UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        DC 20549
 
 
 FORM
        10-Q/A
 
 ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934.
 
 For
        the
        quarterly period ended March 31, 2006
 
  ̈  TRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 For
        the
        transition period from __________ to __________
 
 GENERAL
        STEEL HOLDINGS, INC.
 (Name
        of
        Issuer in Its Charter)
  NEVADA
              412079252(State
                  or Other Jurisdiction of Incorporation or Organization)
              (I.R.S.
                  Employer Identification No.)Room
                  2315, Kun Tai International Mansion Building, Yi No 12,Chao Yang Men
                  Wai Ave.,
                Chao
                  Yang District, Beijing
              100020(Address
                  of Principal Executive Offices)
              (Zip
                  Code)
 
 Incorp
        Services Inc.
 6075
        S.
        Eastern Avenue
 Suite
        1,
        Las Vegas, Nevada, 89119-3146
 Tel:
        (702) 866-2500
 (Name,
        address and telephone number for Agent for Service)
 
 +
        86 (10)
        68000346
 (Issuer’s
        telephone
        number)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes ý No  ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  accelerated filer ̈
              
              Accelerated
                  filer ̈
              
              Non-accelerated
                  filerý
 
 Indicated
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act)  Yes  ̈ No ý
  The
        number of shares of Common Stock outstanding on March 31, 2006 was
        32,426,665.
 
 Transitional
        Small Business Disclosure Format (check one): Yes o No x
  
  **Amendment
        No. 1 to the Quarterly Report on Form 10-Q**
 **For
        the Quarterly Period Ended March  31, 2006**
  **EXPLANATORY
        NOTE**
  General
        Steel Holdings, Inc. (the “Company”) is filing this Amendment No. 1 on
        Form 10-Q/A (this “Amendment”) to its Quarterly Report on Form 10-Q
        for the quarterly period ended March 31, 2006, which was originally filed
        on May
        15, 2006 (the “Original Filing”), to amend and restate in its entirety Part I.
        Item 1, Part I. Item 2 and Part I. Items 4 of the Original Filing.
 
 Pursuant
        to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this
        Amendment amends and restates in its entirety the Original Filing and contains
        new certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley
        Act of 2002. This Amendment contains only the sections and exhibits to the
        Original Filing that are being amended and restated, and those unaffected
        parts
        or exhibits are not included herein. This Amendment continues to speak as
        of the
        date of the Original Filing, and the Company has not updated the disclosure
        contained herein to reflect events that have occurred since the filing of
        the
        Original Filing. Accordingly, this Amendment should be read in conjunction
        with
        the Company’s other filings, if any, made with the United States Securities and
        Exchange Commission subsequent to the filing of the Original Filing, including
        the amendments to those filings, if any.
 
 PART
        I.
        FINANCIAL INFORMATION
  Certain
        financial information included in this quarterly report has been derived
        from
        data originally prepared in Renminbi ("RMB"), the currency of the People's
        Republic of China ("China" or "PRC"). For the purposes of this quarterly
        report,
        the balance sheet amounts with the exception of equity at March 31, 2006
        were
        translated at 8.01 RMB to $1.00 USD as compared to 8.06 RMB at December 31,
        2005. The equity accounts were stated at their historical rate. The average
        translation rate of 8.05 RMB for the three months ended March 31, 2006 was
        applied to income statement accounts.
  2
  ITEM
        1.
        FINANCIAL STATEMENTS
  GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  BALANCE SHEETSAS
                  OF MARCH 31, 2006 AND DECEMBER 31, 2005
  March
                  31, 2006
              
              December
                  31, 2005(Unaudited)
                (Restated)
              
              (Restated)ASSETSCURRENT
                  ASSETS:Cash
              $
              2,174,001
              
              $
              8,648,373Restricted
                  cash
              
              2,754,551
              
              
              2,735,583Accounts
                  receivable, net of allowance for doubtful accounts of $1,414 and
                  $1,371 as
                  of March 31, 2006 and December 31, 2005
              
              2,583,669
              
              
              993,417Notes
                  receivables
              
              998,400
              
              
              4,960Note
                  receivables - related party
              
              2,995,200
              
              
              2,976,000Other
                  receivables
              
              48,832
              
              
              109,769Other
                  receivables - related parties
              
              -
              
              
              -Inventories
              
              16,048,102
              
              
              10,730,941Advances
                  on inventory purchases
              
              14,398,985
              
              
              10,716,293Short-term
                  investment
              
              37,439
              
              
              37,200Prepaid
                  expenses - current
              
              65,064
              
              
              64,647Total
                  current assets
              
              42,104,243
              
              
              37,017,183PLANT
                  AND EQUIPMENT, net
              
              21,425,038
              
              
              18,213,872OTHER
                  ASSETS:Advances
                  on equipment purchases
              
              -
              
              
              1,053,169Prepaid
                  expenses - non current
              
              837,071
              
              
              669,460Intangible
                  assets - land use right, net of accumulated amortization
              
              1,978,664
              
              
              2,039,532Total
                  other assets
              
              2,815,735
              
              
              3,762,161Total
                  assets
              $
              66,345,016
              
              $
              58,993,216
  LIABILITIES
                  AND SHARE HOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              768,293
              
              $
              823,760Short
                  term loans - bank
              
              
              32,173,440
              
              
              27,118,800Short
                  term notes payable
              
              
              5,441,280
              
              
              5,406,400Other
                  payables
              
              
              160,642
              
              
              69,667Other
                  payable - related party
              
              
              330,000
              
              
              980,000Accrued
                  liabilities
              
              
              1,202,565
              
              
              916,957Customer
                  deposits
              
              
              2,572,512
              
              
              1,276,536Deposits
                  due to sales representatives
              
              
              1,581,216
              
              
              1,261,080Taxes
                  payable
              
              
              1,955,271
              
              
              1,682,330Total
                  current liabilities
              
              
              46,185,219
              
              
              39,535,530SHARES
                  SUBJECT TO MANDATORY REDEMPTION
              
              
              1,835,599
              
              
              1,720,875Total
                  liabilities
              
              
              48,020,818
              
              
              41,256,405MINORITY
                  INTEREST
              
              
              5,600,600
              
              
              5,387,026SHAREHOLDERS'
                  EQUITY:Common
                  Stock, $0.01 par value, 75,000,000 shares authorized, 32,426,665
                  shares
                  issued and outstanding
              
              
              31,250
              
              
              31,250Paid-in-capital
              
              
              6,871,358
              
              
              6,871,358Retained
                  earnings
              
              
              4,459,644
              
              
              4,207,236Statutory
                  reserves
              
              
              840,753
              
              
              840,753Accumulated
                  other comprehensive income
              
              
              520,593
              
              
              399,188Total
                  shareholders' equity
              
              
              12,723,598
              
              
              12,349,785Total
                  liabilities and shareholders' equity
              
              $
              66,345,016
              
              $
              58,993,216
 
 F-1
  GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                  THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                  (UNAUDITED)
  2006
                (Restated)
              
              2005REVENUES
              
              $
              20,642,503
              
              $
              20,698,733COST
                  OF SALES
              
              
              19,274,204
              
              
              18,828,552GROSS
                  PROFIT
              
              
              1,368,299
              
              
              1,870,181SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              742,178
              
              
              653,471INCOME
                  FROM OPERATIONS
              
              
              626,121
              
              
              1,216,710OTHER
                  EXPENSE, NET
              
              
              (160,139
              )
              
              (415,746
              )INCOME
                  BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
              
              
              465,982
              
              
              800,964PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              294,701NET
                  INCOME BEFORE MINORITY INTEREST
              
              
              465,982
              
              
              506,263LESS
                  MINORITY INTEREST
              
              
              213,574
              
              
              199,819NET
                  INCOME
              
              
              252,408
              
              
              306,444OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustment
              
              
              121,405
              
              
              -COMPREHENSIVE
                  INCOME
              
              $
              373,813
              
              $
              306,444WEIGHTED
                  AVERAGE NUMBER OF SHARES
              
              
              31,250,000
              
              
              31,250,000EARNING
                  PER SHARE, BASIC AND DILUTED
              
              $
              0.008
              
              $
              0.010
 
 F-2
 GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS' EQUITYFOR
                  THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                  (UNAUDITED)
  Number
                  of Shares
              
              Common
                  stock
              
              Paid-in
                  capital
              
              Statutory
                  reserves
              
              Retained
                  earnings
              
              Accumulated
                  other comprehensive income (loss)
              
              TotalsBALANCE,
                  January 1, 2005, restated
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              154,794
              
              $
              2,152,976
              
              $
              -
              
              $
              9,210,378Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              306,444
              
              
              
              
              
