ended
          September 30, 2008, $2,629,701 for the nine months ended September 30,
          2008. As
          of September 30, 2008, the unamortized note issuance cost was $4,234 ,103,
          including $1,564,500 for additional issuance of 150,000 shares of the common
          stock to the placement agent in January 2008. Note issuance cost was amortized
          to interest expense using the effective interest method at $13,205 and
          $33,634
          for the three months and nine months ended September 30, 2008,
          respectively.
  -
              25
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 **Note
          13 – Private offering of redeemable stock**
 
 On
          September 18, 2005, the Company entered into a subscription agreement with
          certain investors to sell a total of 1,176,665 shares of common stock at
          $1.50
          per share for gross proceeds of $1,765,000, commissions totaled $158,849,
          leaving net proceeds of $1,606,151. In addition, two warrants are attached
          to
          each share of common stock giving the warrant holders the right to purchase
          2,353,330 shares of common stock. The warrants can be exercised on the
          second
          anniversary of the subscription date at $2.50 per share and through the
          third
          anniversary date at $5.00 per share. At the option of the holder, the Company
          may be required to repurchase the 1,176,665 shares of common stock 18 months
          after the closing date at a per share price of $1.95.
 
 In
          accordance with SFAS 150, The Company recorded the stock as a liability
          due to
          the mandatory redemption provision. The shares were recorded at fair value
          on
          the date of issuance, which was the net cash proceeds, plus any accrued
          interest
          up to March 31, 2007. The difference between the net proceeds, $1,606,151,
          and
          the redemption amount, $2,294,497, totaling $688,346, was accrued and amortized
          as interest expense.
 
 As
          of
          December 31, 2007, the put option on all the redeemable shares had expired
          and
          all the shares were reclassified into equity.
 
 **Note
          14 – Supplemental disclosure of cash flow information**
 
 Interest
          paid amounted to $1,918,726 and $3,955,069 for the three months ended September
          30, 2008 and 2007, respectively, and $10,606,066 and $5,981,387 for the
          nine
          months ended September 30, 2008 and 2007, respectively.
 
 Income
          tax payments amounted to $757,895 and $124,454 for the three months ended
          September 30, 2008 and 2007, respectively, and $6,471,410 and $124,454
          for the
          nine months ended September
          30, 2008 and 2007 ,
          respectively.
 
 On
          March
          1, 2007, 176,665 shares of redeemable stock were converted at $1.95 resulting
          in
          a reclassification of the shares from liabilities to equity.
 
 On
          January 14, 2008 the Company issued 150,000 shares of common stock at $10.43
          per
          share as additional note issuance cost totaled $1,564,500.
 
 On
          April
          14, 2008, the Company, Mr, Zuosheng Yu, (CEO of the Company) and Mr. Zhang
          Dan
          Li (CEO of Long Men Joint Venture) entered into a compensation agreement
          in
          which Mr. ZuoSheng Yu agreed to transfer his own 600,000 shares to Mr.
          Zhang Dan
          Li in exchange for 15 years of service in the Company. Pursuant to SFAS
          123R
          (Share-Based Payment) share-based payments awarded to an employee of the
          reporting entity by a related party or other holder of an economic interest
          in
          the entity is treated as compensation as if the shareholder has made a
          capital
          contribution. The shares are valued at $6.91 on grant date for a total
          of
          $4,146,000 and will be amortized over the life agreement. A total of $69,100
          and
          $138,200 of compensation expense and additional paid in capital has been
          recorded for the three and nine months ended September 30,
          2008.
  -
              26
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 During
          the quarter ended September 30, 2008, $6,750,000 of notes was converted
          to
          541,299 shares of common stock at a conversion price of $12.47. In addition
          195,965 shares of common stock were issued as make whole interest expense
          of
          $2,310,313.
 
 **Note
          15 - Gain from debt extinguishment**
 
 For
          three
          months and nine months, the Company recorded gain from debt extinguishment
          totaling $7,168,500. On September 27, 2008, Maoming Hengda, a subsidiary
          entered
          into a Debt Waive Agreement with Guangzhou Hengda, pursuant to which Guangzhou
          Hengda agreed to waive RMB 50,000,000 of the total RMB 220,756,777 debt
          that
          Maoming Hengda owes to Guangzhou Hengda. The Company determined that the
          subsequent debt settlement does not constitute contingency at date of purchase
          under SFAS 141 “Business Combinations” and thus should not result in a
          reallocation of the purchase price. The waiver is irrevocable.
 
 **Note
          16 – Taxes**
 
 **Income
          tax**
 
 Beginning
          January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the
          existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
          (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate currently
          applicable to both DES and FIEs. The two-year tax exemption and three-year
          50%
          tax reduction tax holiday for production-oriented FIEs will not be eliminated
          for certain entities incorporated on or before March 16, 2007.
 
 Significant
          components of the provision for income taxes on earnings from operation
          for
          three months ended September
          30, 2008 and 2007 are as
          follows:
  September 30,
                  2008
                  (Unaudited)
                
                September 30,
                  2007
                  (Unaudited)Current
                
                $
                (812,532
                )
                $
                2,025,389Deferred
                
                
                (1,271,269
                )Total
                    provision for income taxes
                
                $
                (2,083,801
                )
                $
                2,025,389
 
 Significant
          components of the provision for income taxes on earnings from operation
          for nine
          months ended September
          30, 2008 and 2007 are as
          follows:
 
 September30,
                  2008
                  (Unaudited)
                
                September30,
                  2007
                  (Unaudited)Current
                
                $
                1,146,714
                
                $
                3,359,271Deferred
                
                
                (1,693,902
                )Total
                    provision for income taxes
                
                $
                (547,188
                )
                $
                3,359,271
  -
              27
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          principal component of the deferred income tax assets is as
          follows:
 
 September30,
                  2008
                  (Unaudited)
                
                December31,
                  2007Xi’an
                    Rolling Mill’s
                  Net
                    operating loss carry-forward
                
                $
                4,257,796
                
                $
                1,599,004Effective
                    tax rate
                
                
                25.00
                %
                
                25.00
                %Deferred
                    tax asset
                
                $
                1,064,449
                
                $
                399,751Long
                    Gang Headquarter’s
                  Net
                    operating loss carry-forward
                
                
                7,248,273
                
                
                -Effective
                    tax rate
                
                
                15
                %
                
                -Deferred
                    tax asset
                
                
                1,087,241
                
                
                -Totals
                
                
                2,151,690
                
                
                399,751
 
 The
          entire deferred tax asset is from net operating loss generated by two of
          the
          Company’s operating entities, Xi’an Rolling Mill and Long Gang Headquarter.
          According to Chinese tax regulations, the net operating loss can be carried
          forward to offset with operating income for the next five years. Management
          believes the deferred tax asset is fully realizable.
 
 The
          following table reconciles the U.S. statutory rates to the Company’s effective
          tax rate:
 
 September30,
                  2008
                  (Unaudited)
                
                September30,
                  2007
                  (Unaudited)U.S.
                    Statutory rates
                
                
                34.00
                %
                
                34.00
                %Foreign
                    income not recognized in USA
                
                
                (34.00
                )%
                
                (34.00
                )%China
                    income taxes
                
                
                25.00
                %
                
                33.00
                %Tax
                    effect of income not taxable for tax purpose
                
                
                (4.32
                )%
                
                (6.00
                )%Effect
                    of different tax rate of subsidiaries operating in other
                    jurisdictions
                
                
                (12
                )%
                
                -Total
                    provision for income taxes
                
                
                8.68
                %
                
                27.00
                %
 
 Under
          the
          Income Tax Laws of PRC, the Company’s subsidiary, Daqiuzhuang Metal, is
          generally subject to an income tax at an effective rate of 33% (30% state
          income
          taxes plus 3% local income taxes) on income reported in the statutory financial
          statements after appropriate tax adjustments, unless the enterprise is
          located
          in a specially designated region where it allows foreign enterprises a
          two-year
          income tax exemption and a 50% income tax reduction for the following three
          years. The Company ’s
          subsidiary, Daqiuzhuang Metal, became a Chinese Sino-foreign joint venture
          at
          the time of the merger on October 14, 2004 and it became eligible for the
          tax
          benefit. Daqiuzhuang Metal is
          located in Tianjin
          Costal Economic Development Zone and
          under the Income Tax Laws of Tianjin City of PRC, it i s
          eligible for an income tax rate of 24%. Therefore, Daqiuzhuang Metal is
          exempt from income taxes for the years ended December 31, 2005 and 2006
          and is
          entitled to 50% income tax reduction of the special income tax rate of
          24%,
          which is a rate of 12% for the years ended December 31, 2007, 2008 and
          2009.
  -
              28
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          Company’s subsidiary, Longmen Joint Venture, is located in the mid-west region
          of China. It qualifies for the “Go-West” tax rebate of 15% tax rate promulgated
          by the government; therefore, income tax is accrued at 15%.
 
 Baotou
          Steel Pipe Joint Venture is located in Inner Mongolia, is subject to an
          income
          tax at an effective rate of 25%.
 
 Maoming
          Henggang is located in Guangdong province, is subject to an income tax
          at an
          effective rate of 25%.
 
 **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.
 
 VAT
          on
          sales and VAT on purchases amounted to $85,870,057 and $85,541,818 for
          the three
          months ended September
          30, 2008 ,
          $69,175,773 and $52,979,253 for the three months ended September
          30, 2007 ,
          respectively. Sales and purchases are recorded net of VAT collected and
          paid as
          the Company acts as an agent for the government. VAT taxes are not impacted
          by
          the income tax holiday.
 
 VAT
          on
          sales and VAT on purchases amounted to $259,114,372 and $221,395,447 for
          the
          nine months ended September
          30, 2008 ,
          $100,209,901 and $70,869,712 for the nine months ended September
          30, 2007 ,
          respectively. Sales and purchases are recorded net of VAT collected and
          paid as
          the Company acts as an agent for the government. VAT taxes are not impacted
          by
          the income tax holiday.
 
 Taxes
          payable consisted of the following:
 
 September30,
                  2008
                  (Unaudited)
                
                December31,
                  2007VAT
                    taxes payable
                
                $
                18,886,296
                
                $
                20,320,241Income
                    taxes payable
                
                
                2,266,127
                
                
                5,112,876Misc
                    taxes
                
                
                2,315,823
                
                
                2,143,123Totals
                
                $
                23,468,246
                
                $
                27,576,240
  -
              29
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 **Note
          17 – Earnings per share**
 
 The
          calculation of earnings per share is as follows:
 
 ThreemonthsendedSeptember30
                
                NinemonthsendedSeptember30,&

;#16
                    0;2008
                
                2007
                
                2008
                
                2007Income
                    (Loss) attributable to holders of common shares
                
                $
                20,464,274
                
                $
                8,000,495
                
                $
                (1,618,492
                )
                $
                10,368,661Basic
                    weighted average number of common shares outstanding
                
                
                35,687,891
                
                
                32,343,332
                
                
                35,157,579
                
                
                31,704,912Diluted
                    weighted average number of common shares outstanding
                
                
                35,687,891
                
                
                32,343,332
                
                
                35,157,579
                
                
                31,704,912Net
                    income (Loss) per shareBasic
                
                $
                0.573
                
                $
                0.247
                
                $
                (0.046
                )
                $
                0.327Diluted
                
                $
                0.573
                
                $
                0.247
                
                $
                (0.046
                )
                $
                0.327
 
 As
          described in Note 1, the Company issued Victory
          New an aggregate of 3,092,899 shares of the Company’s Series A Preferred
          Stock to
          purchase 30% minority ownership of Daqiuzhuang Metal. The preferred stock
          can
          not be converted to common stock. Thus, the 3,092,899 shares of Series
          A
          Preferred Stock have been excluded from the earnings per share calculation.
 
 For
          the
          three months and nine months ended September 30, 2008, warrants and convertible
          notes were excluded from the diluted loss per share due to anti-diluted
          effect.
 
 For
          the
          three months and nine months ended September 30, 2007, the Company has
          1,176,665
          shares of mandatory redeemable shares which are excluded from the calculation
          of
          basic and diluted EPS pursuant to SFAS,128. All outstanding warrants issued
          in
          connection with the redeemable shares were excluded from the diluted earnings
          per share calculation as they are anti-dilutive
 
 **Note
          18 – Related party balances and transactions**
 
 The
          Company subleased a portion of its land use rights to Tianjin Jing Qiu
          Steel
          Market Company, a related party under common control. The Company’s Chairman,
          CEO and majority shareholder, Zuosheng Yu, is the chairman and the largest
          shareholder of Jing Qiu Steel Market Company.
 Total
          rental income for the three months ended September 30, 2008 and 2007 was
          $439,290 and $397,500. Total rental income for the nine months ended September
          30, 2008 and 2007 was $1,290,330 and $1,175,760.
 
 The
          Company’s short term loan of $7,315,000 from Shenzhen Development Bank is
          personally guaranteed by the Company’s Chairman, CEO, and majority shareholder
          Zuosheng Yu. Tianjin Dazhan Industry Co., Ltd. (“Dazhan”) and Tianjin Hengying
          Trading Co., Ltd. (“Hengying”) are steel trading companies controlled by the
          Company’s Chairman, CEO and majority shareholder, Zuosheng Yu . Dazhan and
          Hengying acted as trading agents of the Company to make purchases and sales
          for
          the Company.
  -
              30
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 For
          the
          three months ended September
          30, 2008 and 2007 ,
          through
          Dazhan and Hengying, the Company purchased total of $14,870,518 and $37,946,931
          of material from these entities, and sold $9,813,680 and $3,683,875 of
          finished
          products to these entities, respectively. For the nine months ended September
          30, 2008 and 2007 ,
          through
          Dazhan and Hengying, the Company purchased total of $69,221,131 and $79,580,378
          of material from these entities, and sold $ 15,785,526 and $10,046,817 of
          finished products to these entities, respectively.
 
 The
          Longmen Joint Venture did not obtain the VAT invoices from the local tax
          bureau
          until late July 2007. Before obtaining VAT invoices, all the sales and
          purchases
          made by the joint venture were carried out through the Company’s joint venture
          partner, Long Men Group. In addition to the VAT status issue, the Longmen
          Joint
          Venture also made sales through Long Men Group for outstanding sales contracts
          signed before June 2007. Also some sales through Long Men Group were made
          due to
          the established market share and its long term relationship with the customers.
          All the sales proceeds and purchase payments were recorded as receivables
          from
          or payables to Long Men Group. Total related party sales amounted to $85,609,768
          and $308,197,619 for the
          three and nine months ended September
          30, 2008 ,
          respectively. Total related party purchase of goods amounted to $64,739,755
          and
          $245,357,391 for the three and nine months ended September 30, 2008,
          respectively.
 
 All
          transactions with related parties are for normal business activities and
          are
          short term in nature. Settlements for the balances are usually in cash.
          The
          following charts summarize the related party transactions as of the nine
          months
          ended September
          30, 2008 and the
          year ended December
          31, 2007 :
 
 a.
                Accounts
                    receivable –related parties
 Name
                    of related parties
                
                September30,
                  2008
                  (Unaudited)
                
                December31,
                  2007Long
                    Men Group
                
                
                91,294
                
                
                -Baogang
                    Jian An
                
                
                16,348
                
                
                -Tianjin
                    Jing Qiu Steel Market
                
                
                -
                
                
                565,631Total
                
                $
                107,642
                
                $
                565,631
 
 b.
                Other
                    receivables - related parties
 
 Beijing
                    Wendlar
                
                $
                312,790
                
                $
                1,033,713Yang
                    Pu Capital Automobile
                
                
                -
                
                
                616,950De
                    Long Fen Ti
                
                
                274,518
                
                
                137,100Tianjin
                    Jin Qiu Steel Market
                
                
                146,300
                
                
                48,830Yang
                    Pu Sheng Xin
                
                
                -
                
                
                74,113Tianjin
                    General Steel Management Service Co., Ltd.
                