              306,444BALANCE,
                  March 31, 2005, restated
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              154,794
              
              $
              2,459,420
              
              $
              -
              
              $
              9,516,822Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,433,775
              
              
              
              
              
              2,433,775Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              685,959
              
              
              (685,959
              )Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              399,188
              
              
              399,188BALANCE,
                  December 31, 2005, restated
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              840,753
              
              $
              4,207,236
              
              $
              399,188
              
              $
              12,349,785Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              252,408
              
              
              
              
              
              252,408Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              121,405
              
              
              121,405BALANCE,
                  March 31, 2006, restated
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              840,753
              
              $
              4,459,644
              
              $
              520,593
              
              $
              12,723,598
 
 F-3
 GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF CASH FLOWSFOR
                  THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                  (UNAUDITED)
  2006
                (Restated)
              
              2005
                (Restated)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              252,408
              
              $
              306,444Adjustments
                  to reconcile net income to cash (used in) provided by operating
                  activities:Minority
                  Interest
              
              
              213,574
              
              
              199,819Depreciation
              
              
              273,775
              
              
              308,289Amortization
              
              
              73,718
              
              
              71,773Loss
                  (gain) on disposal of equipment
              
              
              27,845
              
              
              (21,186
              )Interest
                  expense accrued on mandatory redeemable stock
              
              
              114,724
              
              
              -(Increase)
                  decrease in assets:Accounts
                  receivable
              
              
              (1,577,243
              )
              
              139,679Other
                  receivables
              
              
              61,389
              
              
              71,842Inventories
              
              
              (5,227,041
              )
              
              (581,054
              )Advances
                  on inventory purchases
              
              
              (3,598,499
              )
              
              2,422,527Prepaid
                  expenses - non current
              
              
              (162,611
              )
              
              -Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              (60,529
              )
              
              (210,894
              )Other
                  payables
              
              
              90,567
              
              
              316,590Other
                  payable - related party
              
              
              (650,000
              )
              
              (819,366
              )Accrued
                  liabilities
              
              
              279,506
              
              
              (127,979
              )Customer
                  deposits
              
              
              1,282,375
              
              
              5,851,932Taxes
                  payable
              
              
              260,995
              
              
              (304,584
              )Net
                  cash (used in) provided by operating activities
              
              
              (8,345,047
              )
              
              7,623,832CASH
                  FLOWS FROM INVESTING ACTIVITIES:Restricted
                  cash
              
              
              (18,968
              )
              
              601,421Increase
                  in notes receivable
              
              
              (989,269
              )
              
              (5,460,770
              )Advances
                  on equipment purchases
              
              
              1,055,547
              
              
              -Purchase
                  of equipment
              
              
              (3,382,390
              )
              
              (12,463
              )Deposits
                  due to sales representatives
              
              
              310,700
              
              
              59,290Net
                  cash (used in) provided by investing activities
              
              
              (3,024,380
              )
              
              (4,812,522
              )CASH
                  FLOWS FINANCING ACTIVITIES:Borrowings
                  on short term loans - bank
              
              
              7,220,668
              
              
              6,534,000(Payments)
                  on short term loans - bank
              
              
              (2,361,320
              )
              
              (4,840,000
              )Borrowings
                  on short term notes payable
              
              
              621,400
              
              
              1,815,000(Payments)
                  on short term notes payable
              
              
              (621,400
              )
              
              (2,420,000
              )Net
                  cash provided by financing activities
              
              
              4,859,348
              
              
              1,089,000EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              35,707
              
              
              -(DECREASE)
                  INCREASE IN CASH
              
              
              (6,474,372
              )
              
              3,900,310CASH,
                  beginning of period
              
              
              8,648,373
              
              
              5,547,810CASH,
                  end of period
              
              $
              2,174,001
              
              $
              9,448,120
 
 F-4


GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          1 –
          Background**
 
 The
          Company (formerly known as American Construction Company) was established
          on
          August 5, 2002 for the purpose of commencing the business of general
          construction contracting. It was the Company's objective to provide to
          its
          customers timely and durable construction for their residential and commercial
          needs. We established a subsidiary for the purpose of achieving the above
          stated
          objectives in Saskatchewan, Canada and to enter the residential and commercial
          construction industry in this market.
 
 To
          accomplish the above objective the founder of our company, Jeff Mabry
          established American Construction Company (a Nevada company) on August
          5, 2002.
          American Construction Company then established its subsidiary, West Dee
          Construction Ltd. (a Saskatchewan, Canada Company) on August 8, 2002 by
          purchasing 100 shares from its treasury.
 
 On
            October 14, 2004, American Construction Company and General Steel Investment
            Co., Ltd (referred to as General Steel) and Northwest Steel Company,
            a Nevada
            corporation, entered into an Agreement and Plan of Merger (the "Agreement")
            pursuant to which American Construction Company acquired General Steel,
            and it’s
            70% ownership in its subsidiary Daqiuzhuang Metal Sheet Co., Ltd (Daqiuzhuang
            Metal) in exchange for shares of the Company’s common stock, of which 22,040,000
            shares was a new issuance by the Company, and 7,960,000 shares are from
            certain
            shareholders of the Company, which in aggregate, constituted 96% of the
            total
            issued and outstanding shares of the Company.
 
 Under
          the
          terms of the Agreement, General Steel will remain a 100% owned subsidiary
          of the
          Company. The transaction contemplated by the Agreement was intended to
          be a
“tax-free" reorganization pursuant to the provisions of Section 351 and
          368(a)
          (1) (A) of the Internal Revenue Code of 1986, as amended. The stockholders
          of
          General Steel, as of the closing date of the merger own approximately 96%
          of the
          Company's common stock outstanding as of October 15, 2004 (excluding any
          additional shares to be issued on outstanding options, warrants and other
          securities convertible into common stock).
 
 The
          accounting for these transactions is identical to that resulting from a
          reverse-acquisition, except that no goodwill or other intangible assets
          is
          recorded. Accordingly, the financial statements of General Steel Investment
          Co.,
          Limited are the historical financial statements of the Company, formerly
          the
          operations of Daqiuzhuang Metal Sheet Co., Ltd.
 
 Based
            on
            the Company's Plan of Merger with General Steel Investment Co., Ltd.,
            the Board
            of Directors determined to change the Registrant's fiscal year end from
            January
            31 to December 31.
  The
            Company through its subsidiary Daqiuzhuang Metal principally engages
            in the
            manufacturing of hot rolled carbon and silicon steel sheets which are
            mainly
            used on tractors, agricultural vehicles and in other specialty markets.
            The
            Company sells its products through both retailers and
            wholesalers.
  See
            report of independent registered public accounting
            firm
  F-5
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
          1 – Background, (continued)**
 
 Daqiuzhuang
            Metal Sheet Co., Ltd. (referred to as Daqiuzhuang Metal) was established
            on
            August 18, 2000 in
            Jinghai county, Tianjin city, Hebei province, the People’s Republic of China
            (PRC). The Articles of Corporation provides for a 10 year operating term
            beginning on August 18, 2000 with registered capital of $ 9,583,200. The
            Company is a Chinese registered limited liability company with a legal
            structure
            similar to a limited liability company organized under state laws in
            the United
            States of America. There is no discriminatory provision for the minority
            shareholders and the 30% shareholders will receive their distribution
            of
            retained earnings according to their ownership percentage in Daqiuzhuang
            Metal.
 
 **Note
            2 – Restatement of financial statements**
 
 The
            Company is restating the consolidated financial statements as of December
            31,
            2005 and March 31, 2006 and for the three months ended March 31, 2006
            and 2005
            for corrections in accounting which include:
 1.  Restating
              the carry amount of redeemable stock issued in 2005 and amortizing
              the
              difference between redemption amount and fair value as interest expense
              over the
              18 months period from issuance date using an implied interest rate
              in accordance
              with SFAS 150, The amount originally recorded as liability was discounted
              at an
              average market rate with the difference between the discounted amount
              and the
              cash received was treated as reduction in paid-in-capita and the difference
              between discounted amount and redemption value was to be amortized
              over the 18
              months from issuance date. In addition, certain disclosures in notes
              3, 5 and 19
              to the consolidated financial statements are being restated to reflect
              the
              correction. The effects of this restatement are as
              follows:
  See
              report of independent registered public accounting
              firm
  F-6
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            2 – Restatement of financial statements,
            continued**
 Consolidated
                      balance sheetDecember
                      31, 2005PreviouslyReported
                  
                  Adjustments
                  
                  RestatedShares
                      subject to mandatory redemption
                  
                  $
                  2,115,906
                  
                  $
                  (395,031
                  )
                  $
                  1,720,875Paid-in
                      capital
                  