                
                73,150
                
                
                -Yang
                    Pu Sheng Hua
                
                
                
                
                
                2,742$
                806,758
                
                $
                1,913,448
  -
              31
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 c.
                Advances
                    on inventory purchases – related
                    parties
 
 Hengying
                
                $
                -
                
                $
                8,014,211Dazhan
                
                
                7,423,622
                
                
                1,929,801Liyuan
                    Ximei
                
                
                -
                
                
                -Daishang
                    trading Co., Ltd.
                
                
                695,662
                
                
                -$
                8,119,284
                
                $
                9,944,012
 
 d.
                Accounts
                    payable due to related parties
 
 Long
                    Men Group
                
                $
                1,977,509
                
                $
                7,954,189Dazhan
                
                
                -
                
                
                4,249,395Tianjin
                    Jin Qiu Steel Market
                
                
                31,078Henan
                    Xinmi Kanghua
                
                
                1,225,473
                
                
                356,567Zhengzhou
                    Shenglong
                
                
                266,085
                
                
                269,917Baotou
                    Shengda Steel Pipe
                
                
                1,418,301
                
                
                1,472,670ShanXi
                    Fangxin
                
                
                2,750,392
                
                
                -Liyuan
                    Ximei
                
                
                398,023
                
                
                -Jin
                    Ma Coking Company
                
                
                8,321,076
                
                
                -$
                16,387,937
                
                $
                14,302,738
 
 e.
                Short
                    term loan due to related parties
 
 Name
                    of related parties
                
                September30,
                  2008
                  (Unaudited)
                
                December31,
                  2007HanCheng
                    TongXing
                
                $
                -
                
                $
                7,317,027Hengying
                
                
                3,394,160
                
                
                -$
                3,394,160
                
                $
                7,317,027
 
 f.
                Other
                    payables due to related parties
 
 Beijing
                    Wendlar
                
                $
                688
                
                $
                34,275Golden
                    Glister
                
                
                600,000Tianjin
                    Jin Qiu Steel Market
                
                
                -
                
                
                1,487,600Hengying
                
                
                4,144,353
                
                
                563,816Baotou
                    Shengda Steel Pipe
                
                
                58,622
                
                
                31,095ShanXi
                    Fangxin
                
                
                79,664
                
                
                -Baogang
                    Jian An
                
                
                -
                
                
                9,597$
                4,883,327
                
                $
                2,126,383
  -
              32
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 g.
                Customer
                    deposits – related parties
  Long
                    Men Group
                
                $
                1,851,308
                
                $
                -Hengying
                
                
                -
                
                
                6,855,000Haiyan
                
                
                -
                
                
                2,356,736$
                0
                
                $
                9,211,736
 
 **Note 19
          –Business combinations**
 
 **a.
          Acquisition of 30% minority interest of Daqiuzhuang Metal**
 
 On
          May
          18, 2007, General Steel entered into a Purchase Agreement with Victory
          New
          Holdings to acquire the remaining 30% interest in Daqiuzhuang Metal. General
          Steel agreed to issue Victory New 3,092,899 shares of Series A Preferred
          Stock
          which have a voting power of 30% of the combined voting power of the Company’s
          common and preferred stock for the life of the Company. As a result of
          the
          acquisition, the Company increased its equity interest in Daqiuzhuang Metal
          from
          70% to 100%. On May 23, 2007, the Company transferred its 30% interest
          in
          Daqiuzhuang Metal to General Steel Investment (BVI). As a result of this
          transfer, General Steel Investment (BVI) holds 100% of equity interest
          of
          Daqiuzhuang Metal.
 
 Victory
          New Holdings Ltd. was a newly formed entity under the control of the Company’s
          Chairman, CEO and majority shareholder Zuosheng Yu. Victory New was legally
          owned by Mrs. Yang Baoyin, Mr. Yu’s mother. Therefore, General Steel and Victory
          New were under common control. According to SFAS
          141,
          a cquisition
          of minority interests from entities under common control should be accounted
          for
          using the purchase method. The
          Company engaged a third party to determine the fair value of
          transaction ,
          which
          was $8,374,000. The premium over book value of $2,188,203 was accounted
          for as
          dividend distribution to the shareholder of Victory New.
 
 **b.
          Joint venture agreement with Baotou Steel**
 
 On
          April
          27, 2007, Daqiuzhuang Metal, a wholly owned subsidiary of the Company,
          and
          Baotou Steel entered into an Amended and Restated Joint Venture Agreement
          (the
“Amended agreement”), amending the Joint Venture Agreement entered into on
          September 28,. The Amended agreement increased Daqiuzhuang Metal's ownership
          interest in the Joint Venture from 20% to 80%.
 
 The
          Amended agreement states that the initial capital of the joint venture
          company
          will be approximately $6,400,000, equal to the registered capital. Baotou
          Steel
          will contribute approximately $1,270,000 (RMB 10 million), and Daqiuzhuang
          Metal
          will contribute approximately $5,130,000 (RMB 40 million). Daqiuzhuang
          Metal and
          Baotou Steel each contributed 30% of their portion of the registered capital
          to
          commence the business. This joint venture obtained its business license
          on May
          25, 2007. Operations began in the third quarter of 2007.
 
 The
          joint
          venture’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture
          Company Limited, a limited liability company formed under the laws of the
          PRC.
          Baotou Steel Pipe Joint Venture is located at Kundulun District, Baotou
          city,
          Inner Mongolia, China. It produces and sells spiral-weld steel
          pipes.
  -
              33
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          ownership is as follows:
  %
                    OwnershipBaotou
                    Iron and Steel (Group) Co., Ltd.
                
                
                20
                %Daqiuzhuang
                    Metal Sheet Co., Ltd
                
                
                80
                %
 
 **c.
          Shaanxi Longmen Iron and Steel Co., Ltd Joint Venture**
 
 On
          June
          15, 2007, General Steel Holdings Inc. and Shaanxi Longmen Iron and Steel
          (Group)
          Co., Ltd. (”Longmen Group”) signed an agreement to form Shaanxi Longmen Iron and
          Steel Co., Ltd. (“Longmen Joint Venture”). Longmen Group contributed the
          operating facility and corresponding debt with an appraised net asset value
          of
          RMB 200 million. General Steel Holdings, Inc. contributed RMB 300 million
          to the
          Longmen Joint Venture through its subsidiaries Daqiuzhuang Metal and Qiu
          Steel
          Investment. Daqiuzhuang Metal and Qiu Steel Investment contributed RMB
          160
          million and RMB 140 million in cash, and hold 32% and 28% ownership,
          respectively, or 60% collectively. Longmen Group owns 40% of the Longmen
          Joint
          Venture. The Longmen Joint Venture obtained the business license on June
          22,
          2007.
 
 Assets
          acquired and debts assumed in the transaction are listed as below:
 
 Assumed byItem
                
                Fair Value
                
                Longmen Joint
                  VentureCurrent
                    assets
                
                $
                317,744,960
                
                $
                98,530,222Property,
                    plant, and equipment
                
                
                186,915,879
                
                
                164,811,374Intangible
                    assets
                
                
                20,128,972
                
                
                19,543,875Other
                    assets
                
                
                99,604,841
                
                
                -Total
                    assets
                
                
                624,394,652
                
                
                282,885,471Current
                    liability
                
                
                473,168,746
                
                
                223,776,221Long
                    term liability
                
                
                38,246,111
                
                
                32,809,250Total
                    liabilities
                
                
                511,414,857
                
                
                256,585,471Net
                    assets
                
                $
                112,979,795
                
                $
                26,300,000
 
 On
          September 24, 2007, Longmen Joint Venture acquired 74.92% ownership interest
          in
          Environmental Protection Industry Development Co., Ltd. (“EPID)” for $2.4
          million (RMB 18 million) and a 36% equity interest in Hualong Fire Retardant
          Materials Co., Ltd., (“Hualong”) for $0.4 million (RMB 3 million). The parties
          agreed to make the effective date of the transaction July 1, 2007. Due
          to EPID,
          Hualong, and Longmen Joint Venture being under common management control,
          this
          transaction was recorded at the book value as of the effective date.
  -
              34
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 Assets
          acquired and debts assumed in the transaction are listed as below:
 
 Assumed byEPID
                
                Fair Value
                
                Longmen Joint
                  Venture (74.92%)Current
                    assets
                
                $
                2,609,601
                
                $
                1,955,113Property,
                    plant, and equipment
                
                
                5,619,646
                
                
                4,210,239Total
                    assets
                
                
                8,229,247
                
                
                6,165,352Total
                    liabilities
                
                
                5,055,550
                
                
                3,787,618Net
                    assets
                
                $
                3,173,697
                
                $
                2,377,734
 
 Assumed byHualong
                
                Fair Value
                
                Longmen Joint
                  Venture (36%)Current
                    assets
                
                $
                3,905,068
                
                $
                1,405,824Property,
                    plant, and equipment
                
                
                1,653,693
                
                
                595,330Total
                    assets
                
                
                5,558,761
                
                
                2,001,154Total
                    liabilities
                
                
                4,357,736
                
                
                1,568,785Net
                    assets
                
                $
                1,201,025
                
                $
                432,369
 
 On
          January 14, 2008, the Company through Longmen Joint Venture, completed
          its
          acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co.,
          Ltd.
          (“Tongxing”). Tongxing contributed its land use right of 217,487 square meters
          (approximately 53 acres) with an appraised value of approximately $4.1
          million
          (RMB 30 million). Pursuant to the agreement, the land will be converted
          into
          shares valued at approximately $3.1 million (RMB 23 million), providing
          the
          Joint Venture stake of 22.76% ownership in Tongxing and making it Tongxing’s
          largest and controlling shareholder. The parties agreed to make the effective
          date of the transaction January 1, 2008. The acquisition is accounted for
          as
          acquisition under common control.
 
 Assumed byTongxing
                
                Fair Value
                
                Longmen Joint
                  Venture (22.76%)Current
                    assets
                
                $
                55,504,572
                
                $
                12,632,840Non
                    current assets
                
                
                8,088,884
                
                
                1,841,030Total
                    assets
                
                
                63,593,456
                
                
                14,473,870Total
                    liabilities
                
                
                50,782,229
                
                
                11,558,035Net
                    assets
                
                $
                12,811,227
                
                $
                2,915,835
 
 **d,
          Acquisition of Hengda Steel Group**
 
 On
          June
          25, 2008, The Company through Qiu Steel Investment entered into equity
          purchase
          agreement with the shareholders of Henggang to acquire 99% equity of Henggang.
          The total purchase price for the acquisition is $7.3 million (RMB 50 million).
          The fair value of Henggang was $10.1 million (RMB 69 million) as of June
          30,
          2008. Pursuant to SFAS 141, the excess of total fair value acquired over
          purchase price should be allocated as a pro rata reduction of non-current
          assets. Subsequently, the Company recorded the difference as a reduction
          of
          fixed assets acquired.
  -
              35
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 The
          joint
          venture’s name is Maoming Heng Da Steel Group Co. Ltd., a company formed under
          the laws of the PRC. It is located in Maoming city, Guangdong province
          in China.
          It produces and sells high speed wire.
 
 Assumed byHenggang
                
                Fair Value
                
                The CompanyCurrent
                    assets
                
                $
                45,314,444
                
                $
                44,861,300Non
                    current assets
                
                
                81,780,107
                
                
                78,290,811Total
                    assets
                
                
                127,094,551
                
                
                123,152,111Total
                    liabilities
                
                
                117,027,385
                
                
                115,857,111Net
                    assets
                
                $
                10,067,166
                
                $
                7,295,000
 
 The
          financial data of Henggang as of September 30, 2008 is included in the
          Company’s
          consolidated financial statements.
 
 **Note
          20 - Shareholder’s equity**
 
 On
          February 12, 2007, the Company issued to Aurelius Consulting Group, Inc.
          (also
          known as RedChip Companies, Inc.) 18,000 shares of common stock in the
          amount of
          $23,742 as a portion of its compensation for investor relations services
          rendered. Those shares were valued at the quoted market price at the date
          of the
          agreement.
 
 In
          2007,
          1,176,665 shares of redeemable stock were converted at $1.95 resulting
          reclassification from liabilities to equity.
 
 2,120,000
          warrants were converted to common stock at $2.50 per share in September,
          2007
          for $5,300,000 in cash.
  On
          October 1, 2007, the Company issued senior management and directors 70,100
          shares of common stock at $8.16 per share, as compensation. The shares
          were
          valued at the quoted market price on the date granted. The Company recorded
          compensation expense of $572,016 for the year ended December 31,
          2007.
 
 On
          January 14, 2008 the Company issued 150,000 shares of common stock at $10.43
          per
          share as additional note issuance cost totaled $1,564,500. The shares price
          is
          determined as the quoted market price on the date granted.
 
 On
          February 5, 2008, the Company issued senior management and directors 76,600
          shares of common stock at $7.16 per share, as compensation. The shares
          were
          valued at the quoted market price on the date granted. The Company recorded
          compensation expense of $548,456 for the six months ended September
          30, 2008 .
  -
              36
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 On
          April
          14, 2008, the Company, Mr. Zuosheng Yu (CEO of the Company) and Mr. Zhang
          Dan Li
          (CEO of Long Men Joint Venture) entered into a compensation agreement in
          which
          Mr. ZuoSheng Yu agreed to transfer his own 600,000 shares to Mr. Zhang
          Dan Li in
          exchange for 15 years of service in the Company. Pursuant to SFAS 123R
          (Share-Based Payment) share-based payments awarded to an employee of the
          reporting entity by a related party or other holder of an economic interest
          in
          the entity is treated as compensation as if the shareholder has made a
          capital
          contribution. The shares are valued quoted market price of $6.91 on grant
          date
          for a total of $4,146,000 and will be amortized over the life agreement.
          A total
          of $69,100 and $138,200 of compensation expense and additional paid in
          capital
          has been recorded for the three months and nine months ended September
          30,
          2008.
 
 On
          April
          15, 2008, the Company granted senior management and directors 87,400 shares
          of
          common stock at $6.66 per share, as compensation. The shares were valued
          at the
          quoted market price on the date granted. The Company recorded compensation
          expense of $582,084 for the six months ended June 30, 2008.
 
 On
          July
          3, 2008, the Company granted senior management and directors 90,254 shares
          of
          common stock at $10.29 per share, as compensation. The shares were valued
          at the
          market price on the date granted. The Company recorded compensation expense
          of
          $928,672 for the nine months ended September 30, 2008.
 
 541,299
          shares of common stock were issued upon conversion of notes with a carrying
          value of $6,750,000 at a conversion price of $12.48. In addition 195,965
          shares
          of common stock were issued as make whole interest expense of $2,310,313.
          See
          note 12 for details.
 
 140,000
          shares of warrants in connection with the redeemable preferred stock were
          exercised at $5.00 per share in September 2008.
 
 Warrants:
 The
          Company has the following warrants outstanding:
 
 Outstanding
                    as of January 1, 2007
                
                
                2,353,334Granted
                
                
                -Forfeited
                
                
                -Exercised
                
                
                -Outstanding
                    as of September 30, 2007
                
                
                2,353,334Granted
                
                
                1,154,958Forfeited
                
                
                -Exercised
                
                
                (2,120,000
                )Outstanding
                    as of December 31, 2007
                
                
                1,388,292Granted
                
                
                -Forfeited
                
                
                (93,334
                )Exercised
                
                
                (140,000
                )Outstanding
                    as of September 30, 2008
                
                
                1,154,958
  -
              37
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 Outstanding Warrants
                
                Exercisable WarrantsExercise Price
                
                Number
                
                Average
                  Remaining
                  Contractual Life
                
                Average
                  Exercise
                  Price
                
                Number
                
                Average
                  Remaining
                  Contractual
                    Life$                                    13.51
                
                
                1,154,958
                
                
                4.62
                
                $
                13.51
                
                
                1,154,958
                
                
                4.62
 
 **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. It was the first year the Company
          was
          required to make contributions to the state retirement plan. The Company
          is
          required to contribute 20% of the employees’ monthly base salary. Employees are
          required to contribute 8% of their base salary to the plan. Total pension
          expense incurred by the Company amounted to $1,089,538 and $978,524 for
          the
          three months ended September 30, 2008 and 2007.Total pension expense incurred
          by
          the Company amounted to $2,420,595 and $1,245,033 for the nine months ended
          September 30, 2008 and 2007.
 