                  
                  6,395,617
                  
                  
                  475,741
                  
                  
                  6,871,358Retained
                      Earnings
                  
                  
                  4,287,946
                  
                  
                  (80,710
                  )
                  
                  4,207,236Total
                      liabilities and shareholders' equity
                  
                  
                  58,993,216
                  
                  
                  -
                  
                  
                  58,993,216Consolidated
                      balance sheetMarch
                      31, 2006PreviouslyReported
                  
                  
                  Adjustments
                  
                  
                  RestatedShares
                      subject to mandatory redemption
                  
                  $
                  2,150,476
                  
                  $
                  (314,877
                  )
                  $
                  1,835,599Paid-in
                      capital
                  
                  
                  6,395,617
                  
                  
                  475,741
                  
                  
                  6,871,358Retained
                      Earnings
                  
                  
                  4,620,507
                  
                  
                  (160,864
                  )
                  
                  4,459,643Total
                      liabilities and shareholders' equity
                  
                  
                  66,345,016
                  
                  
                  -
                  
                  
                  66,345,016Consolidated
                      statement of income and other comprehensive incomeMarch
                      31, 2006PreviouslyReported
                  
                  
                  Adjustments
                  
                  
                  RestatedOther
                      expense, net
                  
                  $
                  (79,985
                  )
                  $
                  (80,154
                  )
                  $
                  (160,139
                  )Net
                      income
                  
                  
                  332,561
                  
                  
                  (80,154
                  )
                  
                  252,408Comprehensive
                      income
                  
                  
                  453,966
                  
                  
                  (80,154
                  )
                  
                  373,813Earnings
                      per share, basic and diluted
                  
                  
                  0.011
                  
                  
                  (0.003
                  )
                  
                  0.008Consolidated
                      statement of cash flowsMarch
                      31, 2006PreviouslyReported
                  
                  
                  Adjustments
                  
                  
                  RestatedInterest
                      expense accrued onmandantory
                      redeemable stock
                  
                  $
                  34,570
                  
                  $
                  80,154
                  
                  $
                  114,724
 
 2.
                  Reclassifying
                      advances on equipment purchases to Other Assets - non-current
                      from current
                      assets on the March 31, 2006 and December 31, 2005 balance
                      sheets
 
 3.
                  Reclassifying
                      certain accounts on the statements of cash flows for the three
                      months
                      ended March 31, 2006 and 2005 as
                      follows:
  a.
                  Reclassified
                      accrued interest expense accrued on mandatory redeemable stock
                      from
                      financing activities to operating
                      activities
  See
            report of independent registered public accounting
            firm
 
 F-7
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            2 – Restatement of financial statements,
            continued**
 
 b.
                  Reclassified
                      notes receivable from investing activities to operating activities
                      since
                      it is related to inventory
                      sales
 
 c.
                  Separated
                      restricted cash from cash and classified restricted cash in
                      investing
                      activities
 
 d.
                  Reclassified
                      deposits due to sales representatives and advances on equipment
                      purchases
                      from operating activities to investing
                      activities
 
 4.
                  Restating
                      borrowings and payments on short term loan - bank and short
                      term notes
                      payable on a gross basis vs. net basis as previously
                      reported
 
 Further,
            we have added or revised certain disclosures in notes 1, 3, 5,7, 12,
            13, 16, 20,
            and 22 to provide more detail information and explanations.
 
 **Note
            3 – Summary of significant accounting policies**
 
 Basis
          of presentation
  The
          consolidated financial statements of General Steel Holdings, Inc. reflect
          the
          activities of the following subsidiaries:
 PecentageSubsidiary
                  
                  Of
                      OwnershipGeneral
                      Steel Investment Co., Ltd.
                  
                  
                  British
                      Virgin Islands
                  
                  
                  100.0
                  %Tianjin
                      Daqiuzhuang Metal Sheet Co., Ltd
                  
                  
                  P.R.C.
                  
                  
                  70.0
                  %
 The
          accompanying financial statements have been prepared in accordance with
          accounting principles generally accepted in the United States of America.
          The
          accompanying consolidated financial statements include the accounts of
          General
          Steel Investment Co., Ltd. and Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
          (collectively the “Company”). All material intercompany transactions and
          balances have been eliminated in the consolidation.
 
 Revenue
          recognition
 
 The
          Company recognizes revenue when the goods are delivered and title has passed.
          Sales revenue represents the invoiced value of goods, net of a value-added
          tax
          (VAT). All of the Company’s products that are sold in the PRC are subject to a
          Chinese value-added tax at a rate of 17% of the gross sales price. This
          VAT may
          be offset by VAT paid by the Company on raw materials and other materials
          included in the cost of producing their finished product.
 
 Foreign
          currency translation
 
 The
            reporting currency of the Company is the US dollar. The Company uses
            their local
            currency, Renminbi (RMB), as their functional currency. Results of operations
            and cash flow are translated at average exchange rates during the period,
            and
            assets and liabilities are translated at the unified exchange rate as
            quoted by
            the People’s Bank of China at the end of the period.
  See
            report of independent registered public accounting
            firm
  F-8
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            3 – Summary of significant accounting policies,
            (continued)**
 
 Foreign
            currency translation, continued
 
 Translation
          adjustments resulting from this process are included in accumulated other
          comprehensive income in the statement of shareholders’ equity. Transaction gains
          and losses that arise from exchange rate fluctuations on transactions
          denominated in a currency other than the functional currency are included
          in the
          results of operations as incurred.
 
 Translation
          adjustments resulting from this process are included in accumulated other
          comprehensive income in the consolidated statement of shareholders' equity
          and
          amounted to $121,405
          an d
          $0 as
          of March 31, 2006 and 2005, respectively. The balance sheet amounts with
          the
          exception of equity at March 31, 2006 were translated at 8.01 RMB to $1.00
          USD
          as compared to 8.26 RMB at March 31, 2005. The equity accounts were stated
          at
          their historical rate. The average translation rate of 8.04 RMB for the
          three
          months ended March 31, 2006 was applied to income statement
          accounts.
 
 Plant
          and equipment, net
 
 Plant
          and
          equipment are stated at cost less accumulated depreciation. Depreciation
          is
          computed using the straight-line method over the estimated useful lives
          of the
          assets with 3% residual value. The depreciation expense for the three months
          ended March 31, 2006 and 2005 amounted to
          $273,775 and $308,289, respe ctively.
 
 Estimated
          useful lives of the assets are as follows:
 EstimatedUseful
                      LifeBuildings
                  
                  
                  10-30
                      yearsMachinery
                      and equipment
                  
                  
                  8-15
                      yearsOther
                      equipment
                  
                  
                  5-8
                      yearsTransportation
                      equipment
                  
                  
                  10-15
                      years
  Construction
          in progress represents the costs incurred in connection with the construction
          of
          buildings or new additions to the Company’s plant facilities. No depreciation is
          provided for construction in progress until such time as the assets are
          completed and are placed into service.
 
 The
          cost
          and related accumulated depreciation of assets sold or otherwise retired
          are
          eliminated from the accounts and any gain or loss is included in the statements
          of operations. Maintenance, repairs and minor renewals are charged directly
          to
          expenses as incurred. Major additions and betterment to buildings and equipment
          are capitalized.
  See
              report of independent registered public accounting
              firm
  F-9
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
            3 – Summary of significant accounting policies,
            (continued)**
 
 Plant
          and equipment, net, continued
 
 Long-term
          assets of the Company are reviewed annually as to whether their carrying
          value
          has become impaired. The Company considers assets to be impaired if the
          carrying
          value exceeds the future projected cash flows from related operations.
          The
          Company also re-evaluates the periods of amortization to determine whether
          subsequent events and circumstances warrant revised estimates of useful
          lives.
          As of March 31, 2006, the Company expects these assets to be fully
          recoverable.
 
 Plant
          and
          equipment consisted of the following:
  March
                      31,
                  
                  December
                      31,2006
                  
                  2005Unaudited
                  
                  AuditedBuildings
                      and improvements
                  
                  $
                  5,426,161
                  
                  $
                  5,391,378Transportation
                      equipment
                  
                  
                  430,894
                  
                  
                  485,699Machinery
                  
                  
                  12,884,609
                  
                  
                  12,752,995Construction
                      in progress
                  
                  
                  7,605,823
                  
                  
                  4,231,318Totals
                  
                  
                  26,347,487
                  
                  
                  22,861,390Less
                      accumulated depreciation
                  
                  
                  4,922,449
                  
                  
                  4,647,518Totals
                  
                  $
                  21,425,038
                  
                  $
                  18,213,872
  Use
          of
          estimates
 
 The
          preparation of financial statements in conformity with generally accepted
          accounting principles of the United States of America requires management
          to
          make estimates and assumptions that affect the amounts reported in the
          combined
          financial statements and accompanying notes. Management believes that the
          estimates utilized in preparing its financial statements are reasonable
          and
          prudent. Actual results could differ from these estimates.
 