 **Note
          22 – Statutory reserves**
 
 The
          laws
          and regulations of the People’s Republic of China require that before an
          enterprise distributes profits to its partners, it must first satisfy all
          tax
          liabilities, provide for losses in previous years, and make allocations,
          in
          proportions determined at the discretion of the board of directors, to
          the
          statutory reserves. The statutory reserves include the surplus reserve
          funds and
          the enterprise fund and these statutory reserves represent restricted retained
          earnings.
 
 Surplus
          reserve fund
 
 The
          Company is required to transfer 10% of its net income, as determined in
          accordance with the PRC accounting rules and regulations, to a statutory
          surplus
          reserve fund until such reserve balance reaches 50% of the Company’s registered
          capital.
 
 The
          transfer to this reserve must be made before distribution of any dividend
          to
          shareholders. For the nine months ended September
          30, 2008 and 2007 ,
          the
          Company transferred $648,363 and $0 to this reserve. The surplus reserve
          fund is
          non-distributable other than during liquidation and can be used to fund
          previous
          years’ losses, if any, and may be utilized for business expansion or converted
          into share capital by issuing new shares to existing shareholders in proportion
          to their shareholding or by increasing the par value of the shares currently
          held by them, provided that the remaining reserve balance after such issue
          is
          not less than 25% of the registered capital.
  -
              38
              -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 September
          30, 2008
 (UNAUDITED)
 
 **Note
          23 – Commitment and contingencies**
 
 The
          Company is obligated to contribute $5,130,000 (RMB 40 million), as registered
          capital to Baotou Steel Pipe Joint Venture. The Company contributed
          approximately $1,734,200 through December 31, 2007, and the balance will
          be
          contributed in the first half of 2009, from Daqiuzhuang Metal.
 
 Daqiuzhuang
          Metal provides dormitory facilities for its employees under a 10 year rental
          contract. The agreement began January 2006 and required full prepayment
          for the
          10 year period totaling $466,200. Total rental expense for the three months
          ended September 30, 2008 and 2007 amounted to $13,179 and $12,930. Total
          rental
          expense for the nine months ended September 30, 2008 and 2007 amounted
          to
          $38,710 and $35,273.
 
 Daqiuzhuang
          Metal rented land for 50 years starting September 2005. The agreement called
          for
          Daqiuzhuang Metal to pay the first three years’ rent payments upon signing the
          agreement. The balance due for the remaining 47 years payment is due in
          September 2008, after the leassor has assisted Daqiuzhuang Metal in obtaining
          the appropriate land use rights. Total amount of the rent over the 50 years
          period is approximately $1,044,728 (or RMB 8,067,400).
 
 As
          of September
          30, 2008 ,
          total
          future minimum lease payments for the unpaid portion under an operating
          lease
          were as follows:
 
 Year
                    ended December 31,
                
                Amount2008
                
                424,909Thereafter
                
                $
                -
 
 Total
          rental expense amounted to $5,783 and $5,344 for the three months ended
          September 30, 2008 and 2007, respectively. And total rental expense of
          the land
          use right for the nine months ended September 30, 2008 and 2007, amounted
          to
          $17,349 and $15,808, respectively.
  -
              39
              -


**ITEM
      2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




**Forward-Looking
      Statements:**





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





**Management
      Comments**





Third
      quarter total revenues increased 19.1% year over year to $411.5 million and
      first nine months total revenues increased 116.2% year over year to $1.1
      billion.





Third
      quarter 2008 has been a  challenging
      period for our operations. China is experiencing economic slowdown which has
      noticeably impacted the real estate market. Deutsche Bank estimates that Chinese
      real estate property sales have declined by more than 15% since the first of
      the
      year. Real estate is an important demand driver for our Longmen facility
      (Longmen comprises 87% of our turnover).





The
      result of the real estate slowdown has been a decline in selling price for
      construction steel across China.





Raw
      material input costs have also started to decline from the second quarter,
      but
      the rate of decline is slower than the decline selling prices have experienced.
      Steel companies of all sizes have been impacted. Steel Guru, a leading steel
      industry information website, reports that many Chinese small and medium steel
      companies have shut down due to the low selling prices and many large size
      steel
      companies have reduced output. Notably, the top 4 steel producers in China
      have
      jointly agreed to reduce output by 20%.





This
      is
      the typical “boom bust” cycle for commodity products such as steel. When selling
      prices are low, steel producers cut or stop production altogether. This reduces
      supply and inventories are consumed. As supply dwindles, eventually demand
      becomes greater than supply and selling prices increase once again.




Management
      is being proactive in managing the business through the current economic
      slowdown. We are taking the following steps.


-
            Completed
                2 new Blast Furnaces with greater efficiencies at our Longmen facility
                which will reduce our Cost of Goods on a per ton
                basis






-
          40
          -




-
            Working
                with suppliers to lower input costs


-
            Reducing
                headcount to improve our cost
                structure


-
            Adjusting
                production in line with market conditions


-
            Reducing
                inventory levels to take advantage of dropping raw material
                prices


-
            Working
                to increase gross margins by expanding our product
                mix





In
      our 20
      year operating history, we have been through multiple “boom bust” cycles and are
      confident in our ability to manage the company through this slowdown and
      position ourselves for the economic recovery.





While
      the
      economic slowdown is a difficult environment for operations, it presents many
      attractive mergers & acquisition (the “M&A”) prospects which is a key
      component of our growth strategy.





Third
      quarter 2008 highlights of actions by management to benefit our
      shareholders:





-
            Completion
                of 2 X 1280 cubic meter blast furnaces at our Longmen JV. The new
                blast
                furnaces will effectively double our pig iron production capacity
                and
                increase earnings potential. The new blast furnaces are more efficient
                using less energy, less coke and labor to produce iron. The first
                blast
                furnace is being prepped for operation and we anticipate it to be
                on line
                in late November with the other furnace to follow at a later date.
                The new
                more efficient furnacesgives us an important advantage against many of our competitors who
                are
                dealing with higher input costs due to their reliance on outdated
                and
                inefficient production processes and technology.It
                is important to note we have funded this large capital expenditure
                locally
                (USD 146.7 million YTD). This reallocation of working capital to
                the
                construction of this important income-producing asset has caused
                pressure
                on our current financial results. We believe that the long term future
                benefits of the blast furnaces outweigh the short term impact on
                our
                current results.





-
            Completion
                of a debt restructuring for our Maoming subsidiary resulting in a
                RMB 50
                million debt waiver. This debt waiver immediately increases the Net
                Asset
                Value of our Maoming subsidiary by RMB 50 million.





-
            Negotiated
                a price compensation refund from a key supplier which will lower
                our cost
                of goods. This benefit will show up in our fourth quarter
                results.





-
            Signed
                Letter of Intent with Yantai Steel Pipe Co. Ltd. which upon completion
                of
                the joint venture will move General Steel into a higher margin product
                segment.





Although
      the present market conditions are challenging, we would like to highlight the
      following important market dynamics.





-
            The
                China national government is concerned about the current economic
                slowdown
                and announceda
                $586 billion economic stimulus program on November 8, 2008 aiming
                to
                bolster domestic demand.The
                plan includes spending in housing, infrastructure, agriculture, health
                care and social welfare.


-
            We
                anticipate the continued decrease in the cost of input raw
                materials.


-
            Our
                pipeline of M&A targets is growing including companies with higher
                gross margin product lines


-
            Our
                sales are focused primarily on the China domestic market where a
                large
                demand driver is government infrastructure spending.


o
            Our
                Longmen facility is supplying reinforcing steel to a double ringed
                subway
                system project in Xian (180km from our facility).


o
            The
                Bei Shan Ling Port district where our Maoming facility is located
                started
                a large infrastructure project building 76 deep water docking terminals.




-
          41
          -




We
      remain
      positive on the long term development of China. Steel is a basic building
      material and the Chinese steel industry along with General Steel Holdings Inc.
      is closely linked to China’s development.





**Company
      Overview**





General
      Steel Holdings, Inc. (“General Steel”), headquartered in Beijing China, operates
      a diverse portfolio of Chinese steel companies. Our companies serve various
      industries and produce a variety of steel products including: reinforced bars
      (rebar), hot-rolled carbon and silicon sheets , spiral-weld
      pipes and high-speed wire. Our aggregate production capacity of steel products
      is 4.8 million tons, of which the majority is rebar. Individual industry
      segments have unique demand drivers, such as rural income, infrastructure
      construction and energy consumption. Domestic economic conditions are an overall
      driver for all our products.





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





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





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





We
      presently have controlling interest in four steel subsidiary
      companies:


·
              Tianjin
                  Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal);·
              Baotou
                  Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd.
                  (Baotou
                  Steel Pipe Joint Venture);·
              Shaanxi
                  Longmen Iron and Steel Co., Ltd. (Longmen Joint Venture);
                  and·
              Maoming
                  Hengda Steel Group Limited
                  (Maoming).




**Steel
      Operating Companies**





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





Tianjin
      Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”), started its operation
      in 1988. Daqiuzhuang Metal’s core business is the manufacturing of high quality
      hot-rolled carbon and silicon steel sheets which are mainly used in the
      production of small agricultural vehicles and other specialty markets.





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





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




-
          42
          -




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





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





We
      have
      invested $1.56 million cash into this joint venture with the rest of the
      required registered capital to be invested within two years. The remainder
      of
      the investment will come from Daqiuzhuang Metal.





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





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





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





Effective June
      1, 2007, through two subsidiaries, Daqiuzhuang Metal and Tianjin Qiu Steel
      Investment Co., Ltd., we entered into a joint venture agreement with Shaanxi
      Longmen Iron & Steel Group Co., Ltd. (“Long Steel Group”) to form Shaanxi
      Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). Through our two
      subsidiaries, we invested approximately $39 million cash and collectively hold
      approximately 60% of the Longmen Joint Venture.





Long
      Steel Group, located in Hancheng city, Shaanxi province, in China’s central
      region, was founded in 1958 and incorporated in 2002.





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





Our
      Longmen Joint Venture, assumed existing operating units of the Long Steel Group.
      The Long Steel Group contributed most of its working assets to the Longmen
      Joint
      Venture.





Currently,
      the Longmen Joint Venture has 4 branch offices, 7 subsidiaries under direct
      control and 8 entities in which we have indirect control interest.





Longmen
      Joint Venture employs approximately 6,000 full-time and 2,000 part-time
      workers.





The
      current annual capacity at Longmen Joint Venture is 2.5 million tons of crude
      steel. It is the largest steel producer in Shaanxi province. Approximately
      94%
      of its total production is devoted to reinforced bar steel (rebar - a commodity
      grade steel product used to reinforce the concrete), with the remainder being
      roundbar, wire rod and related products. These products are primarily used
      in
      building and infrastructure construction.





We
      completed 2 new blast furnaces and supporting facilities. The first blast
      furnace will come on line in late November 2008 with the second to follow at
      a
      later date. The new blast furnace each has a volume of 1,280 cubic meters.
      The
      new blast furnaces and support facilities will increase our crude steel
      producing capacity to approximately 4 million tons annually.




-
          43
          -




In
      addition to increased output, the new blast furnaces will create greater
      production efficiencies through reduced energy, raw material inputs and labor
      costs.





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





An
      established regional network of 24 agents and 2 sales offices sell the Longemn
      Joint Venture’s products. All products sell under the registered brand name of
“Yulong” which enjoys strong regional recognition and awareness. Rebar and
      billet products carry ISO 9001 and 9002 certification and many other products
      have won national quality awards. Products produced at the facility have been
      used in the construction of the Yangtze River Three Gorges Dam, Xi’an
      International Airport, the Xi Han, Xi Tong and Xi Da provincial expressways,
      and
      are currently being used in the construction of the Xi’an city subway
      system.





On
      September 24, 2007, Longmen Joint Venture acquired controlling interest in
      two
      subsidiaries of Long Steel Group: Longmen Iron and Steel Group Co., Ltd.
      Environmental Protection Industry Development Co., Ltd. and Longmen Iron and
      Steel Group Co., Ltd. Hualong Fire Retardant Materials Co., Ltd.





The
      Longmen Joint Venture entered into an equity transfer agreement with Long Steel
      Group to acquire its 74.92% ownership interest in its subsidiary, Longmen Iron
      and Steel Group Co., Ltd. Environmental Protection Industry Development Co.,
      Ltd. (“EPID”). The Joint Venture paid $2.4 million (RMB 18,080,930) in exchange
      for the ownership interest. The facility utilizes solid waste generated from
      the
      steel making process to produce products such as construction materials,
      building blocks, and landscape tiles, curb tops, ornamental tiles,
      etc.





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





On
      January 11, 2008, Longmen Joint Venture completed its acquisition of a
      controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”).
      Longmen Joint Venture contributed its land use right of 217,487 square meters
      (approximately 53 acres) with an appraised value of approximately $4.1 million
      (RMB 30,227,333). Pursuant to the agreement, the land will be converted into
      shares valued at approximately $3.1 million (RMB 22,744,419), providing the
      Joint Venture a stake of 22.76% ownership in Tongxing and making it Tongxing’s
      largest and controlling shareholder. Tongxing has two core operating areas:
      coking coal production and rebar processing. Its coking coal operations have
      an
      annual production capacity of 300,000 tons. Its rebar processing facility has
      an
      annualized rolling capacity of 300,000 tons.





**·*Maoming
      Hengda Steel Group Limited
      (Maoming)***





On
      June
      25, 2008, through our subsidiary Tianjin Qiu Steel Investment, we acquired
      99%
      of Maoming Hengda Steel Group, Limited (“Maoming”) for RMB 50 million
      (approximately USD 7.3 million). Maoming’s core business is the production of
      high-speed wire and rebar, products used in the construction industry. Located
      on 140 hectares (approximately 346 acres) in Maoming city, Guangdong province,
      the facility has two production lines capable of producing 1.8 million tons
      of
      5.5mm to 16mm diameter high-speed wire and 12mm to 38mm diameter rebar each
      year. The products are sold through 9 distributors targeting customers in
      Guangxi province and the western region of Guangdong province.




-
          44
          -


We
      paid
      RMB 50 million ($7.3 million) for the facility. The facility had been operating
      at approximately 10% of capacity due to, we believe, a redirected corporate
      focus of the previous owners.





After
      many rounds of difficult negotiations, on September 27, 2008 we completed a
      RMB
      50 million ($ 7.8 million) debt waiver agreement which increased our net asset
      value of the subsidiary by an equivalent amount.




**Operating
      Information Summary by Subsidiaries**





Daqiuzhuang Metal
            
            Baotou Steel Pipe
              Joint Venture
            
            Longmen Joint
              Venture
            
            Maoming
              Heng DaAnnual
                Production Capacity (ton)
            
            400,000
            
            100,000
            
            2.5
                million
            
            1.8
                millionMain
                Products
            
            Carbon/Silicon
                Sheet
            
            Spiral-weld
                pipe
            
            Rebar
            
            High-speed
                wireMain
                Application
            
            Light
                Agricultural Vehicles
            
            Energy
                transport
            
            Infrastructure
                and Construction
            
            Infrastructure
                and Construction





**Stock
      listing**





We
      obtained listing approval from American Stock Exchange (the “AMEX”) on September
      28, 2007. The stock officially started to trade on AMEX on October 3, 2007
      under
      the ticker symbol “GSI”. On March 6, 2008, we migrated from the AMEX to the NYSE
      Arca and officially started to trade under the same ticker symbol
“GSI”.





On
      July
      25, 2008 we received authorization to list our common stock on the NYSE. On
      August 8, 2008, we officially migrated from the NYSE Arca to the NYSE and
      officially started to trade under the same ticker symbol “GSI”.





**Factors
      affecting our operating results**




Demand
      for our products





Overall,
      domestic economic growth is an important demand driver for our products.
      Currently, China is experiencing an economic downturn from its past eight years
      of record growth. Never-the-less, according to estimates by Deutsche Bank,
      China’s economy will still grow by approximately 9.9% in 2008, well above many
      western developed economies. Industry demand drivers for our products include
      construction and infrastructure growth, rural income growth and energy
      demand.





At
      Longmen Joint Venture, growth in regional construction and infrastructure
      projects drives demand for our products. According to the 11 th Five-Year National Economic and Social Development Plan (the
“NESDP”)(2006-2010), development of China’s western region is one of the
      top-five economic priorities of the nation. Shaanxi, the province where Longmen
      Joint Venture is located, has been designated as the bridgehead for development
      into the western region, and Xi’an, the provincial capital, has been designated
      as the focal point for this development. Our Longmen Joint Venture is 180 km
      from Xi’an and does not have another major competitor within a 250 km radius.
      According to a Shaanxi provincial government report issued on January 16, 2008,
      there are 150 construction and infrastructure projects scheduled to begin in
      the
      province in 2008. Major projects include six new highways, one new airport,
      the
      expansion of the Xi’an airport, a new ring subway system and three new dams. We
      see strong demand for our products driven by these and many other construction
      and infrastructure projects. We believe that there will be sustained regional
      demand for several years ahead as the government continues to strengthen its
      western region development efforts.




-
          45
          -


At
      Daqiuzhuang Metal, rural income growth drives demand for our hot-rolled carbon
      sheets. According to the Asian Development Bank statistics, well over 60% of
      the
      nation’s 1.3 billion total population is comprised of low-income, rural farmers.
      Our steel sheets are used in the construction of light agricultural vehicles
      targeted for sale to low-income, rural farmers. We believe our sheets are
      lighter and of greater ductility than those of our competitors and are preferred
      by manufacturers of light agricultural vehicles. According to the 11 th Five-Year NESDP (2006-2010), raising the level of rural income is a top economic
      and social goal for the country. Many government initiatives, including removal
      of certain agricultural and local product taxes, have been implemented to spur
      rural income development. The government expects annual rural income to grow
      between 5% and 10% through 2010. Transportation asset growth slightly lags
      behind the growth in rural net income, so we anticipate demand for light
      agricultural vehicles to continue to grow between 4.7% and 9.6% throughout
      2010.





At
      Baotou
      Steel Pipe Joint Venture, the need to transport oil and steam drives demand
      for
      spiral-weld steel pipe. The West-East pipeline that will bring oil and natural
      gas from the Xinjiang Uyghur Autonomous Region to large eastern coastal cities
      will be the largest single demand driver for our pipes. This pipeline starts
      in
      China’s far western Xinjiang Uyghur Autonomous Region and stretches 4000 km
      through ten regions, provinces and municipalities before it ends in Zhejiang
      province. Construction on the pipeline commenced in the first quarter of 2008.
      Lesser demand is fueled by smaller pipeline projects and municipal energy
      infrastructure projects.





At
      Maoming, infrastructure growth and business development are demand drivers
      for
      our construction steel products. Guangdong province serves as an export hub
      to
      Southeast Asia and abroad for many products produced in China, and is one of
      China’s most economically advanced provinces. According to a National
      Development and Reform Commission Industrial Update issued June 23, 2008
      projected annual demand for steel products in Guangdong will reach 50 million
      tons by the end of 2010. On June 3, 2008, the Guangdong provincial government
      announced plans within the Bei Shan Ling Port District, the area in which our
      facility is located, to build 76 new shipping terminals with an aggregate
      throughput of 350 million tons annually. These construction projects and other
      infrastructure projects in the region will be demand drivers for our
      products.





Supply
      of
      raw materials





Iron
      ore


Our
      primary raw materials consist of iron ore, coke, hot-rolled steel coil and
      steel
      billets. Daqiuzhuang Metal and Baotou Steel Pipe Joint Venture use hot-rolled
      steel coil as their main raw material. Longmen Joint Venture uses iron ore
      and
      coke as its main raw material. Maoming uses steel billets as it’s raw material.
      Iron ore is the main raw material used to produce hot-rolled steel coil and
      steel billets. As a result, the price of iron ore and coke are the primary
      raw
      material cost driver for our products.





Longmen
      Joint Venture represents 2.5 million tons of our aggregate 4.8 million ton
      annual production capacity. At Longmen Joint Venture, approximately 90% of
      the
      production costs are attributable to the purchase of raw materials, with iron
      ore being the largest component of the purchase.





According
      to the China Iron and Steel Association, approximately 60% of the China domestic
      steel industry demand for iron ore will have to be filled by imports. At our
      Longmen Joint Venture, we purchase iron ore from four primary sources: the
      Mulonggou mine (owned by the Longmen Joint Venture), the Daxigou mine (owned
      by
      our joint venture partner), domestic sources and from imports. The Daxigou
      mine
      has 300 million tons of proven iron ore reserves, of which only less than one
      million tons have been excavated. According to the terms of our Joint Venture
      agreement with the strategic partner, we have first rights of refusal for sales
      and development from this mine.




-
          46
          -


We
      currently source approximately 80,000 tons per month of our iron ore from the
      Mulonggou and Daxigou mines, 70%-75% from domestic mines and remaining amount
      of
      our iron ore from imports. The Longmen JV sources iron ore from the Mulonggou
      and Daxigou mines below market prices due to it’s shareholding relationships. In
      2008, we aim to increase the quantity of iron ore sourced from Mulonggou and
      Daxigou mines to approximately 100,000 tons per month. We anticipate this will
      increase our gross margin. We believe gaining greater direct control over our
      key raw material supply is important for margin and secured source protection.





Coke


After
      iron ore, coke is our second most largely consumed raw material. It takes
      approximately 550 kg to 600 kg of coke to make 1 ton of pig-iron.





Our
      Longmen facility has the benefit of being located in the center of China’s coal
      belt. All coke used at Longmen Joint Venture is sourced locally from the town
      of
      Hancheng, the town where Longmen Joint Venture is located. This strategic
      location in the center of China’s coal belt ensures dependable supply and
      minimum transportation costs for this key raw material.





Industry
      consolidation





In
      2007,
      the government held firm on its resolve to consolidate the highly fragmented
      domestic steel industry through coerced mergers and heightened operating
      requirements. In November 2007, the National Development and Reform Commission
      (NDRC), the nation’s top economic planner, reported that to date 29.4 million
      tons of outdated iron smelting capacity and 15.21 million tons of outdated
      steel
      smelting capacity had been eliminated. It also announced later
      obligation letter with 18 provinces, autonomous regions and municipalities
      to eliminate 49.31 million tons of outdated iron smelting capacity and 36.1
      million tons of outdated steel smelting capacity. The obligation letters
      involved 573 enterprises. It is the government’s goal to consolidate 50% of
      domestic production among the top 10 steel companies by 2010 and 70% by
      2020.





We
      believe that the government will continue to strengthen its industry
      consolidation effort. As excess capacity from weaker market players is removed,
      the eliminated capacity will be reassigned to steel companies which have gained
      government approval for expansion.





Environmental
      controls for the Olympic Games





This
      summer, Beijing hosted the Olympic and Paralympic Games. In an effort to improve
      the air quality in and around Beijing, Interfax China reported that Hebei
      Development and Reform Commission suspended production at 42 polluting
      enterprises in the province, including small scale steel mills. The closure
      period was targeted between July 17 and the beginning of October 2008. The
      enterprises were scattered through seven cities surrounding Beijing:
      Shijiazhuang, Chengde, Zhangjiakou, Qinhuangdao, Tangshan, Langfang and Baoding.
      Our facilities were not included in this list. However, certain environmental
      controls imposed on Tianjin-area companies did cause us to reduce production
      at
      our Daqiuzhuang Metal facility.





Sichuan
      Earthquake





On
      May
      12, 2008, a 7.8 magnitude earthquake hit Sichuan province causing large scale
      destruction and personal injury. Fortunately, none of our operating facilities
      were physically damaged by this earthquake. We have not experienced any
      significant impact on our sales and procurement plans caused by this event.
      As
      recovery in Sichuan province continues and moves into phases of rebuilding
      and
      reconstruction, we will monitor closely the market conditions to be alert to
      emerging opportunities for sales.




-
          47
          -


**Operating
      Results**




***Sales
      Revenue***





***Three
      months ended September 30, 2008 compared with three months ended September
      30,
      2007***





Net
      sales
      for the three months ended September 30, 2008 increased 19% to $411.5 million
      compared to $345.4 million for the same period of 2007.





Daqiuzhuang
      Sheet Metal, shipments for the three months ended September 30, 2008 decreased
      32% to 46,804 tons from 69,245 tons in the same period of 2007. The decrease
      in
      volume is largely attributed to production restrictions by the government to
      improve air quality for the Beijing Olympics. The restrictions were in place
      from July 17 until beginning of October 2008.





Baotou
      Steel Pipe Joint Venture, shipments increased 82% to 15,120 tons from 8,295
      tons
      in the same period of 2007. The increase is due to a pipe processing contract
      with Baotou Steel to supply pipe for a pipeline for transporting iron ore via
      slurry instead of truck and rail. The pipeline will be 172 kilometers long
      connecting the Bai Yun E Bo iron ore mines to the Baotou Steel facility located
      in the city of Baotou.





Longmen
      Joint Venture, shipments for the three months ended September 30, 2008 decreased
      27% to 535,307 tons from 736,916 tons in the same period of 2007. The decrease
      in sales volume reflects a management decision to carry out maintenance on
      our
      blast furnaces during this period of declining selling prices. While shipments
      decreased, overall sales value increased 18% due to increase of Average Selling
      Price compared with the same period 2007.





Maoming
      shipments for the three months ended September 30, 2008 were 22,261 tons. This
      subsidiary was acquired June 25, 2008 so a comparison to the same period last
      year is not possible. The emphasis this quarter for this subsidiary was
      installing policies and procedures and securing raw material inputs at lower
      prices.





The
      following table displays sales and steel shipment data for our operating units
      for the three months ended 2008 and 2007.





3rd Quarter 2008
            
            3rd Quarter 2007Operating Unit
            
            Shipment
              Volume
            
            Sales Amount
            
            Shipment
              Volume
            
            Sales Amount(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            46,804
            
            $
            35,631,427
            
            
            69,245
            
            $
            40,315,887Baotou
                Steel Pipe Joint Venture
            
            
            15,120
            
            
            5,575,198
            
            
            8,295
            
            
            3,747,359Longmen
                Joint Venture
            
            
            535,307
            
            
            355,938,209
            
            
            736,916
            
            
            301,321,091Maoming
            
            
            22,261
            
            
            14,375,997Totals
            
            
            619,492
            
            $
            411,520,831
            
            
            814,456
            
            $
            345,384,337





***Nine
      months ended September 30, 2008 compared with Nine months ended September 30,
      2007***





Overall,
      net sales for the nine months ended September 30, 2008 increased 116% to $1.09
      billion compared to $0.50 billion for the same period of 2007.





The
      116%
      increase in net sales is attributed to:





Higher
      Average Selling Prices compared to last year and Acquisition Timing of our
      subsidiaries.




-
          48
          -


Acquisition
      Timing of our subsidiaries :


Our
      Baotou subsidiary started operations May 25, 2007. Third quarter 2008 cumulative
      results reflects a full nine months of operations whereas third quarter 2007
      cumulative results includes four months of Baotou Joint Venture
      operations.





Our
      Longmen Joint Venture started operations on June 1, 2007.  Third
      quarter 2008 cumulative results reflects a full nine months of operations
      whereas third quarter 2007 cumulative results includes four months of Longmen
      Joint Venture operations.





Our
      Maoming subsidiary started operations June 25, 2008. Third quarter 2008
      cumulative results reflects a full three months of operations whereas this
      subsidiary did not exist for the same period last year.





The
      following table displays sales and steel shipment data for our operating units
      for the nine months ended 2008 and 2007.




Nine months, 2008
            
            Nine months, 2007Operating Unit
            
            Shipment
              Volume
            
            Sales Amount
            
            Shipment
              Volume
            
            Sales Amount(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            166,691
            
            $
            117,997,016
            
            
            254,412
            
            $
            121,440,779Baotou
                Steel Pipe Joint Venture
            
            
            21,458
            
            
            9,571,523
            
            
            8,295
            
            
            3,747,359Longmen
                Joint Venture
            
            
            1,522,107
            
            
            948,171,230
            
            
            944,489
            
            
            379,058,914Maoming
            
            
            22,261
            
            
            14,375,997Totals
            
            
            1,732,517
            
            $
            1,090,115,766
            
            
            1,207,196
            
            $
            504,247,052





***Gross
      Profit***





***Three
      months ended September 30, 2008 compared with three months ended September
      30,
      2007***





Gross
      profit for the three months ended September 30, 2008 decreased to ($6.3) million
      from $25.9 million for the same period last year.





The
      decrease in gross profit is largely due to economic slowdown noticeably
      impacting the China real estate market and general economy.





Real
      estate is an important demand driver for construction steel. Selling prices
      and
      raw material input costs are both coming down, but selling prices are coming
      down at a faster rate than raw material input costs. Management is taking
      actions to contain the erosion of gross margins during this difficult
      period.





Daqiuzhuang
      Sheet Metal gross profits for the three months ended September 30, 2008
      increased 20% to $1.1 million from $0.9 million in the same period of 2007.
      This
      increase in gross profit is the result of higher Average Selling Prices and
      revamped product mix to higher margin products (silicon steel
      sheets).





Baotou
      Steel Pipe Joint Venture gross profits for the three months ended September
      30,
      2008 increased 324% to $0.59 million from $0.14 million in the same period
      of
      2007. This increase in gross profit is due to the Baotou Steel pipe processing
      contract. In this contact we are only processing steel sheets into pipe. We
      do
      not bear inventory and are therefore are not exposed to increasing input
      costs.




-
          49
          -




Longmen
      Joint Venture gross profits for the three months ended September 30, 2008
      decreased to ($6.4) million from $24.8 million in the same period of 2007.
      This
      decrease is due to economic slowdown noticeably impacting the real estate market
      which is an important demand driver for our Longmen Joint Venture. Selling
      prices are falling faster than the rate at which our input costs are falling
      and
      created negative gross profit. We continued to produce even with a negative
      Gross Profit to consume existing inventory so that we can take advantage of
      falling raw material prices..





Maoming
      Hengda gross profits for the three months ended September 30, 2008 are ($1.6)
      million. The negative margin was due to price erosion which happened after
      the
      supply contracts were signed and before the fulfillment of the customer
      orders.





The
      following table displays gross profit and gross margin data for our operating
      units for the three months ended 2008 and 2007.





3rd Quarter 2008
            
            3rd Quarter 2007Operating Unit
            
            Gross Profit
            
            Gross
              Margin
            
            Gross Profit
            
            Gross
              MarginDaqiuzhuang
                Metal
            
            $
            1,092,008
            
            
            3.06
            %
            $
            910,749
            
            
            2.26
            %Baotou
                Steel Pipe Joint Venture
            
            
            591,407
            
            
            10.61
            %
            
            139,428
            
            
            3.72
            %Longmen
                Joint Venture
            
            
            (6,400,533
            )
            
            (1.80
            )%
            
            24,839,574
            
            
            8.24
            %Maoming
            
            
            (1,630,476
            )
            
            (11
            )%
            
            -
            
            
            -Totals
            
            $
            (6,347,594
            )
            
            (1.54
            )%
            $
            25,889,751
            
            
            7.5
            %





***Nine
      months ended September 30, 2008 compared with nine months ended September 30,
      2007***





Gross
      profit for the nine months ended September 30, 2008 was $29.5 million, compared
      to $35.7 million for the same period last year.