 Cash
          and concentration of risk
 
 Cash
          includes cash on hand and demand deposits in accounts maintained with
          state **** owned
          banks within the People’s Republic of China and Hong Kong. Total cash (including
          restricted cash balances) in these banks at March 31, 2006 and December
          31,
          2005, amounted to
          $4,722,935 a nd
          $11,446,120, respectively of which no deposits are covered by insurance.
          The
          Company has not experienced any losses in such accounts and believes it is not
          exposed to any risks on its cash in bank accounts.
 
 Restricted
            cash
 
 The
          Company through its bank agreements is required to keep certain amounts
          on
          deposit that are subject to withdrawal restrictions and these amoun ts
          are
          $2,754,551 and
          $2,735,583 as of March 31, 2006 and December 31, 2005,
          respectively.
  See
              report of independent registered public accounting
              firm
  F-10
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            3 – Summary of significant accounting policies,
            (continued)**
 
 Inventories
 
 Inventories
          are stated at the lower of cost or market using the weighted average method.
          Inventories consisted of the following:
 March
                      31,
                  
                  December
                      31,2006
                  
                  2005Unaudited
                  
                  AuditedSupplies
                  
                  $
                  1,330,881
                  
                  $
                  1,524,332Raw
                      materials
                  
                  
                  4,510,790
                  
                  
                  1,195,022Finished
                      goods
                  
                  
                  10,206,431
                  
                  
                  8,011,587Totals
                  
                  $
                  16,048,102
                  
                  $
                  10,730,941
  Inventories
          consist of supplies, raw materials and finished goods. Raw materials consist
          primarily of iron and steel used in production. The cost of finished goods
          included direct costs of raw materials as well as direct labor used in
          production. Indirect production costs such as utilities and indirect labor
          related to production such as assembling, shipping and handling costs are
          also
          included in the cost of inventory. No work in process inventory existed
          at March
          31, 2006 and December 31, 2005, as all inventory in process was completed
          and
          transferred to finished goods prior to the physical inventory count. The
          Company
          reviews its inventory annually for possible obsolete goods or to determine
          if
          any reserves are necessary for potential obsolescence. As of March 31,
          2006 and
          December 31, 2005, the Company has determined that no reserves are
          necessary.
 
 Financial
          instruments
 
 Statement
          of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
          Value of Financial Instruments” requires disclosure of the fair value of
          financial instruments held by the Company. SFAS 107 defines the fair value
          of
          financial instruments as the amount at which the instrument could be exchanged
          in a current transaction between willing parties. The Company considers
          the
          carrying amount of cash, accounts receivable, other **** receivables,
          accounts payable, accrued liabilities and other payables to approximate
          their
          fair values because of the short period of time between the origination
          of such
          instruments and their expected realization and their current market rate
          of
          interest.
  See
              report of independent registered public accounting
              firm
 
 F-11
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            3 – Summary of significant accounting policies,
            (continued)**
 
 Intangible
          assets
 
 All
            land
            in the People’s Republic of China is owned by the government and cannot be sold
            to any individual or company. However, the government grants the user
            a “land
            use right” (the Right) to use the land. Daqiuzhuang Metal acquired land use
            rights during the years ended in 2000 and 2003 for a total amo unt
            of
            $2,870,902. The
            land
            use right is for 50 years. However, Daqiuzhuang Metal's initial business
            license
            had ten-year term. The management elected to amortize the land use rights
            over
            the ten-year business term. Daqiuzhuang Metal became a Sino Joint Venture
            in
            2004 as discussed in note 1 and obtained a new business license for twenty
            years; however, the Company decided to coninue amortizing the land use
            rights
            over the original ten-year business term.
 
 As
          of
          March 31, 2006 and December 31, 2005, accumulated
          amortization amounted to $982,399 and $902,550. The
          costs
          of these rights are being amortized over
          ten
          years using
          the straight-line method.
 
 Intangible
          assets of the Company are reviewed annually as to whether their carrying
          value
          has become impaired. The Company considers assets to be impaired if the
          carrying
          value exceeds the future projected cash flows from related operations.
          The
          Company also re-evaluates the periods of amortization to determine whether
          subsequent events and circumstances warrant revised estimates of useful
          lives.
          As of March 31, 2006, the Company expects these assets to be fully
          recoverable.
 
 Total
          amortization expense for the three months ended March 31, 2006 and 2005,
          amounted to
          $73,718 and $71,773, re spectively.
 
 Shares
          subject to mandatory redemption
 
 The
            Company has adopted Statement of Financial Accounting Standards No. 150, “Accounting
            for Certain Financial Instruments with Characteristics of both Liabilities
            and
            Equity”. FAS 150 established classification and measurement standards for three
            types of freestanding financial instruments that have characteristics
            of both
            liabilities and equity. Instruments within the scope of FAS 150 must
            be
            classified as liabilities within the Company’s Consolidated Financial Statements
            and be reported at settlement date value. The provisions of FAS 150 are
            effective for (1) instruments entered into or modified after May 31,
            2003, and
            (2) pre-existing instruments as of July 1, 2003. In November 2003, through
            the
            issuance of FSP 150-3, the FASB indefinitely deferred the effective date
            of
            certain provisions of FAS 150, including mandatory redeemable instruments
            as
            they relate to minority interests in consolidated finite-lived
            entities.
 
 The
            Company issued new redeemable stock in September, 2005. The amount is
            presented
            as a liability on balance sheet at the fair market value on the date
            of issuance
            plus accrued interest at the balance sheet date, see note 19.
  See
              report of independent registered public accounting
              firm
  F-12
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            3 – Summary of significant accounting policies,
            (continued)**
 
 Income
          taxes
 
 The
          Company has adopted Statement of Financial Accounting Standards No. 109,
          “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of
          deferred income tax liabilities and assets for the expected future tax
          consequences of temporary differences between income tax basis and financial
          reporting basis of assets and liabilities. Provision for income taxes consist
          of
          taxes currently due plus deferred taxes. There are no deferred tax amounts
          at
          March 31, 2006 and December 31, 2005.
 
 The
          charge for taxation is based on the results for the year as adjusted for
          items,
          which are non-assessable or disallowed. It is calculated using tax rates
          that
          have been enacted or substantively enacted by the balance sheet
          date.
 
 Deferred
          tax is accounted for using the balance sheet liability method in respect
          of
          temporary differences arising from differences between the carrying amount
          of
          assets and liabilities in the financial statements and the corresponding
          tax
          basis used in the computation of assessable tax profit.
 
 In
          principle, deferred tax liabilities are recognized for all taxable temporary
          differences, and deferred tax assets are recognized to the extent that
          it is
          probably that taxable profit will be available against which deductible
          temporary differences can be utilized.
 
 Deferred
          tax is calculated at the tax rates that are expected to apply to the period
          when
          the asset is realized or the liability is settled. Deferred tax is charged
          or
          credited in the income statement, except when it related to items credited
          or
          charged directly to equity, in which case the deferred tax is also dealt
          with in
          equity.
 
 Deferred
          tax assets and liabilities are offset when they relate to income taxes
          levied by
          the same taxation authority and the Company intends to settle its current
          tax
          assets and liabilities on a net basis.
 
 Under
          the
          Income Tax Laws of PRC, the Company is generally subject to an income tax
          at an
          effective rate of 33% (30% state income taxes plus 3% local income taxes)
          on
          income reported in the statutory financial statements after appropriate
          tax
          adjustments, unless the enterprise is located in a specially designated
          region
          where it allows foreign enterprises a two-year income tax exemption and
          a 50%
          income tax reduction for the following three years.
 
 The
            Company’s subsidiary, Daqiuzhuang Metal Sheet Co., Ltd., became a Chinese
            Sino-foreign joint venture at the time of the merger on October 14, 2004
            and it
            became eligible to receive a tax benefit. The Company is exempt from
            income
            taxes for the years ended December 31 , 2005
            and
            2006 and 50% income tax reduction for the years ended December 31, 2007,
            2008
            and 2009. The Company received the tax exemption approval from the local
            tax
            authorities during the last quarter of 2005 and the Company had been
            recording a
            provision for income taxes for the first three quarters of 2005. During
            the last
            quarter of 2005 the Company reversed the provision for income taxes once
            they
            received the approval from the local tax authorities.
  See
              report of independent registered public accounting
              firm
  F-13
  GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  **Note
            3 – Summary of significant accounting policies,
            (continued)**
 
 Income
            taxes, continued
 
 The
            local
            Chinese tax authority waived the perviously accrued tax accumulated prior
            to
            January 1, 2005 in the amount of $253,250 which was recorded as other
            nonoperating income for the three months ended March 31, 2006 for previously
            accrued income taxes.
 