The
      drivers impacting our gross profit for the nine months ended September 2008
      are
      the same drivers impacting our gross profit for three months ended September
      2008.





The
      following table displays gross profit and gross margin data for our operating
      units for the nine months ended 2008 and 2007.





Nine months, 2008
            
            Nine months, 2007Operating Unit
            
            Gross Profit
            
            Gross
              Margin
            
            Gross Profit
            
            Gross
              MarginDaqiuzhuang
                Metal
            
            $
            4,717,880
            
            
            4.00
            %
            $
            3,628,017
            
            
            2.99
            %Baotou
                Steel Pipe Joint Venture
            
            
            628,033
            
            
            6.56
            %
            
            139,428
            
            
            3.72
            %Longmen
                Joint Venture
            
            
            25,787,889
            
            
            2.72
            %
            
            31,968,679
            
            
            8.43
            %Maoming
            
            
            (1,630,476
            )
            
            (11
            )%Totals
            
            $
            29,503,326
            
            
            2.71
            %
            $
            35,736,124
            
            
            7.09
            %




-
          50
          -


***Cost
      of Sales***





***Three
      months ended September 30, 2008 compared with three months ended September
      30,
      2007***





Cost
      of
      sales principally consists of the cost of raw materials, labor, utilities,
      manufacturing costs, manufacturing related depreciation and other fixed costs.
      Overall, cost of sales increased to $417.9 million for the three months ended
      September 30, 2008 from $319.5 million for the same period of 2007.





The
      increase in cost of sales is mostly attributed to the addition of our Maoming
      subsidiary and increased cost of iron ore, coke and hot-rolled steel coils,
      our
      primary raw material inputs.




3rd
                Quarter 2008
            
            3rd
                Quarter 2007Operating Unit
            
            Shipment
              Volume
            
            Cost of Sales
            
            Shipment
              Volume
            
            Cost of Sales(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            46,804
            
            
            34,539,420
            
            
            69,245
            
            $
            39,405,138Baotou
                Steel Pipe Joint Venture
            
            
            15,120
            
            
            4,983,791
            
            
            8,295
            
            
            3,607,931Longmen
                Joint Venture
            
            
            535,307
            
            
            362,338,741
            
            
            736,916
            
            
            276,481,517Maoming
            
            
            22,261
            
            
            16,006,473Totals
            
            
            619,492
            
            
            417,868,425
            
            
            814,456
            
            $
            319,494,586





***Nine
      months ended September 30, 2008 compared with nine months ended September 30,
      2007***





Overall
      cost of sales increased to $1.06 billion for the nine months ended September
      30,
      2008 from $0.47 billion for the same period of 2007.





The
      increase in cost of sales is attributed to increased cost of iron ore, coke
      and
      hot-rolled steel coils, our primary raw material inputs and Acquisition
      Timing of our subsidiaries (see Sales Revenue nine months ending September
      2008
      for details of Acquisition Timing of our subsidiaries).





The
      following table displays cost of sales and steel shipment data for our operating
      units for the nine months ended 2008 and 2007.




Nine
                months, 2008
            
            Nine
                months, 2007Operating Unit
            
            Shipment
              Volume
            
            Cost of Sales
            
            Shipment
              Volume
            
            Cost of Sales(in
                Tons)
            
            
            
            (in
                Tons)Daqiuzhuang
                Metal
            
            
            166,691
            
            
            113,279,136
            
            
            254,412
            
            $
            117,812,762Baotou
                Steel Pipe Joint Venture
            
            
            21,458
            
            
            8,943,490
            
            
            8,295
            
            
            3,607,931Longmen
                Joint Venture
            
            
            1,522,107
            
            
            922,383,341
            
            
            944,489
            
            
            347,090,235Maoming
            
            
            22,261
            
            
            16,006,473Totals
            
            
            1,732,517
            
            
            1,060,612,440
            
            
            1,207,196
            
            $
            468,510,928




-
          51
          -


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





***Three
      months ended September 30, 2008 compared with three months ended September
      30,
      2007***





Selling,
      general and administrative expenses, such as executive compensation, office
      expenses, legal and accounting charges, travel charges, and various taxes were
      $12.3 million for the three months ended September 30, 2008, compared to $6.80
      million for the same period of 2007. This increase is partially attributed
      to
      the addition of our Maoming subsidiary which did not exist in the same period
      2007.





***Nine
      months ended September 30, 2008 compared with nine months ended September 30,
      2007***





Selling,
      general and administrative expenses were $28.4 million for the nine months
      ended
      September 30, 2008, compared to $10.3 million for the same period of 2007.





A
      large
      portion of the increase is related to Acquisition
      Timing of our subsidiaries (see Sales Revenue nine months ending September
      2008
      for details of Acquisition Timing of our subsidiaries) .





**Other
      income (expense)**





***Three
      months ended September 30, 2008 compared with three months ended September
      30,
      2007***





Through
      negotiations, Guangzhou Hendga Industrial Group Limited agreed to waive RMB
      50
      million (approximately USD 7.8 million) of debt to our Maoming subsidiary.
      This
      immediately increases the net asset value of our Maoming subsidiary by RMB
      50
      million (approximately USD 7.8 million)





Interest
      expense including amortization of debt issuance cost was $6.9 million, including
      $2.3 million make whole interest charge for the three months ended September
      30,
      2008, compared to $4.3 million for the same period in 2007. This increase is
      largely attributable to make whole interest charge. Gain from derivative
      instrument was $26.7 million for the three months ended September 30, 2008
      including $29.9 million decrease in the value of derivative liabilities and
      $0.9
      million effective interest charge and amortization of debt issuance cost. There
      was no derivative instrument for the same period of 2007.





On
      December 13, 2007, the Company entered into a Securities purchase Agreement
      to
      sell senior convertible notes in the aggregate principal amount of $40,000,000
      and warrants to purchase an additional aggregate amount of 1,154,958. In July
      2008, the Company converted $6,750,000 bonds to 737,268 shares common
      stock.




Pursuant
      to SFAS 133 and EITF 00-19, the Company determined that both the warrants and
      the conversion option embedded in the Notes meet the definition of a derivative
      instrument and must be carried as a liability and marked to market each
      reporting period.





On
      December 13, 2007, the Company recorded $34,719,062 as derivative liability,
      including $9,298,044 for the fair value of the warrants and $25,421,018 for
      fair
      value of the conversion option. The initial carrying value of the Notes was
      $5,280,938. The financing cost of $3,594,500 was recorded as deferred note
      issuance cost and is being amortized to interest expense over the term of the
      Notes using the effective interest method.




On
      September 30, 2008, in accordance with SFAS 133, the fair value of derivative
      liabilities was recalculated and decreased by $29,884,898 during the nine months
      period, including $8,794,176 for the decrease in fair value of the warrants
      and
      $21,090,722 for the decrease in fair value of the conversion option. The
      decrease was recorded as gain and included in other expense.




As
      of
      September 30, 2008, the balance of derivative liabilities was $17,954,558,
      which
      consisted of $5,540,560 for the warrants and $12,413,998 for the conversion
      option, and the carrying value of the notes was $6,214,879. The effective
      interest charges on notes totaled $896,850 for the three months ended September
      30, 2008. Deferred issuance cost was amortized to interest expense using the
      effective interest method at $13,205 for the three months.




-
          52
          -




During
      the quarter ended September 30, 2008, the note holder has converted $6,750,000
      into 737,268 shares of common stock with make whole expense of
      $2,310,313.




***Nine
      months ended September 30, 2008 compared with Nine months ended September 30,
      2007***





Interest
      expense was $19.1 million for the nine months ended September 30, 2008, compared
      to $6.7million for the same period in 2007. This increase is largely
      attributable to the operations of the Longmen Joint Venture, which began June
      1,
      2007. Gain from derivative instrument was $0.2 million for the nine months
      ended
      September 30, 2008 including $4.8 million decrease in the value of derivative
      liabilities and $2.7 million of effective interest charge and amortization
      of
      debt issuance cost, and $2.3 million of make whole interest expense as well.
      There was no derivative instrument for the same period of 2007.





Pursuant
      to SFAS 133 and EITF 00-19, the Company determined that both the warrants and
      the conversion option embedded in the Notes meet the definition of a derivative
      instrument and must be carried as a liability and marked to market each
      reporting period.





As
      of
      September 30, 2008, the effective interest charges on notes totaled $2,629,701
      for the nine months and the unamortized financing cost was $4,234,103, including
      $1,564,500 for additional issuance of 150,000 shares of the common stock to
      the
      placement agent in January 2008. Deferred issuance cost was amortized to
      interest expense using the effective interest method at $33,634 for nine
      months.




***Net
      income***





***Three
      months ended September 30, 2008 compared with three months ended September
      30,
      2007***





Net
      income for the three months ended September 30, 2008 increased 156% to $20.5
      million compared to $8.0 million for the same period of 2007.





This
      increase is largely attributable to gain from derivative instrument which was
      $26.7 million for the three months ended September 30, 2008. There was no
      derivative instrument for the same period of 2007.





The
      derivative instrument gain is a non-operating, non-cash gain related to the
      convertible bond and related warrants issued December 2007. Due to accounting
      rules, the derivative instrument value and associated gain or loss is linked
      to
      the stock price of General Steel Holdings, Inc. The gain or loss of this
      instrument has no impact on cash (no cash was paid out or received
      in).





***Nine
      months ended September 30, 2008 compared with Nine months ended September 30,
      2007***





Net
      loss
      for the nine months ended September 30, 2008 is $1.6 million compared to net
      income of $10.4 million for the same period of 2007. This decrease is mainly
      due
      to third quarter economic slowdown and subsequent dropping of sales
      price.




-
          53
          -


***Earnings
      per share***





Earnings
      per share is $0.573 for the three months ended September 30, 2008 and is
      ($0.046) for the nine months ended September 30, 2008. Earnings per share are
      calculated as follows:





EPS (GAAP)
            
            Three months ended September 30
            
            Nine months ended September 30,2008
            
            2007
            
            2008
            
            2007Income
                (Loss) attributable to holders of common shares
            
            $
            20,464,274
            
            $
            8,000,495
            
            $
            (1,618,492
            )
            $
            10,368,661Basic
                weighted average number of common shares outstanding
            
            
            35,687,891
            
            
            32,343,332
            
            
            35,157,579
            
            
            31,704,912Diluted
                weighted average number of common shares outstanding
            
            
            35,687,891
            
            
            32,343,332
            
            
            35,157,579
            
            
            31,704,912Net
                income (Loss) per shareBasic
            
            $
            0.573
            
            $
            0.247
            
            $
            (0.046
            )
            $
            0.327Diluted
            
            $
            0.573
            
            $
            0.247
            
            $
            (0.046
            )
            $
            0.327





The
      third
      quarter 2008 earnings per share were positively impacted by the gain on
      derivative instrument which is a non-operating, non cash gain. Management
      believes that Operating Net Income, which is calculated as our GAAP net earnings
      before impact of derivative gain or loss is a better measurement of our
      operating performance. Operating Net Income is a non-GAAP measurement.




Operating Net Income
            
            Three months ended September 30
            
            Nine months ended September 30,2008
            
            2007
            
            2008
            
            2007Operating
                Income (Loss) attributable to holders of common shares
            
            $
            (6,200,256
            )
            $
            8,000,495
            
            $
            (1,413,874
            )
            $
            10,368,661Basic
                weighted average number of common shares outstanding
            
            
            35,687,891
            
            
            32,343,332
            
            
            35,157,579
            
            
            31,704,912Diluted
                weighted average number of common shares outstanding
            
            
            35,687,891
            
            
            32,343,332
            
            
            35,157,579
            
            
            31,704,912Operating
                Net Income (Loss) per shareBasic
            
            $
            (0.174
            )
            $
            0.247
            
            $
            (0.040
            )
            $
            0.327Diluted
            
            $
            (0.174
            )
            $
            0.247
            
            $
            (0.040
            )
            $
            0.327





***Income
      taxes***





The
      Company did not carry on any business and did not maintain any branch office
      in
      the United States during the nine months ended September 30, 2008 and 2007.
      Therefore, no provision for withholding or U.S. federal income taxes or tax
      benefits on the undistributed earnings and/or losses of the Company has been
      made.





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





The
      effective income tax rate at our Baotou Steel Pipe Joint Venture is 25%. The
      new
      Enterprise Income Tax Law became effective January 1, 2008, reducing the income
      tax rate for Baotou Steel Pipe Joint Venture from 33% to 25%.




-
          54
          -




Our
      Longmen Joint Venture is located in the mid-west region of China. The National
      Development and Reform Commission (the “NDRC”) granted it qualification approval
      to attain the “Go West” special tax treatment. This national tax treatment
      rewards companies contributing to the economic development of the Western Region
      by lowering their effective corporate tax rate from 33% to 15%. This change
      is
      effective July 1, 2007 and is reflected from our financial results.





For
      the
      three months ended September 30, 2008, we had a tax expense of $(2.1) million.
      For the nine months ended September 30, 2008, we had a tax expense of $(0.5)
      million.





Maoming
      is located in Guangdong province, is subject to an income tax at effective
      rate
      of 25%.





**Minority
      interest**





Minority
      interest mainly consists of Long Steel Group’s 40% interest in Longmen Joint
      Venture, Baotou Iron and Steel Group’s 20% interest in Baotou Steel Pipe Joint
      Venture and 1% interest in Maoming by other.





***Accounts
      Receivable***





Accounts
      receivable and accounts receivable-related party were $22.4 million as of
      September 30, 2008 compared to $11.8 million on December 31, 2007.





We
      recognize revenue when we ship out products and pass the titles of the products
      to our customers and distributors. We extended short-term credit to our
      customers and distributors with good reputations and long-term business
      relationships. We have not experienced any bad debt in these accounts. Also,
      we
      review our accounts receivable on a regular basis to determine if the bad debt
      allowance is adequate and adjust the allowance amount if needed. We believe
      the
      accounts receivable amount is collectible. Nevertheless, to be conservative
      and
      prudent in our management practice, as of September 30, 2008, we reserved $0.3
      million for bad debt allowance based on our reasonable estimate.





***Liquidity
      and capital resources***




Due
      to
      the strong market demand for our products and our new Longmen Joint Venture,
      we
      plan to maintain a higher-than-average debt to equity ratio to better position
      ourselves in this fast growing market. Our bank loans are considered short
      term
      for the purpose of the preparation of the financial statements though they
      are
      renewable with the banks every year. Cash balance including restricted cash
      amounted to $138.3 million and $52.1 million as of September 30, 2008 and
      December 31, 2007, respectively.





***Operating
      activities***





Net
      cash
      provided by operating activities for the nine months ended September 30, 2008
      was $83.5 million compared to cash used in operating activities of $10.6 million
      in the same period of 2007. This change was mainly due to the combination of
      the
      following factors:





Cash
      inflow after the adjustments of some non-cash items to the net loss, such as
      depreciation and amortization,  (Gain)
      Loss from debt extinguishment, stock issued for services and compensation,
      Amortization of discount on convertible notes, Notes converted -Make-whole
      value, Change in fair value of derivative instrument, minority interest and
      gain
      on derivative instrument and deferred tax assets, totaled of $9.1 million
      compared to $13.8 million as of September 30, 2007.





Cash
      inflow due to the increase in accounts payable, other payables, accrued
      liabilities, customer deposits and tax payable totaled of $45.0 million for
      the
      nine months ended September 30, 2008 compared to $58.7million as of September
      30, 2007. We have recently completed construction of two new blast furnaces
      at
      Longmen Joint Venture. We have been financing this construction using vendor
      financing and working capital provided by our suppliers and
      customers.




-
          55
          -


Cash
      inflow resulting from increase in accounts receivable and accounts
      receivable-related party which was $67.3 million in nine months of 2008 compared
      to cash outflow of $3.5million as of September 30, 2007.





Cash
      outflow due to increase in notes receivable, other receivable, other
      receivable-related parties, inventory, advances on inventory purchases and
      prepaid expense of $36.3 million compared to $90.0 million as of September
      30,
      2007.





***Investing
      activities***





Net
      cash
      used in investing activities was $150.3 million for nine months of 2008 compared
      to $5.7 million used in the same period of 2007. This increase in cash used
      in
      investing activities mainly resulted from a $145.8 million cash outflow which
      was spent on building the new blast furnaces. The Company contributed $7.1
      million to Maoming’s original shareholders in exchange of 99% of the equity of
      Maoming.





***Financing
      activities***





Net
      cash
      provided by financing activities was $39.4 million for nine months of 2008
      compared to $16.2 million in the same period of 2007. This was mainly
      attributable to a net cash inflow of $115.3 million on short term notes payable
      and outflow of $76.8 million on restricted cash.




***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 influenced by the overall economic
      conditions in China. We manage our price risks through productivity improvements
      and cost-containment measures. We do not believe that inflation risk is material
      to our business or our financial position, results of operations or cash
      flows.




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





**Longmen
      Joint Venture:**





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





Long
      Steel Group has spent more than $4.3 million (RMB 33 million) on a comprehensive
      waste water recycling and water treatment system. The 2,000m3/h treatment
      capacity system was implemented at the end of 2005. In the first quarter of
      2008, new water consumption per ton of steel produced was 1.1 ton.





Long
      Steel Group has built one 10,000m3 coke-oven gas tank and one 50,000m3 blast
      furnace coal gas tank to collect the residual coal gas produced from its own
      facility and that of surrounding enterprises. Long Steel Group also built a
      thermal power plant with two 25 KW dynamos that uses the residual coal gas
      from
      the blast furnaces and converters as fuel to generate power.





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




-
          56
          -


**Daqiuzhuang
      Metal:**





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





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





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





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





***Off-balance
      sheet arrangements***




There
      ware no off-balance sheet arrangements in the third quarter of
      2008.





***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's revenue recognition policies are in compliance with Staff Accounting
      Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectability is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are recorded as customer deposits.
      Sales revenue represents the invoiced value of goods, net of value-added tax
      (VAT). All of the Company’s products sold in the PRC are subject to a Chinese
      value-added tax at a rate of 13% to 17% of the gross sales price. This VAT
      may
      be offset by VAT paid by the Company on raw materials and other materials
      included in the cost of producing the finished product.




-
          57
          -




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 financial
        statements and accompanying notes. Significant accounting estimates reflected
        in
        the Company’s financial statements include the useful lives of and impairment
        for property, plant and equipment, potential losses on uncollectible receivables
        and convertible notes. Actual results could differ from these
        estimates.
 
 Derivative
        Instrument
 
 The
        Company entered into a Securities Purchase Agreement (the “Agreement”) with
        certain institutional investors (the “Buyers”). Pursuant to the Agreement, the
        Company agreed to sell to the Buyers (i) senior convertible notes in the
        aggregate principal amount of $40,000,000 (“Notes”) and (ii) warrants to
        purchase an additional aggregate amount of 1,154,958 shares of Common Stock
        of
        the Company (the “Warrants”). Both the Warrants and the conversion option
        embedded in the Notes meet the definition of a derivative instrument in SFAS
        133, Accounting for Derivative Instruments and Hedging Activities. Therefore
        these instruments are accounted for as derivative liabilities and periodically
        marked-to-market. The change in the value of the derivative liabilities is
        charged against or credited to income.
 
 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 long term debts 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.
 
 The
        Company also analyzes all financial instruments with features of both
        liabilities and equity under SFAS 150, “Accounting for Certain Financial
        Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133,
“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
        Settled in, a Company’s Own Stock.” The convertible preferred shares issued in
        2005 and the convertible note issued in 2007 did not require bifurcation
        or
        result in liability accounting. Additionally, the Company analyzes registration
        rights agreements associated with any equity instruments issued to determine
        if
        penalties triggered for late filing should be accrued under FSP EITF 00-19-2,
        “Accounting for Registration Payment Arrangements.”
 
 Fair
        value measurements
 
 The
        Company adopted SFAS 157, “Fair Value Measurements” on January 1, 2008. SFAS 157
        defines fair value, establishes a three-level valuation hierarchy for
        disclosures of fair value measurement and enhances disclosures requirements
        for
        fair value measures. The three levels are defined as follow:
 
 Level
        1
        inputs to the valuation methodology are quoted prices (unadjusted) for identical
        assets or liabilities in active markets.
 
 Level
        2
        inputs to the valuation methodology include quoted prices for similar assets
        and
        liabilities in active markets, and inputs that are observable for the assets
        or
        liability, either directly or indirectly, for substantially the full term
        of the
        financial instruments.
 
 Level
        3
        inputs to the valuation methodology are unobservable and significant to the
        fair
        value.
  -
            58
            -
 
 ***New
        Accounting Pronouncements***
  In
        February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
        Assets and Financial Liabilities—including an amendment of FASB Statement No.
        115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
        instruments and certain other items at fair value that are not currently
        required to be measured at fair value. The objective of FAS 159 is to provide
        opportunities to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply hedge
        accounting provisions. FAS 159 also establishes presentation and disclosure
        requirements designed to facilitate comparisons between companies that choose
        different measurement attributes for similar types of assets and liabilities.
        The Company chose not to elect the option to measure the fair value of eligible
        financial assets and liabilities.
 
 In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of Accounting Research Bulletin
        No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
        ownership interests in subsidiaries held by parties other than the parent,
        the
        amount of consolidated net income attributable to the parent and to the
        noncontrolling interest, changes in a parent’s ownership interest and the
        valuation of retained non-controlling equity investments when a subsidiary
        is
        deconsolidated. The Statement also establishes reporting requirements that
        provide sufficient disclosures that clearly identify and distinguish between
        the
        interests of the parent and the interests of the non-controlling owners.
        SFAS
        160 is effective for fiscal years beginning after December 15, 2008. The
        Company
        has not determined the effect that the application of SFAS 160 will have
        on its
        consolidated financial statements.
 
 In
        December 2007, Statement of Financial Accounting Standards No. 141(R), Business
        Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business
        Combinations. SFAS 141R retains the fundamental requirements in SFAS 141
        that
        the acquisition method of accounting (which SFAS 141 called the purchase
        method)
        be used for all business combinations and for an acquirer to be identified
        for
        each business combination. SFAS 141R requires an acquirer to recognize the
        assets acquired, the liabilities assumed, and any noncontrolling interest
        in the
        acquiree at the acquisition date, measured at their fair values as of that
        date,
        with limited exceptions. This replaces SFAS 141’s cost-allocation process, which
        required the cost of an acquisition to be allocated to the individual assets
        acquired and liabilities assumed based on their estimated fair values. SFAS
        141R
        also requires the acquirer in a business combination achieved in stages
        (sometimes referred to as a step acquisition) to recognize the identifiable
        assets and liabilities, as well as the noncontrolling interest in the acquiree,
        at the full amounts of their fair values (or other amounts determined in
        accordance with SFAS 141R). SFAS 141R applies prospectively to business
        combinations for which the acquisition date is on or after the beginning
        of the
        first annual reporting period beginning on or after December 15, 2008. An
        entity
        may not apply it before that date. The Company is currently evaluating the
        impact that adopting SFAS No. 141R will have on its financial
        statements.
 
 In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
        and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS 161”),
        which changes the disclosure requirements for derivative instruments and
        hedging
        activities. Entities are required to provide enhanced disclosures about (a)
        how
        and why an entity uses derivative instruments, (b) how derivative instruments
        and related hedged items are accounted for under Statement 133 and its related
        interpretations, and (c) how derivative instruments and related hedged items
        affect an entity’s financial position, financial performance and cash flows.
        SFAS 161 is effective for financial statements issued for fiscal years and
        interim periods beginning after November 15, 2008. The Company has not
        determined the effect that the application of SFAS 161 will have on its
        consolidated financial statements.
 
 In
        April
        2008, the FASB issued 142-3 “Determination of the useful life of Intangible
        Assets”, which amends the factors a company should consider when developing
        renewal assumptions used to determine the useful life of an intangible asset
        under SFAS142. This Issue is effective for financial statements issued for
        fiscal years beginning after December 15, 2008, and interim periods within
        those
        fiscal years. SFAS 142 requires companies to consider whether renewal can
        be
        completed without substantial cost or material modification of the existing
        terms and conditions associated with the asset. FSP 142-3 replaces the previous
        useful life criteria with a new requirement—that an entity consider its own
        historical experience in renewing similar arrangements. If historical experience
        does not exist then the Company would consider market participant assumptions
        regarding renewal including 1) highest and best use of the asset by a market
        participant, and 2) adjustments for other entity-specific factors included
        in
        SFAS 142. The Company is currently evaluating the impact that adopting SFAS
        No.142-3 will have on its financial statements
  -
            59
            -
 
 In
        May
        2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
        Accounting Principles.” This Statement identifies the sources of accounting
        principles and the framework for selecting the principles to be used in the
        preparation of financial statements of nongovernmental entities that are
        presented in conformity with generally accepted accounting principles (GAAP)
        in
        the United States (the GAAP hierarchy). The Company is currently evaluating
        the
        impact that adopting SFAS No. 162 will have on its financial
        statements.
 
 In
        May
        2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
        Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of
        this Statement is limited to financial guarantee insurance (and reinsurance)
        contracts, as described in this Statement, issued by enterprises included
        within
        the scope of Statement 60. Accordingly, this Statement does not apply to
        financial guarantee contracts issued by enterprises excluded from the scope
        of
        Statement 60 or to some insurance contracts that seem similar to financial
        guarantee insurance contracts issued by insurance enterprises (such as mortgage
        guaranty insurance or credit insurance on trade receivables). This Statement
        also does not apply to financial guarantee insurance contracts that are
        derivative instruments included within the scope of FASB Statement No. 133,
        “Accounting for Derivative Instruments and Hedging Activities.” This Statement
        will not have and impact on the Company’s financial statements.
 
 In
        June
        2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether
        an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF
        No. 07-5”). This Issue is effective for financial statements issued for fiscal
        years beginning after December 15, 2008, and interim periods within those
        fiscal
        years. Early application is not permitted. Paragraph 11(a) of Statement of
        Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
        Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
        definition of a derivative but is both (a) indexed to the Company’s own
        stock and (b) classified in stockholders’ equity in the statement of
        financial position would not be considered a derivative financial instrument.
        EITF No.07-5 provides a new two-step model to be applied in determining whether
        a financial instrument or an embedded feature is indexed to an issuer’s own
        stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception
        This standard will triggered liability accounting on all options and warrants
        exercisable at strike prices denominated in any currency other than the
        functional currency of the operating entity in China (Renminbi).. The Company
        is
        currently evaluating the impact that adopting EITF 07-5 will have on its
        financial statements.
 
 In
        June
        2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
        Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4
        is to provide transition guidance for conforming changes made to EITF No.
        98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features
        or
        Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No.
        150, “Accounting for Certain Financial Instruments with Characteristics of both
        Liabilities and Equity”. This Issue is effective for financial statements issued
        for fiscal years ending after December 15, 2008. Early application is
        permitted. The Company is currently evaluating the impact that adopting
        EITF 08-4 will have on its financial statements.
 
 **Contractual
        obligations and commercial commitments**
  We
        have
        certain fixed contractual obligations and commitments that include future
        estimated payments. Changes in our business needs, cancellation provisions,
        changing interest rates, and other factors may result in actual payments
        differing from the estimates. We cannot provide certainty regarding the timing
        and amounts of payments. We have presented below a summary of the most
        significant assumptions used in our determination of amounts presented in
        the
        tables, in order to assist in the review of this information within the context
        of our consolidated financial position, results of operations, and cash
        flows.
  -
            60
            -
 
 The
        following tables summarize our contractual obligations as of September 30,
        2008,
        and the effect these obligations are expected to have on our liquidity and
        cash
        flows in future periods.
 
 Payment due by periodContractual obligations
              
              Total
              
              Less than 1 year
              
              1-3 years
              
              3-5 yearsDollars amounts in thousandsBank loans
                  (1)
              
              $
              82,705
              
              $
              82,705
              
              $
              -
              
              $
              -Notes
                  payable
              
              
              185,654
              
              
              185,654Deposits
                  due to customers and sales representatives
              
              
              127,851
              
              
              127,850
              
              
              -
              
              
              -Convertible
                  notes ( Principal plus Interest )
              
              
              47,250
              
              
              1,604
              
              
              5,585
              
              
              40,061Total
              
              $
              443,460
              
              $
              397,813
              
              $
              5,585
              
              $
              40,061
  (1)
        Bank
        loans in China are due on demand or normally within one year. These loans
        can be
        renewed with the banks.
 
 **ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
 
 Commodity
        Price Risk and Related Risks
 
 In
        the
        normal course of our business, we are exposed to market risk or price
        fluctuations related to the purchase, production or sale of steel products
        over
        which we have little or no control. We do not use any derivative commodity
        instruments to manage the price risk. Our market risk strategy has generally
        been to obtain competitive prices for our products and allow operating results
        to reflect market price movements dictated by supply and demand. Based upon
        an
        assumed 2008 annual production capacity of 4.8 million tons of steel, a $1
        change in the annual average price would change annual pre-tax profits by
        approximately $4.8 million.
 
 Interest
        Rate Risk
 
 We
        are
        subject to interest rate risk since our outstanding debts are short-term
        and
        bear interest at variable interest rates. The future interest expense would
        fluctuate in case of any change in the borrowing rates. We do not use swaps
        or
        other interest rate protection agreements to hedge this risk. We believe
        our
        exposure to interest rate risk is not material.
 
 Foreign
        Currency Exchange Rate Risk
 
 Our
        operating units, Daqiuzhuang Metal, Longmen Joint Venture and Baotou Steel
        Pipe
        Joint Venture and Maoming, are all located in China. They produce and sell
        all
        of their products domestically in the P.R.C. They are subject to the
        foreign currency exchange rate risks due to the effects of fluctuations in
        the
        Chinese Renminbi on revenues and operating costs and existing assets or
        liabilities. We have not generally used derivative instruments to manage
        this
        risk. Generally, a ten percent (10%) decrease in Renminbi exchange rate would
        result in a $221,915 decrease to income.
 
 **ITEM
        4. CONTROLS AND PROCEDURES**
 
 Disclosure
        Controls and Procedures
  -
            61
            -
  Our
        management, with the participation of our chief executive officer and chief
        financial officer, evaluated the effectiveness of our disclosure controls
        and
        procedures as of September 30, 2008. The term “disclosure controls and
        procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
        means controls and other procedures of a company that are designed to ensure
        that information required to be disclosed by a company in the reports that
        it
        files or submits under the Exchange Act is recorded, processed, summarized
        and
        reported, within the time periods specified in the Securities and Exchange
        Commission’s rules and forms. Disclosure controls and procedures include,
        without limitation, controls and procedures designed to ensure that information
        required to be disclosed by a company in the reports that it files or submits
        under the Exchange Act is accumulated and communicated to the company’s
        management, including its principal executive and principal financial officers,
        as appropriate to allow timely decisions regarding required disclosure.
        Management recognizes that any controls and procedures, no matter how well
        designed and operated, can provide only reasonable assurance of achieving
        their
        objectives and management necessarily applies its judgment in evaluating
        the
        cost-benefit relationship of possible controls and procedures. Based on the
        evaluation of our disclosure controls and procedures as of September 30,
        2008,
        our chief executive officer and chief financial officer concluded that, as
        of
        such date, our disclosure controls and procedures were effective.
 
 Changes
        in Internal Control Over Financial Reporting
  There
        have been no changes in our internal control over financial reporting that
        occurred during the quarter ended September 30, 2008 that have materially
        affected, or are reasonably likely to materially affect, our internal control
        over financial reporting.
 
 **PART
        II – OTHER INFORMATION**
 
 **ITEM
        1. LEGAL PROCEEDINGS**
 
 None
        for
        the period covered by this report.
 