 The
          provision for income taxes for the period ended March 31 consisted of the
          following:
 2006
                  
                  2005Unaudited
                  
                  UnauditedProvision
                      for China Income Tax
                  
                  $
                  -
                  
                  $
                  265,231Provision
                      for China Local Tax
                  
                  
                  -
                  
                  
                  29,470Total
                      provision for income taxes
                  
                  $
                  -
                  
                  $
                  294,701
  The
          following table reconciles the U.S. statutory rates to the Company’s effective
          tax rate for the three months ended March 31:
 2006
                  
                  2005U.S.
                      statutory rates
                  
                  
                  34.0
                  %
                  
                  34.0
                  %Foreign
                      income not recoginized in USA
                  
                  
                  (34.0
                  )
                  
                  (34.0
                  )China
                      income taxes
                  
                  
                  -
                  
                  
                  33.0Total
                      provision for income taxes
                  
                  
                  -
                  %
                  
                  33.0
                  %
  The
          estimated tax savings for the three months ended March 31, 2006 amounted
          to
          $191,674. The net effect on earnings per share had the income tax been
          applied
          would decrease earnings per share from $0.011 to $0.005.
 
 Value
            added tax
 
 Enterprises
          or individuals who sell commodities, engage in repair and maintenance or
          import
          and export goods in the PRC are subject to a value added tax in accordance
          with
          Chinese laws. The value added tax standard rate is 17% of the gross sales
          price.
          A credit is available whereby VAT paid on the purchases of semi-finished
          products or raw materials used in the production of the Company’s finished
          products can be used to offset the VAT due on sales of the finished
          product.
  See
              report of independent registered public accounting
              firm
 
 F-14
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            3 – Summary of significant accounting policies,
            (continued)**
  Value
            added tax, continued
 
 Taxes
          payable consisted of the followings:
  March
                      31,
                  
                  December
                      31,2006
                  
                  2005Unaudited
                  
                  AuditedVAT
                      taxes payable
                  
                  $
                  1,954,124
                  
                  $
                  1,290,982Income
                      taxes payable
                  
                  
                  -
                  
                  
                  385,510Misc
                      taxes
                  
                  
                  1,147
                  
                  
                  5,838Totals
                  
                  $
                  1,955,271
                  
                  $
                  1,682,330
  Recently
            issued accounting pronouncements
  In
            February 2006, the SFAS No. 155, “Accounting for Certain Hybrid Financial
            Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting for Derivative
            Instruments and Hedging Activities” (FAS 133”) and SFAS No. 140, “Accounting for
            Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”
(“FAS 140”). FAS 155 provides guidance to simplify the accounting for certain
            hybrid instruments by permitting fair value remeasurement for any hybrid
            financial instrument that contains an embedded derivative, as well as,
            clarifies
            that beneficial interests in securitized financial assets are subject
            to FAS
            133. In addition, FAS 155 eliminates a restriction on the passive derivative
            instruments that a qualifying special-purpose entity may hold under FAS
            140. FAS
            155 is effective for all financial instruments acquired, issued or subject
            to a
            new basis occurring after the beginning of an entity’s first fiscal year that
            begins after September 15, 2006. The adoption of SFAS No. 155 is not
            expected to
            have a material effect on the Company’s financial position or results of
            operations.
 
 In
            March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
            Assets” (FAS 156”), which amends SFAS No., 140. FAS 156 specifically provides
            guidance addressing the recognition and measurement of separately recognized
            servicing assets and liabilities, common with mortgage securitization
            activities, and provides an approach to simplify efforts to obtain hedge
            accounting treatment. FAS 156 if effective for all separately recognized
            servicing assets and liabilities acquired or issued after the beginning
            of an
            entity’s fiscal year that begins after September 15, 2006, with early adoption
            being permitted. The adoption of SFAS No. 156 is not expected to have
            a material
            effect on the Company’s financial position or results of
            operations.
  **Note
            4 – Consolidated financial statements and condensed
            footnotes**
 
 The
          interim consolidated financial statements presented herein have been prepared
          by
          the Company and include the unaudited accounts of the Company and its
          subsidiaries. All significant inter-company accounts and transactions have
          been
          eliminated in the consolidation.
  See
              report of independent registered public accounting
              firm
  F-15
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 These
          consolidated financial statements have been prepared in accordance with
          generally accepted accounting principles in the United States for interim
          financial information and the instructions for Form 10-Q and Article 10
          of
          Regulation S-X.
 
 Certain
          information and footnote disclosures that are normally included in financial
          statements presented in accordance with generally accepted accounting principles
          have been condensed or omitted. Management of the Company believes the
          disclosures made are adequate to make the information presented not misleading.
          The condensed consolidated financial statements should be read in conjunction
          with the Company’s audited financial statements included in its Annual Report on
          Form 10-K dated March 31, 2006.
 
 In
          the
          opinion of management, the unaudited consolidated financial statements
          reflect
          all adjustments (which include only normal recurring adjustments) necessary
          to
          present fairly the financial position of the Company as of March 31, 2006
          and
          December 31, 2005, and the results of operations, changes in shareholders’
equity and cash flows for the three months ended March 31, 2006 and 2005.
          Interim results are not necessarily indicative of full year performance
          because
          of the impact of seasonal and short-term variations.
 
 **Note
            5 – Earnings per share**
 
 The
          Company reports earnings per share in accordance with the provisions of
          SFAS No.
          128, "Earnings Per Share." SFAS No. 128 requires presentation of basic
          and
          diluted earnings per share in conjunction with the disclosure of the methodology
          used in computing such earnings per share. Basic earnings per share excludes
          dilution and is computed by dividing income available to common stockholders
          by
          the weighted average common shares outstanding during the period. Diluted
          earnings per share takes into account the potential dilution that could
          occur if
          securities or other contracts to issue common stock were exercised and
          converted
          into common stock.
  Under
          SFAS 150 " Accounting
          for Certain Financial Instruments with Characteristics of both Liabilities
          and
          Equity", entities
          that have issued mandatory redeemable shares of common stock or entered
          into
          forward contracts that require physical settlement by repurchase of a fixed
          number of the issuer’s equity shares of common stock in exchange for cash shall
          exclude the common shares that are to be redeemed or repurchased in calculating
          basic and diluted earnings per share. Thus the 1,176,665 shares described
          in
          no te
          18
          have been excluded from the earnings per share calculation.
  The
            weighted average number of shares used to calculate EPS for the three
            months
            ended March 31, 2006 (31,250,000), 2005 (31,250,000) reflect only the
            shares
            outstanding for those periods.
  **Note
            6 – Supplemental disclosure of cash flow
            information**
 
 Interest
          paid amounted to
          $499,877 and $440,221 for the three
          months ended March 31, 2006 and 2005, respectively.
  See
            report of independent registered public accounting
            firm
  F-16
  GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Income
          tax payments amounted to $0 and $485,615 for the three months ended March
          31,
          2006 and 2005, respectively.
 
 **Note
            7 – Accounts receivable and allowance for doubled
            accounts**
 
 The
            Company conducts its business operations in the People’s Republic of China.
            Account receivables include trade accounts due from the customers. Management
            believes that the trade accounts are fully collectible as these amounts
            are
            being collected throughout the year. Also, management reviews its accounts
            receivable on a regular basis to determine if the bad debt allowance
            is adequate
            and adjusts the allowance amount at year end. The allowance for doubtful
            accounts as of March 31, 2006 and December 31, 2005 amounted to $1,414
            and
            $1,371 respectively.
 
 **Note
            8 – Notes receivable and note receivable - related
            party**
 
 Notes
          receivable represents trade accounts receivable due from various customers
          where
          the customers’ bank has guaranteed the payment of the receivable. This amount is
          non-interest bearing and is normally paid within three to six months. The
          Company has the ability to submit their request for payment to the customer’s
          bank earlier than the scheduled payment date. However the Company will
          incur an
          interest charge and a processing fee when they submit a payment request
          early.
          The Company had $998,400
          and $4,960 outstand ing
          as of
          March 31, 2006 and December 31, 2005, respectively.
 