 **ITEM
        1A. RISK FACTORS**
  Our
        business, financial condition and results of operations are subject to various
        risks, including those discussed below, which may affect the value of our
        securities.  The risks discussed below are those that we believe are
        currently the most significant, although additional risks not presently known
        to
        us or that we currently deem less significant may also impact our business,
        financial condition and results of operations, perhaps materially.
 
 **Risks
        Related to Our Business**
 
 ***We
        face substantial competition which, among other things, may lead to price
        pressure and adversely affect our sales.***
 
 We
        compete with other market players on the basis of product quality,
        responsiveness to customer needs and price. There are two types of steel
        and
        iron companies in China: State Owned Enterprises (“SOEs”), and privately owned
        companies.
 
 Criteria
        important to our customers when selecting a steel supplier include:
 
 · Quality;
 
 · Price/cost competitiveness;
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  · System
        and product performance;
 
 · Reliability and timeliness of delivery;
 
 · New
        product and technology development capability;
 
 · Excellence and flexibility in operations;
 
 · Degree
        of global and local presence;
 
 · Effectiveness of customer service; and
 
 · Overall
        management capability.
  We
        compete with both SOEs and privately owned steel manufacturers. While we
        believe
        that our price and quality are superior to other manufacturers, many of our
        competitors are better capitalized, more experienced, and have deeper ties
        in
        the Chinese marketplace. We consider there to be the following eight major
        competitors of similar size, production capability and product line in the
        market place competing against our three operating subsidiaries as
        indicated:
 
 · Competitors of Daqiuzhuang Metal include: Tianjin No. 1 Rolling Steel Plant,
        Tianjin Yinze Metal Sheet Plant and Tangshan Fengrun Metal Sheet
        Plant;
 
 · Competitors of Longmen Joint Venture include: Shanxi Haixin Iron and Steel
        Co.,
        Ltd. and Gansu Jiuquan Iron and Steel Co., Ltd.; and
 
 · Competitors of Baotou Steel Pipe Joint Venture include: Tianjin Bo Ai Steel
        Pipe
        Co., Hebei Cangzhou Zhong Yuan Steel Pipe Co., and Shanxi Taiyuan Guo Lian
        Steel
        Pipe Co.
 
 In
        addition, with China’s entry into the World Trade Organization and China’s
        agreements to lift many of the barriers to foreign competition, we believe
        that
        competition will increase as a whole with the entry of foreign companies
        into
        this market. This may limit our opportunities for growth, lead to price pressure
        and reduce our profitability. We may not be able to compete favorably and
        this
        increased competition may harm our business, our business prospects and results
        of operations.
 
 ***Our
        limited operating history may not serve as an adequate basis to judge our
        future
        prospects and results of operations.***
 
 Our
        limited operating history may not provide a meaningful basis on which to
        evaluate our business. Although our revenues have grown rapidly since inception,
        we might not be able to maintain our profitability or we may incur net losses
        in
        the future. We expect that our operating expenses will increase as we expand.
        Any significant failure to realize anticipated revenue growth could result
        in
        significant operating losses. We will continue to encounter risks and
        difficulties frequently experienced by companies at a similar stage of
        development, including our potential failure to:
 
 · Implement our business model and strategy and adapt and modify them as
        needed;
 
 · Increase
        awareness of our brands, protect our reputation and develop customer
        loyalty;
 
 · Manage
        our expanding operations and service offerings, including the integration
        of any
        future acquisitions;
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  · Maintain
        adequate control of our expenses;
 
 · Anticipate
        and adapt to changing conditions in the markets in which we operate as well
        as
        the impact of any changes in government regulation; and
 
 · Anticipate
        mergers and acquisitions, technological developments and other significant
        competitive and market dynamics involving our competitors. Our business,
        business prospects and results of operations will be affected if we are not
        successful in addressing any or all of these risks and
        difficulties.
 
 ***Our
        inability to fund our capital expenditure requirements may adversely affect
        our
        growth and profitability.***
 
 Our
        continued growth is dependent upon our ability to raise additional capital
        from
        outside sources. Our strategy is to grow through aggressive mergers, joint
        ventures and acquisitions targeting SOE steel companies and selected entities
        with outstanding potential. Our growth strategy will require us to obtain
        additional financing through capital markets. In the future, we may be unable
        to
        obtain the necessary financing on a timely basis and on favorable terms,
        and our
        failure to do so may weaken our financial position, reduce our competitiveness,
        limit our growth and reduce our profitability. Our ability to obtain acceptable
        financing at any given time may depend on a number of factors,
        including:
 
 · Our
        financial condition and results of operations;
  · The
        condition of the PRC economy and the industry sectors in which we operate;
        and
 
 · Conditions in relevant financial markets in the U.S., the PRC and elsewhere
        in
        the world.
 
 ***We
        may not be able to effectively control and manage our
        growth.***
 
 If
        our
        business and markets grow and develop, it will be necessary for us to finance
        and manage such an expansion in an orderly fashion. This growth will lead
        to an
        increase in the responsibilities of existing personnel, the hiring of additional
        personnel and expansion of our scope of operations. It is possible that we
        may
        not be able to obtain the required financing under terms that are acceptable
        to
        us or hire additional personnel to meet the needs of our expansion.
 
 ***Our
        business, revenues and profitability are dependent on a limited number of
        large
        customers.***
 
 Our
        revenue is dependent, in large part, on significant contracts with a limited
        number of large customers. For the three months ended September 30, 2008,
        approximately 41% of our sales were to five customers and these customers
        accounted for 0.5% of total account receivables. We believe that revenue
        derived from our current and future large customers will continue to represent
        a
        significant portion of our total revenue. Our inability to continue to secure
        and maintain a sufficient number of large contracts or the loss of, or
        significant reduction in purchases by, one or more of our major customers
        would
        have the effect of reducing our revenues and profitability.
 
 Moreover,
        our success will depend in part upon our ability to obtain orders from new
        customers, as well as the financial condition and success of our customers
        and
        general economic conditions in China.
 
 ***Steel
        consumption is cyclical and worldwide overcapacity in the steel industry
        and the
        availability of alternative products have resulted in intense competition,
        which
        may have an adverse effect on profitability and cash flow.***
 
 Steel
        consumption is highly cyclical and follows general economic and industrial
        conditions both worldwide and in regional markets. The steel industry has
        historically been characterized by excess world supply, which has led to
        substantial price decreases during periods of economic weakness. Future economic
        downturns could decrease the demand for our products. Substitute materials
        are
        increasingly available for many steel products, which further reduces demand
        for
        steel.
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            -
 
 ***We
        may not be able to pass on to customers the increases in the costs of our
        raw
        materials, particularly iron ore and steel.***
 
 The
        major
        raw materials that we purchase for production are iron ore and steel coil.
        The
        price and availability of these raw materials are subject to market conditions
        affecting supply and demand. Our financial condition or results of operations
        may be impaired by further increases in raw material costs to the extent
        we are
        unable to pass those increases to our customers. In addition, if these materials
        are not available on a timely basis or at all, we may not be able to produce
        our
        products and our sales may decline.
 
 ***The
        price of steel may decline due to an overproduction by Chinese steel
        companies.***
 
 According
        to the survey conducted by the China Iron and Steel Association, there are
        more
        than 1,100 steel companies in China. Among those, only 15 companies have
        over 5
        million tons of production capacity. Each steel company has its own production
        plan. The Chinese government posted this guidance on the steel industry to
        encourage consolidation within the fragmented steel sector to mitigate problems
        of low-end repetitive production and inefficient use of resources. The current
        situation of overproduction may not be solved by these measures posted by
        the
        Chinese government and result in consolidation within the fragmented steel
        sector. If the current state of overproduction continues, our product shipments
        could decline, our inventory could build up and eventually we may be required
        to
        decrease our sales price, which may eventually decrease our profitability.
  ***Disruptions
        to our manufacturing processes could adversely affect our operations, customer
        service and financial results.***
  Steel
        manufacturing processes are dependent on critical steel-making equipment,
        such
        as furnaces, continuous casters, rolling mills and electrical equipment (such
        as
        transformers), and such equipment may incur downtime as a result of
        unanticipated malfunctions or other events, such as fires or furnace breakdowns.
        Although our manufacturing plants have not experienced plant shutdowns or
        periods of reduced production as a result of such equipment failures or other
        events, we may experience such problems in the future. To the extent that
        lost
        production as a result of such a disruption could not be recovered by unaffected
        facilities, such disruptions could have an adverse effect on our operations,
        customer service and financial results.
  ***Because
        we are a holding company with substantially all of our operations conducted
        through our subsidiaries, our performance will be affected by the performance
        of
        our subsidiaries.***
 
 We
        have
        no operations independent of those of Daqiuzhuang Metal, Baotou Steel Pipe
        Joint
        Venture and Longmen Joint Venture, and our principal assets are our investments
        in these subsidiaries. As a result, we are dependent upon the performance
        of
        Daqiuzhuang Metal, Baotou Steel Pipe Joint Venture. Longmen Joint Venture
        and
        Maoming and we will be subject to the financial, business and other factors
        affecting our subsidiaries as well as general economic and financial conditions.
        As substantially all of our operations are and will be conducted through
        our
        subsidiaries, we will be dependent on the cash flow of our subsidiaries to
        meet
        our obligations.
 
 Because
        virtually all of our assets are and will be held by operating subsidiaries,
        the
        claims of our stockholders will be structurally subordinate to all existing
        and
        future liabilities and obligations, and trade payables of such subsidiaries.
        In
        the event of our bankruptcy, liquidation or reorganization, our assets and
        those
        of our subsidiaries will be available to satisfy the claims of our stockholders
        only after all of our subsidiaries’ liabilities and obligations have been paid
        in full.
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            -
 
 ***We
        depend on acquiring companies to fulfill our growth
        plan.***
 
 An
        important element of our planned growth strategy is the pursuit and acquisitions
        of other businesses that increase our existing production capacity. However,
        acquiring and integrating businesses involves a number of special risks,
        including the possibility that management may be distracted from regular
        business concerns by the need to integrate operations, unforeseen difficulties
        in integrating operations and systems, problems relating to assimilating
        and
        retaining employees of the acquired businesses, challenges in retaining
        customers, and potential adverse short-term effects on operation results.
        If we
        are unable to successfully complete and integrate strategic acquisitions
        in a
        timely manner, our growth strategy may be adversely impacted.
 
 ***We
        depend on bank financing for our working capital
        needs.***
 
 We
        have
        various financing facilities amounting to approximately $321million, of which
        all are due on demand or within one year **.** So
        far,
        we have not experienced any difficulties in repaying such financing facilities.
        However, we may in the future encounter difficulties to repay or refinance
        such
        loans on time and may face severe difficulties in our operations and financial
        position.
 
 ***We
        rely on Mr. Zuosheng Yu for important business
        leadership.***
 
 We
        depend, to a large extent, on the abilities and operations of our current
        management team. However, we have a particular reliance upon Mr. Zuosheng
        Yu,
        our Chairman, Chief Executive Officer and majority shareholder, for the
        direction of our business and leadership in our growth effort. The loss of
        the
        services of Mr. Yu, for any reason, may have a material adverse effect on
        our
        business and prospects. We cannot guarantee that Mr. Yu will continue to
        be
        available to us, or that we will be able to find a suitable replacement for
        Mr.
        Yu on a timely basis.
 
 ***There
        have been historical deficiencies with our internal controls which require
        further improvements, and we are exposed to potential risks from legislation
        requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley
        Act of 2002.***
 
 While
        we
        believe that we currently have adequate internal control procedures in place,
        we
        are still exposed to potential risks from legislation requiring companies
        to
        evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002. Under
        the
        supervision and with the participation of our management, we have evaluated
        our
        internal controls systems in order to allow management to report on, and
        our
        registered independent public accounting firm to attest to, our internal
        controls, as required by Section 404 of the Sarbanes-Oxley Act. We have
        performed the system and process evaluation and testing required in an effort
        to
        comply with the management certification and auditor attestation requirements
        of
        Section 404. As a result, we have incurred additional expenses and a diversion
        of management’s time. If we are not able to continue to meet the requirements of
        Section 404 in a timely manner or with adequate compliance, we might be subject
        to sanctions or investigation by regulatory authorities, such as the SEC
        or the
        NYSE Market. Any such action could adversely affect our financial results
        and
        the market price of our stock.
  ***We
        do not presently maintain product liability insurance in the PRC, and our
        property and equipment insurance does not cover the full value of our property
        and equipment, which leaves us with exposure in the event of loss or damage
        to
        our properties or claims filed against us.***
 
 We
        currently do not carry any product liability or other similar insurance in
        China. We cannot assure you that we would not face liability in the event
        of the
        failure of any of our products.
 
 We
        have
        purchased automobile insurance with third party liability coverage for our
        vehicles. In addition, we have purchased property insurance from China United
        Property Insurance Company to cover real property and plant. Except for property
        and automobile insurance, we do not have other insurance such as business
        liability or disruption insurance coverage for our operations in the PRC.
        In the
        event of a significant product liability claim or other uninsured event,
        our
        financial results and the price of our common stock may be adversely affected.
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            -
 
 **Risks
        Related to Operating Our Business in China**
 
 ***We
        face the risk that changes in the policies of the Chinese government could
        have
        significant impact upon the business we may be able to conduct in China and
        the
        profitability of such business.***
 
 The
        economy of China is transitioning from a planned economy to a market oriented
        economy subject to five-year and annual plans adopted by the government that
        set
        down national economic development goals. Policies of the Chinese government
        can
        have significant effects on the economic conditions of China. The Chinese
        government has confirmed that economic development will follow a model of
        market
        economy under socialism. Under this direction, we believe that the PRC will
        continue to strengthen its economic and trading relationships with foreign
        countries and business development in China will follow market forces. While
        we
        believe that this trend will continue, there can be no assurance that such
        will
        be the case. A change in policies by the Chinese government could adversely
        affect our interests through, among other factors: changes in laws, regulations
        or the interpretation thereof; confiscatory taxation; restrictions on currency
        conversion, imports or sources of supplies; or the expropriation or
        nationalization of private enterprises. Although the Chinese government has
        been
        pursuing economic reform policies for approximately two decades, the Chinese
        government may significantly alter such policies, especially in the event
        of a
        change in leadership, social or political disruption, or other circumstances
        affecting China’s political, economic and social life.
 
 ***The
        PRC laws and regulations governing our current business operations and
        contractual arrangements are uncertain, and if we are found to be in violation,
        we could be subject to sanctions. In addition, any changes in such PRC laws
        and
        regulations may have a material and adverse effect on our
        business.***
  There
        are
        substantial uncertainties regarding the interpretation and application of
        PRC
        laws and regulations, including but not limited to the laws and regulations
        governing our business, or the enforcement and performance of our arrangements
        with customers in the event of the imposition of statutory liens, death,
        bankruptcy and criminal proceedings. Along with our subsidiaries, we are
        considered foreign persons or foreign funded enterprises under PRC laws,
        and as
        a result, we are required to comply with PRC laws and regulations. These
        laws
        and regulations are relatively new and may be subject to future changes,
        and
        their official interpretation and enforcement may involve substantial
        uncertainty. The effectiveness of newly enacted laws, regulations or amendments
        may be delayed, resulting in detrimental reliance by foreign investors. New
        laws
        and regulations that affect existing and proposed future businesses may also
        be
        applied retroactively. In addition, the PRC authorities retain broad discretion
        in dealing with violations of laws and regulations, including levying fines,
        revoking business licenses and requiring actions necessary for compliance.
        In
        particular, licenses, permits and beneficial treatment issued or granted
        to us
        by relevant governmental bodies may be revoked at a later time under contrary
        findings of higher regulatory bodies. We cannot predict what effect the
        interpretation of existing or new PRC laws or regulations may have on our
        businesses. We may be subject to sanctions, including fines, and could be
        required to restructure our operations. Such restructuring may not be deemed
        effective or encounter similar or other difficulties. As a result of these
        substantial uncertainties, there is a risk that we may be found in violation
        of
        any current or future PRC laws or regulations.
 