 The
            note
            receivable from related party represents a note from Yang Pu Automotive
            Investment Limited for business purpose on November 15, 2005. The note
            is in the
            amount of RMB 24,000,000, translated to $2,995,200, for one year with
            an
            interest rate at 7% and due at maturity. The Company periodically reviews
            the
            financial statements of Yang Pu Automotive Investment Limited to determine
            its
            ability to repay the debt.
  **Note
            9 – Prepaid expenses**
 
 Prepaid
          expenses at March 31, 2006 consisted of the followings:
 Current
                  
                  Long-term
                  
                  TotalRent
                  
                  $
                  44,928
                  
                  $
                  333,715
                  
                  $
                  378,643Land
                      use right
                  
                  
                  20,136
                  
                  
                  503,356
                  
                  
                  523,492Total
                  
                  $
                  65,064
                  
                  $
                  837,071
                  
                  $
                  902,135
  The
          Company rented a dormitory for its employees during 2005. The rent is for
          ten
          years starting on January 1, 2006 at RMB 90,000 per quarter or RMB 360,000
          per
          year. The Company's prepayment at March 31, 2006 a mounted
          to RMB 3,034,000 or $378,643.
 
 The
          Company also entered into another rental agreement on July 21, 2005 to
          rent the
          land use right for its manufacture expansion. The total amount of the rental
          is
          RMB 8,067,400 for a period of 50 years starting on September 1, 2005. The
          Company made a prepayment of RMB 4,234,981 or $528,505 and prepaid balance
          remained at March 31, 2006 amoun ted
          to
          RMB 4,194,644 or $523,492.
  See
              report of independent registered public accounting
              firm
  F-17
 
 **GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES**
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
            10 – Advances on inventory purchases**
 
 Advances
          on inventory purchases are monies deposited or advanced to outside vendors
          or
          related parties on future inventory purchases. Due to the high shortage
          of steel
          in China, most of the Company’s vendors require a certain amount of money to be
          deposited with them as a guarantee that the Company will receive their
          purchases
          on a timely basis.
 
 This
          amount is refundable and bears no interest. The Company has a legal binding
          contract with their vendors for the guarantee deposit, which is to be returned
          to the Company at the end of the contract. The inventory is normally delivered
          within one month
          after the monies has been advanced. The total outstanding amount was $14,398,985
          and $10,716,293 as of March 31, 2006 and December 31, 2005,
          respectively.
 
 **Note
            11 – Other payable - related party**
 
 The
          Company has a short term loan from Golden Glister Holdings Limited. Golden
          Glister Holdings Limited is incorporated in the territory of the British
          Virgin
          Islands which our president Yu Zuo Sheng is the majority shareholder. The
          amount
          was loaned to General Steel Investment Co., Ltd for business operations.
          The
          Compan y
          had
          $330,000 and $980,000 outstanding on this loan as of March 31, 2006 and
          December
          31, 200 5,
          respectively. This amount is short-term and is non interest bearing.
 See
              report of independent registered public accounting firm
  F-18
 
 **Note
          12 – Short term loans - bank**
 
 Short
            term loans - bank represent amounts due to various banks which are due
            on demand
            or normally within one year. These loans can be renewed, are short term
            bearing
            no interest and has not due date. The table below summarizes the loans
            outstanding at March 31, 2006 and December 31, 2005.
 March
                      31,
                  
                  December
                      31,2006
                  
                  2005Loans
                      from China Bank, JingHai Branch,dueNovember
                      2006. Monthly interest only payment at6.138%
                      per annum, secured by equipmentand
                      property
                  
                  $
                  1,123,200
                  
                  $
                  1,116,000Loans
                      from Agriculture Bank, DaQiuZhuang Branch, duevarious
                      dates from May 2006 to March 2007.Monthly
                      interest only payments in 2005 ranging fromfrom6.696%
                      to 7.533% per annum, guaranteed by anunrelated
                      third party and secured by property andequipment
                  
                  
                  10,021,440
                  
                  
                  10,068,800Loan
                      from Construction Bank of China, JinHai Branch, dueAugust
                      15,
                      2006.
                      Monthly interst only payment at7.4604%
                      per annum, secured by properties
                  
                  
                  1,010,880
                  
                  
                  1,004,400Loans
                      from ShangHai PuFa Bank, due various dates fromJuly2006to
                      March 2007.Monthly interest onlypayments
                      ranging from6.138%
                      to 6.42% per month,guaranteed
                      by an unrelated thirdparty
                  
                  
                  6,240,000
                  
                  
                  6,200,000Loans
                      fromChina
                      MerchantsBank, due various dates fromJune2006toSeptember2006.Quarterly
                      interest onlypayments,
                      annual interest rate of 5.859%
                      to 5.86%,guaranteed
                      by an unrelated thirdparty
                  
                  
                  8,112,000
                  
                  
                  8,060,000Loan
                      from Construction Bank of China, dueAugust
                      21,
                      2006Monthly
                      interest only payment at7.4604%per annum,guaranteed
                      by an unrelated third party
                  
                  
                  673,920
                  
                  
                  669,600Loans
                      from Shenzhen Development Bank, Tianjin Branchdue
                      various datesfrom February to March 2007Quarterly
                      interest only payments rangingfrom
                      5.856% to 5.859%, secured by inventories
                  
                  
                  4,992,000
                  
                  
                  -Totals
                  
                  $
                  32,173,440
                  
                  $
                  27,118,800
 See
                report of independent registered public accounting firm
 F-19
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Note
            13 – Short term notes payable**
 
 Short-term
            notes payable are lines of credit extended by the banks. When purchasing
            raw
            materials, the Company often issues a short term note payable to the
            vendor.
            This short term note payable is guaranteed by the bank for its complete
            face
            value. The banks usually require the Company to deposit a certain amount
            of cash
            deposit at the bank as a guarantee deposit.
 
 The
          Company has the following short term notes payable outstanding as for March
          31,
          2006 and December 31, 2005:
 March
                      31,
                  
                  December
                      31,2006
                  
                  2005Unaudited
                  
                  AuditedChina
                      Bank, Jing Hai Branch, various amounts, dueMay
                      2006, restricted cash required 50% of loanamount,
                      guaranteed by the Company
                  
                  $
                  1,447,680
                  
                  $
                  1,438,400Agricultural
                      Bank of China, various amounts, due datesranging
                      between June and July 2006,restricted
                      cash required of 50% of loan amount,guaranteed
                      by the Company and an unrelatedthird
                      party
                  
                  
                  1,497,600
                  
                  
                  1,488,000ShangHai
                      PuFa Bank, due May 2006, restrictedcash
                      required of 50% of loan balance, guaranteedby
                      an unrelated third party
                  
                  
                  2,496,000
                  
                  
                  2,480,000Totals
                  
                  $
                  5,441,280
                  
                  $
                  5,406,400
  Total
          interest expense for the three months ending March 31, 2006 and 2005 on
          all debt
          amounted to $499,877
          and $440,221 ,
          respectively.
  **Note
            14 – Customer deposits**
 
 Customer
          deposits represent amounts advanced by customers on product orders. The
          product
          normally is shipped within six months after receipt of the advance payment
          and
          the related sale is recognized in accordance with the Company’s revenue
          recognition policy. As of March 31, 2006 and December 31, 2005, customer
          deposits amounted to $2,572,512
          and $1,276,536, re spectively.
 
 **Note
            15 – Deposits due to sales representatives**
 
 The
          Company has entered into agreements with various entities to act as the
          Company’s exclusive sales agent in a specified area. These exclusive sales
          agents must meet certain criteria and are required to deposit a certain
          amount
          of money with the Company. In return the sales agents receive exclusive
          sales
          rights to a specified area and discounted prices on products they order.
          These
          deposits bear no interest and are required to be returned to the sales
          agent
          once the agreement has been terminated. The Company had $1,581,216 and
          $1,261,080 in deposits due to sales representatives outstanding as of March
          31,
          2006 and December 31, 2005, respectively.
  See
            report of independent registered public
            accounting firm
 F-20
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 **Note
            16 – Major customers and suppliers**
 
 The
            Company has 5 major customers which represent approximately 62% and 43%
            of the
            Company’s total sales for the three months ended March 31, 2006 and 2005,
            respectively. The Company did not have any one significant customer that
            represented more than 10% of the total sales for the quarter ended March
            31,
            2006 and 2005.
  For
          the
          three months ended March 31, 2006 and 2005, the Company purchases approximately
          97% and 90%, respectively, of their raw materials from four major
          suppliers.
 
 **Note
            17 – Minority interest**
 
 Minority
          interest represents the outside shareholders’ 30% interest in Tianjin
          Daqiuzhuang Metal Sheet Co., Ltd.
 
 **Note
            18 – Other expenses and income, net**
 
 Other
          income and expense for the three months ended March 31 consist of the
          following:
 2006
                  
                  2005Unaudited
                  
                  UnauditedFinance/interest
                      expense
                  
                  $
                  (546,218
                  )
                  $
                  (441,659
                  )Interest
                      income
                  
                  
                  60,033
                  
                  
                  17,427Other
                      nonoperating income
                  
                  
                  354,844
                  
                  
                  11,551Other
                      nonoperating expense
                  
                  
                  (28,798
                  )
                  
                  (3,065
                  )Total
                      other expense
                  
                  $
                  (160,139
                  )
                  $
                  (415,746
                  )
  Other
            nonoperating income includes the previously accrued income tax expense.
            During
            2005, the Company has received an approval from the P.R.C. local government
            for
            a two year income tax exemption and a three year 50% reduction in income
            tax
            rates. The
            local
            Chinese tax authority waived the previously accrued income tax accumulated
            prior
            to January 1, 2005 in the amount of $253,250 which was recorded as other
            nonoperating income during the three months ended March 31, 2006
            .
 
 **Note
            19 –** **Reclassifications**
 
 Certain
          amounts for the three months ended March 31, 2005 in the accompanying financial
          statements have been reclassified to conform to the 2006 presentation.
          These
          reclassifications have no effect on net income or cash flows.
 
 **Note
            20 – Private Offering of Redeemable Stock**
 
 The
            Company has offered an aggregate of 3,333,333 shares of Common Stock
            par value
            $0.001 in a private placement to investors at a purchase price of $1.50
            per
            share. On September 18, the Company entered into a subscription agreement
            with
            certain investors to sell a total of 1,176,665 shares of common stock
            at $1.50
            per share. In addition, two warrants are attached to each share of common
            stock
            and each warrant gives the warrant holder the right to purchase an additional
            share of common stock or a total of 2,353,330 of common stock in the
            future. The
            warrants can be exercised on the second anniversary date at $2.50 per
            share and
            on the thrid anniversary date at $5.00 per share. The number of shares
            attached
            to the warrants will be adjusted due to dividends and changes in the
            capital
            stock structure changes. At the option of the investors the Company maybe
            required to repurchase the 1,176,665 shares of common stock 18 months
            after the
            closing date at a per share price of $1.95.
  See
              report of independent registered public accounting
              firm
  F-21
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 I
            Under
            this private offering, the Company raised a total of $1,765,000 and received
            net
            proceeds of $1,606,150 net of $158,850 of commissions paid.
 
 In
            accordance with Accounting Principles Board Opinion No. 14, the Company
            determined the fair value of the detachable warrants issued with redeemable
            stock using the Black-Scholes option pricing model under the following
            assumptions: risk free interest rate of 3.85%, dividend yield of 0% and
            volatility of 11%. The estimated value of the warrants is
            zero
 
 In
            accordance with SFAS 150, the Company has recorded this stock
            issuanc e as
            a
            liability in the financial statements due to the mandatory redemption
            provision.
            The shares were recorded at fair market value on the date of issuance,
            which is
            the net cash proceeds, plus any accrued interest up to December 31, 2005.
            The
            difference between the net proceeds, $1,606,150, and the redemption amount,
            $2,294,497, which is $688,347, will be accrued and amortized as interest
            expense
            over an 18 month period beginning in October 2005 and ending in March
            2007. The
            following table reconciles the March 31, 2006 carrying amount as
            follows:
 Balance
                      at 12/31/2005
                  
                  $
                  1,720,875Interest
                      amortized during the first quarter
                  
                  
                  114,724Balace
                      at 3/31/2006
                  
                  $
                  1,835,599
  Total
          interest amortized since issuance to March 31, 2006 amounted to $229,449
          and
          $458,898 is the remaining amount left to be acrrued and amortized through
          March
          2007.
 
 The
            Company amended its financial statements for the periods ended December
            31, 2005
            to reflect the changes made to the accounting treatment of the redeemable
            stock.
            The company amended its financial statement for the periods ended December
            31,
            2005 and March 31, 2006 to reflect the changes made to the accounting
            treatment
            of the redeemable stock. The original accounting treatment was to record
            the
            amount discounted at an average market rate as a liability with the difference
            between the discounted amount and the cash received treated as reduction
            in
            paid-in-capital and the difference between discounted amount and redemption
            value to be amortized over the 18 months from issuance date.
  **Note
            22 – 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.
  See
              report of independent registered public accounting
              firm
  F-22
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 The
            Company became a foreign joint venture entity in the year of 2004. For
            the year
            ended December 31, 2005, it was the first year the Company was required
            to make
            contributions to the state retirement plan at 20% of the employees’ monthly
            salary. Employees are required to contribute 7% of their salary to the
            plan.
            Total pension expense incurred by the Company amounted to $61,661and
            $0 for the
            three months ended March 31, 2006 and 2005, respectively. No contribution
            was
            made during the first quarter of 2005 because the Company contributed
            the total
            amount near year end of 2005.
  **Note
            22 – Joint venture agreement with Baotou Steel**
 
 On
            September 28, 2005, General Steel Investment Co., Ltd., a wholly owned
            subsidiary of General Steel Holdings, Inc., entered into a certain Baotou-GSHI
            Special Steel Joint Venture Agreement (the "Agreement") with Daqiuzhuang
            Metal
            Sheet Co., Ltd., and Baotou Iron and Steel (Group) Co., Ltd., a limited
            liability company formed under the laws of the People's Republic of China
            (the
            "Baotou Steel"). The name of the joint venture will be Baotou Steel-General
            Steel Special Steel Joint Venture Company Limited.
 
 The
          Joint
          Venture Company will be located at Kundulun District, Baotou City, Inner
          Mongolia, China. The stated purposes of the Joint Venture Company are,
          among
          others, to produce and sell special steel and to improve the product quality
          and
          the production capacity and competitiveness by adopting advanced technology
          in
          the production of steel products. The Joint Venture Company shall have
          a
          capacity of producing 600,000 tons of specialty steel products a year.
 
 The
          registered capital of the joint venture will be approximately $24,000,000.
          The
          products of the joint venture will be sold in the Chinese market and abroad.
          The
          ownership will be comprised of the following:
 %
                      OwnershipBaotou
                      Iron and Steel (Group) Co.,Ltd.
                  
                  
                  49
                  %General
                      Steel Investment Co., Ltd.
                  
                  
                  31
                  %Da
                      Qiu Zhuang Metal Sheet Co., Ltd
                  
                  
                  20
                  %
  Baotou
            Steel shall contribute land, existing equipment and materials at an estimated
            value of approximately $12,000,000 which will be contributed to the joint
            venture at the date of the approval of Joint Venture or issuance of the
            business
            license. The value of the assets to be contributed by Baotou Steel will
            be
            stated at fair market value General Steel Investment Co., Ltd. will contribute
            approximately $7,500,000 of cash and Daqiuzhuang Metal will contribute
            approximately $5,000,000 cash. These contributions will be required to
            be made
            on the following payment schedule 30% of their capital contribution within
            30
            days of the date of approval of the Joint Venture; 30% of their capital
            contribution within 3 months of the date of approval of the Joint Venture;
            and
            40% of their capital contribution within 6 months of the date of approval
            of the
            Joint Venture. The Company will use the consolidation method to account
            for the
            joint venture.
 
 These
            contributed assets will be used to commence a new operation. The joint
            venture
            will purchase a 100-tonne electric furnace and a refiner furnace to produce
            high
            quality specialty steel using advanced technology. This type of specialty
            steel
            has not been previously produced by Baotou Steel. This advanced technology
            has
            not been previously utilized by Baotou Steel. This new joint venture
            will aim to
            enter into a new market segment of high-end specialty steel.
  See
              report of independent registered public accounting
              firm
  F-23
 
 GENERAL
              STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 This
            contemplated transaction is not considered a business combination as
            defined
            under Article 11 of Regulation S-X. The revenue producing activity for
            the new
            entity will be different from that of the existing companies. New high-end
            special steel products will be produced and marketed to new customers.
            In order
            to produce these new products, the new entity will build new facilities
            on the
            land to be contributed by Baotou Steel. It will take some equipment to
            be
            contributed by Baotou Steel, which are to be substantially modified,
            and add a
            100-ton electric furnace and a refiner to create a new production line.
            A new
            sales force will be built to identify and target new customers. The new
            entity
            will not carry the names of either of its future owners.
 