 ***A
        slowdown or other adverse developments in the PRC economy may materially
        and
        adversely affect our customers, demand for our services and our
        business.***
 
 All
        of
        our operations are conducted in the PRC and all of our revenues are generated
        from sales to businesses operating in the PRC. Although the PRC economy has
        grown significantly in recent years, such growth may not continue. We do
        not
        know how sensitive we are to a slowdown in economic growth or other adverse
        changes in the PRC economy which may affect demand for agricultural equipment.
        A
        slowdown in overall economic growth, an economic downturn or recession or
        other
        adverse economic developments in the PRC may materially reduce the demand
        for
        our products and in turn adversely effect our results of operations and our
        productivity.
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 ***Inflation
        in China could negatively affect our profitability and
        growth.***
 
 While
        the
        Chinese economy has experienced rapid growth, such growth has been uneven
        among
        various sectors of the economy and in different geographical areas of the
        country. Rapid economic growth can lead to growth in the money supply and
        rising
        inflation. If prices for our products rise at a rate that is insufficient
        to
        compensate for the rise in the costs of supplies, it may have an adverse
        effect
        on profitability. In order to control inflation in the past, the Chinese
        government has imposed controls on bank credits, limits on loans for fixed
        assets and restrictions on state bank lending. Such an austerity policy can
        lead
        to a slowing of economic growth. In October 2004, the People’s Bank of China,
        China’s central bank, raised interest rates for the first time in nearly a
        decade and indicated in a statement that the measure was prompted by
        inflationary concerns in the Chinese economy. Repeated increases in interest
        rates by the central bank will likely slow economic activity in China which
        could, in turn, materially increase our costs and also reduce demand for
        our
        products.
 
 ***If
        relations between the United States and China deteriorate, our stock price
        may
        decrease and we may experience difficulties accessing the U.S. capital
        markets.***
 
 At
        various times during recent years, the United States and China have had
        disagreements over political and economic issues. Controversies may arise
        in the
        future between these two countries. Any political or trade controversies
        between
        the United States and China could impact the market price of our common stock
        and our ability to access U.S. capital markets.
 
 ***The
        Chinese Government could change its policies toward private enterprises,
        which
        could result in the total loss of our investments in
        China.***
 
 Our
        business is subject to political and economic uncertainties in China and
        may be
        adversely affected by its political, economic and social developments. Over
        the
        past several years, the Chinese Government has pursued economic reform policies
        including the encouragement of private economic activity and greater economic
        decentralization. The Chinese Government may not continue to pursue these
        policies or may alter them to our detriment from time to time. Conducting
        our
        business might become more difficult or costly due to changes in policies,
        laws
        and regulations, or in their interpretation or the imposition of confiscatory
        taxation, restrictions on currency conversion, restrictions or prohibitions
        on
        dividend payments to stockholders, devaluations of currency or the
        nationalization or other expropriation of private enterprises. In addition,
        nationalization or expropriation could result in the total loss of our
        investments in China.
 
 ***The
        PRC State Administration of Foreign Exchange, or SAFE, requires PRC residents
        to
        register with, or obtain approval from SAFE regarding their direct or indirect
        offshore investment activities.***
 
 PRC
        State
        Administration of Foreign Exchange Regulations regarding offshore financing
        activities by PRC residents has undertaken continuous changes which may increase
        the administrative burden we face and create regulatory uncertainties that
        could
        adversely affect the implementation of our acquisition strategy. A failure
        by
        our shareholders who are PRC residents to make any required applications
        and
        filings pursuant to such regulations may prevent us from being able to
        distribute profits and could expose us and our PRC resident shareholders
        to
        liability under PRC law.
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 ***Our
        business, results of operations and overall profitability are linked to the
        economic, political and social conditions in China.***
 
 All
        of
        our business, assets and operations are located in China. The economy of
        China
        differs from the economies of most developed countries in many respects,
        including government involvement, level of development, growth rate, control
        of
        foreign exchange, and allocation of resources. The economy of China has been
        transitioning from a planned economy to a more market-oriented economy. Although
        the Chinese Government has implemented measures recently emphasizing the
        utilization of market forces for economic reform, the reduction of state
        ownership of productive assets and the establishment of sound corporate
        governance in business enterprises, a substantial portion of productive assets
        in China is still owned by the Chinese Government. In addition, the Chinese
        Government continues to play a significant role in regulating industry by
        imposing industrial policies. It also exercises significant control over
        China’s
        economic growth through the allocation of resources, controlling payment
        of
        foreign currency denominated obligations, setting monetary policy and providing
        preferential treatment to particular industries or companies. Therefore,
        the
        Chinese Government’s involvement in the economy may negatively affect our
        business operations, results of operations and our financial
        condition.
 
 ***Governmental
        control of currency conversion may cause the value of your investment in
        our
        common stock to decrease.***
 
 The
        PRC
        government imposes controls on the convertibility of Renminbi into foreign
        currencies and, in certain cases, the remittance of currency out of the PRC.
        We
        receive substantially all of our revenues in Renminbi, which is currently
        not a
        freely convertible currency. Shortages in the availability of foreign currency
        may restrict our ability to remit sufficient foreign currency to pay dividends,
        or otherwise satisfy foreign currency denominated obligations. Under existing
        PRC foreign exchange regulations, payments of current account items, including
        profit distributions, interest payments and expenditures from the transaction,
        can be made in foreign currencies without prior approval from the PRC State
        Administration of Foreign Exchange by complying with certain procedural
        requirements. However, approval from appropriate governmental authorities
        is
        required where Renminbi is to be converted into foreign currency and remitted
        out of China to pay capital expenses such as the repayment of bank loans
        denominated in foreign currencies.
 
 The
        PRC
        government may also at its discretion restrict access in the future to foreign
        currencies for current account transactions. If the foreign exchange control
        system prevents us from obtaining sufficient foreign currency to satisfy
        our
        currency demands, we may not be able to pay certain of our expenses as they
        come
        due.
  ***The
        fluctuation of the Renminbi may cause the value of your investment in our
        common
        stock to decrease.***
 
 The
        value
        of the Renminbi against the U.S. dollar and other currencies may fluctuate
        and
        is affected by, among other things, changes in the PRC’s political and economic
        conditions. As we rely entirely on revenues earned in the PRC, our cash flows,
        revenues and financial condition will be affected by any significant revaluation
        of the Renminbi. For example, to the extent that we need to convert U.S.
        dollars
        we receive from an offering of our securities into Renminbi for our operations,
        if the Renminbi appreciates against the U.S. dollar, the Renminbi equivalent
        of
        the US dollar we convert would be reduced. Conversely, if we decide to convert
        our Renminbi into U.S. dollars for the purpose of making payments for dividends
        on our common shares or for other business purposes and the U.S. dollar
        appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi
        we
        convert would be reduced. To date, however, we have not engaged in transactions
        of either type. In addition, the depreciation of significant U.S. dollar
        denominated assets could result in a charge to our income statement and a
        reduction in the value of these assets.
 
 Since
        1994 the PRC has pegged the value of the Renminbi to the U.S. dollar. We
        do not
        believe that this policy has affected our business. However, there have been
        indications that the PRC government may be reconsidering its monetary policy
        in
        light of the overall devaluation of the U.S. dollar against the Euro and
        other
        currencies during the last two years. In July 2005, the PRC government revalued
        the Renminbi by 2.1% against the U.S. dollar, moving from Renminbi 8.28 to
        Renminbi 8.11 per dollar. If the pegging of the Renminbi to the U.S. dollar
        is
        loosened, we anticipate that the value of the Renminbi will appreciate against
        the dollar with the consequences discussed above. As of September 30, 2008,
        the
        exchange rate of the RMB to the U.S. dollar was 6.854 yuan to 1
        dollar.
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 ***We
        are subject to environmental and safety regulations, which may increase our
        compliance costs and reduce our overall
        profitability.***
 
 We
        are
        subject to the requirements of environmental and occupational safety and
        health
        laws and regulations in China. We may incur substantial costs or liabilities
        in
        connection with these requirements. Additionally, these regulations may become
        stricter, which will increase our costs of compliance in a manner that could
        reduce our overall profitability. The capital requirements and other
        expenditures that may be necessary to comply with environmental requirements
        could increase and become a significant expense linked to the conduct of
        our
        business.
 
 ***Our
        operating subsidiary must comply with environmental protection laws that
        could
        adversely affect our profitability.***
 
 We
        are
        required to comply with the environmental protection laws and regulations
        promulgated by the national and local governments of the PRC. Yearly inspections
        of waste treatment systems require the payment of a license fee which could
        become a penalty fee if standards are not maintained. If we fail to comply
        with
        any of these environmental laws and regulations in the PRC, depending on
        the
        types and seriousness of the violation, we may be subject to, among other
        things, warning from relevant authorities, imposition of fines, specific
        performance and/or criminal liability, forfeiture of profits made, being
        ordered
        to close down our business operations and suspension of relevant permits.
 
 ***Because
        the Chinese legal system is not fully developed, our legal protections may
        be
        limited.***
 
 The
        PRC
        legal system is based upon written statutes. Prior court decisions may be
        cited
        for reference but are not binding on subsequent cases and have limited value
        as
        precedents. Since 1979, the PRC legislative bodies have promulgated laws
        and
        regulations dealing with economic matters such as foreign investment, corporate
        organization and governance, commerce, taxation and trade. However, the PRC
        has
        not developed a fully integrated legal system and the array of new laws and
        regulations may not be sufficient to cover all aspects of economic activities
        in
        the PRC. In particular, because these laws and regulations are relatively
        new,
        and because of the limited volume of published decisions and their non-binding
        nature, the interpretation and enforcement of these laws and regulations
        involve
        uncertainties. In addition, published government policies and internal rules
        may
        have retroactive effects and, in some cases, the policies and rules are not
        published at all. As a result, we may be unaware of our violation of these
        policies and rules until some time later. The laws of the PRC govern our
        contractual arrangements with our affiliated entities. The enforcement of
        these
        contracts and the interpretation of the laws governing these relationships
        are
        subject to uncertainty. For the above reasons, legal compliance in China
        may be
        more difficult or expensive.
 
 **Risks
        Related to Our Common Stock**
 
 ***Our
        officers, directors and affiliates control us through their positions and
        stock
        ownership and their interests may differ from other
        stockholders.***
 
 Our
        officers, directors and affiliates beneficially own approximately 66% of
        our
        common stock. Mr. Zuosheng Yu our major shareholder, beneficially owns
        approximately 63% of our common stock. Mr. Yu can effectively control us
        and his
        interests may differ from other stockholders.
 
 All
        our
        subsidiaries are located in China and substantially all of our assets are
        located outside the United States. It may therefore be difficult for investors
        in the United States to enforce their legal rights based on the civil liability
        provisions of the U.S. federal securities laws against us in the courts of
        either the U.S. and the PRC and, even if civil judgments are obtained in
        U.S.
        courts, such judgments may not be enforceable in PRC courts. All our directors
        and officers reside outside of the United States. It is unclear if extradition
        treaties now in effect between the United States and the PRC would permit
        effective enforcement against us or our officers and directors of criminal
        penalties under the U.S. federal securities laws or otherwise.
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            70
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  ***We
        have never paid cash dividends and are not likely to do so in the foreseeable
        future.***
 
 We
        currently intend to retain any future earnings for use in the operation and
        expansion of our business. We do not expect to pay any cash dividends in
        the
        foreseeable future but will review this policy as circumstances
        dictate.
 
 ***Our
        common stock is subject to price volatility unrelated to our
        operations.***
 
 The
        market price of our common stock could fluctuate substantially due to a variety
        of factors, including market perception of our ability to achieve our planned
        growth, quarterly operating results of other steel makers, trading volume
        in our
        common stock, changes in general conditions in the economy and the financial
        markets or other developments affecting our competitors or us. In addition,
        the
        stock market is subject to extreme price and volume fluctuations. This
        volatility has had a significant effect on the market price of securities
        issued
        by many companies for reasons unrelated to their operating performance and
        could
        have the same effect on our common stock.
 
 ***Investors
        may experience dilution from any conversion of the senior convertible notes
        and
        the exercise of warrants we issued in December 2007.***
  We
        registered the shares of our common stock issuable upon conversion approximately
        $40,000,000 worth of senior convertible notes convertible into 4,170,009
        shares
        of our common stock assuming a conversion price of $12.47 per share and
        applicable interest rates and upon the exercise warrants to purchase an
        additional aggregate amount of 1,154,958 shares of our common stock at an
        exercise price of $13.51 per share that we issued in December 2007. The issuance
        of shares of our common stock upon conversion of the notes and exercise of
        the
        warrants will dilute current shareholders’ holdings in our company. The senior
        convertible notes have a five year term through December 12, 2012 and the
        warrants are exercisable from May 13, 2008 to May 13, 2013.
 
 ITEM
        2.
        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 **90,250
        share issuance of common stock as interim incentives to senior and mid-level
        management**
 
 On
        July
        3, 2008, the Company issued senior management and directors 90,250 shares
        of our
        common stock as compensation. We valued the shares at the market price as
        of the
        date they were granted. We recorded $928,672 as compensation
        expense.
 
 **ITEM
        3. DEFAULTS UPON SENIOR SECURITIES**
 
 Not
        applicable.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 (a)
              Our
                  Annual Meeting of Stockholders was held on July 25, 2008, during
                  the third
                  fiscal quarter of 2008.
 
 (b)
              All
                  of the matters voted upon were approved and the specific votes
                  are as
                  follows:
  *1.*
              *To
                  elect the members of the Board of
                  Directors:*
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            71
            -
  Number of SharesName
              
              For
              
              Against
              
              AbstentionsZuosheng
                  Yu
              
              
              30,435,092
              
              
              41,134
              
              
              18,884John
                  Chen
              
              
              30,376,606
              
              
              100,643
              
              
              18,869Danli
                  Zhang
              
              
              30,433,737
              
              
              40,305
              
              
              21,007Ross
                  Warner
              
              
              30,452,315
              
              
              35,007
              
              
              7,732John
                  Wong
              
              
              30,441,244
              
              
              35,007
              
              
              21,373Qinghai
                  Du
              
              
              30,395,004
              
              
              49,911
              
              
              50,204Zhongkui
                  Cao
              
              
              30,369,057
              
              
              107,178
              
              
              18,884Chris
                  Wang
              
              
              30,436,729
              
              
              34,522
              
              
              23,869Fred
                  Hsu
              
              
              30,441,529
              
              
              115,022
              
              
              18,569
  *2.*
              *To
                  approve and ratify the appointment of**Moore
                  Stephens Wurth Frazer and Torbet LLP**as the Company’s independent auditors for the fiscal year ending December
                  31, 2008:*
  Number of
                SharesFor
              
              Against
              
              Abstentions30,480,953
              
              
              3,615
              
              
              10,553
  *3.*
              *To
                  approve and ratify the Company’s 2008 Equity Incentive
                  Plan:*
  Number of
                SharesFor
              
              Against
              
              Abstentions23,424,888
              
              
              71,107
              
              
              5,681
 
 **ITEM
        5. OTHER INFORMATION**
 
 Not
        applicable.
  **ITEM
        6. EXHIBITS**
 
 (a)
              Exhibits
 
 31.1
              
              Certification
                  of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant
                  to Section
                  302 of the Sarbanes-Oxley Act of 2002, as filed herewith.31.2
              
              Certification
                  of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant
                  to Section
                  302 of the Sarbanes-Oxley Act of 2002, as filed herewith.32.1
              
              Certification
                  of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of 2002, as filed herewith.32.2
              
              Certification
                  of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
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            72
            -
  SIGNATURES
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 General
                  Steel Holdings, Inc.Date:
                  November 14, 2008
              By:
                  /s/ Zuosheng YuZuosheng
                  YuChairman
                  and Chief Executive OfficerDate:
                  November 14, 2008
              By:
                  /s/ John ChenJohn
                  ChenDirector
                  and Chief Financial Officer
 
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            -