 This
            contemplated transaction is not considered as a business acquisition
            through a
            non-monetary exchange under EITF 98-3 because it does not meet the relevant
            definition thereunder. The assets to be contributed do not include systems,
            standards, protocols, conventions and rules that act to define the process
            necessary for normal, self-sustaining operations, such as (i) strategic
            management processes, (ii) operational processes, and (iii) resource
            management
            processes. The assets to be contributed do not include the ability to
            obtain
            access to the customers that purchase the outputs of the assets to be
            contributed. Additionally, while the newly formed entity will receive
            certain
            tangible assets, it will be a start-up company. It will need to attract
            and
            retain talent to install/modify/acquire equipment, manage operations,
            as well as
            to manufacture market and sell products to newly identified customers.
            The
            assets to be contributed by Baotou Steel are insignificant compared to
            the total
            assets of Baotou Steel. Baotou Steel will continue to operate at its
            historical
            levels even assuming the consummation of the contemplated transactions.
            The
            respective future owners who will contribute certain assets to the new
            entity
            will continue to operate as separate entities. They will not reduce or
            transfer
            any of their respective workforces as a result of this transaction. They
            will
            continue to operate their existing businesses at their historical
            levels.
 
 Upon
            the
            commencement of the joint venture, the rights of the minority shareholders
            of
            Daqiuzhuang Metal Sheet Co. Ltd. will be limited to receiving a distribution
            of
            profits from the joint venture; the minority shareholders will not have
            any
            voting rights
 As
            of
            March 31, 2006, the Company has not received the approval of the Baotou
            Steel
            Joint venture and it is still under government review and may be subject
            to
            further industry sector review by the relevant authorities in China in
            view of
            the sensitive nature of the steel industry. The management at this point
            is
            uncertain if and when the government approval will be granted. Currently
            none of
            the financials of Baotou Steel is incorporated into the Company’s financial
            statements as there is no ownership or control relationship between the
            Company
            and Baotou Steel at this time.
  See
              report of independent registered public accounting
              firm
  F-24
  ITEM
            2.
            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
            OPERATIONS
 
 The
            following is management's discussion and analysis of certain significant
            factors
            which have affected our financial position and operating results during
            the
            periods included in the accompanying consolidated financial statements,
            as well
            as information relating to the plans of our current management. The following
            discussion and analysis should be read in conjunction with our consolidated
            financial statements and the related notes thereto and other financial
            information contained elsewhere in this Form 10Q.
 
 **Overview**
 
 Following
              the acquisition of ownership in General Steel Investment Co., Ltd.
              in October
              2004, We have shifted our main business focus to general steel products
              and
              steel manufacturing. As our core-operating unit, Tianjin Daqiuzhuang
              Metal Sheet
              Co., Ltd. (herein referred to as "Daqiuzhuang Metal") started its operation in
              1988. Daqiuzhuang Metal's core business is the manufacturing of high
              quality hot
              rolled carbon and silicon steel sheets which are mainly used in the
              production
              of tractors, agricultural vehicles, shipping containers and in other
              specialty
              markets.
 
 Daqiuzhuang
                Metal uses a traditional rolling mill production sequence, such as
                heating,
                rolling, cutting, annealing, and flattening to process slabs into
                steel sheets.
                The sheet sizes are approximately 2,000 mm (length) x 1,000 mm (width)
                x 0.75 to
                2.0 mm (thickness). Limited size adjustments are possible to meet
                order
                requirements. "Qiu Steel" is the registered name for our
                products.
 
 Daqiuzhuang
                has recently completed an expansion program to build a new plant
                next to the
                existing facility with four new production lines to increase its
                hot-rolled
                steel sheet production capacity by 150,000 tons. The Company now
                operates 10
                steel production lines capable of processing 400,000 tons of 0.75-2.0
                mm
                hot-rolled carbon steel sheets per year, maintaining a 50% market
                share of all
                hot rolled steel sheets used in the production of agricultural vehicles
                in
                China.
 
 On
                September 28, 2005, we signed a joint venture agreement (the “Joint Venture
                Agreement”) with Baotou Iron and Steel Group (“Baotou Steel”) to form Baotou
                Steel - General Steel Special Steel Joint Venture Company Limited,
                a limited
                liability company formed under the laws of the People’s Republic of China (the
“Joint Venture Company”). The Joint Venture Company has not been launched and is
                not operational yet.
 This
              contemplated transaction is not considered a business combination as
              defined
              under Article 11 of Regulation S-X. The revenue producing activity
              for the new
              entity will be different from that of the existing companies. New high-end
              special steel products will be produced and marketed to new customers.
              In order
              to produce these new products, the new entity will build new facilities
              on the
              land to be contributed by Baotou Steel. It will take some equipment
              to be
              contributed by Baotou Steel, which are to be substantially modified,
              and add a
              100-ton electric furnace and a refiner to create a new production line.
              A new
              sales force will be built to identify and target new customers. The
              new entity
              will not carry the names of either of its future owners.
 
 This
              contemplated transaction is not considered as a business acquisition
              through a
              non-monetary exchange under EITF 98-3 because it does not meet the
              relevant
              definition thereunder. The assets to be contributed do not include
              systems,
              standards, protocols, conventions and rules that act to define the
              process
              necessary for normal, self-sustaining operations, such as (i) strategic
              management processes, (ii) operational processes, and (iii) resource
              management
              processes. The assets to be contributed do not include the ability
              to obtain
              access to the customers that purchase the outputs of the assets to
              be
              contributed. Additionally, while the newly formed entity will receive
              certain
              tangible assets, it will be a start-up company. It will need to attract
              and
              retain talent to install/modify/acquire equipment, manage operations,
              as well as
              to manufacture, market and sell products to newly identified customers.
              The
              assets to be contributed by Baotou Steel are insignificant compared
              to the total
              assets of Baotou Steel. Baotou Steel will continue to operate at its
              historical
              levels even assuming the consummation of the contemplated transaction.
              The
              respective future owners who will contribute certain assets to the
              new entity
              will continue to operate as separate entities. They will not reduce
              or transfer
              any of their respective workforces as a result of this transaction.
              They will
              continue to operate their existing businesses at their historical
              levels.
  3
 
 The
              total
              investment in the Joint Venture Company may be up to US$30,000,000,
              with an
              anticipated registered capital of approximately US$24,000,000. Pursuant
              to the
              Joint Venture Agreement, Baotou Steel will contribute land, existing
              equipment
              and materials whereas General Steel Investment and Daqiuzhuang Metal
              will each
              contribute cash capital to the Joint Venture Company. The completion
              of this
              transaction is subject to the provision of both General Steel Investment
              and
              Daqiuzhuang Metal by Baotou Steel of relevant financial statements
              and an
              independent appraisal of the assets to be contributed to the Joint
              Venture
              Company, which have not been produced thus far. In addition, China’s State
              Assets Supervision and Administration Committee will need to assign
              an
              independent appraisal firm to perform an appraisal of the assets contributed
              by
              Baotou Steel. At this time, we are still waiting for the Chinese government
              to
              appoint an appraisal firm to complete the appraisal and the evaluation
              process
              of the joint venture project. As a result, at this moment we are not
              in a
              position to determine the amount of cash capital General Steel Investment
              and
              Daqiuzhuang Metal will be required to contribute to the Joint Venture
              Company.
              We are working to encourage relevant parties to provide the requisite
              documentation and initiate the needed procedures.
  %
                          OwnershipBaotou
                          Iron and Steel (Group) Co.,Ltd.
                      
                      
                      49
                      %General
                          Steel Investment Co., Ltd.
                      
                      
                      31
                      %Daqiuzhuang
                          Metal Sheet Co., Ltd
                      
                      
                      20
                      %
  On
              September 18, 2005, we entered into a certain Subscription Agreement
              with
              certain investors and sold an aggregate of 1,176,665 shares of our
              common stock,
              in a private placement under Rule 506 of the Securities Act at a purchase
              price
              of $1.50 per share.
  Under
              this private placement, we raised $1,765,000 in the aggregate, with
              a net
              proceeds of $1,606,150 after deducting $158,850 paid for
              commissions.
 
 **Results
            of Operations**
 
 Our
              results of operations are largely dependent on the level of general
              economic
              activity in China. Economic forecasts indicate continued fast pace
              growth in
              China in 2006. As a result, the consumption of our steel products is
              expected to
              remain at a high level. We believe that we have successfully positioned
              ourselves within the Chinese agricultural vehicle market. As this market
              continues to demonstrate increased demand for steel products, we remain
              focused
              on building our leadership position by enhancing the quality of our
              products and
              expanding our production capacity. However, we do believe that the
              highly
              competitive market will exist throughout 2006, with pressures for shipment
              volumes and prices. In view of that, we will continue to focus on cost
              control
              and new market development.
 
 Our
              sales
              revenue mainly comes from the sale of metal sheets in different specifications
              and steel scrap generated in the cutting process. Our cost of sales
              includes the
              cost of its primary raw materials, rollers, energy cost, labor cost,
              the cost of
              warehousing and handling finished steel products and freight
              costs.
 
 **Net
            sales and gross profit**
 
 Net
            sales
            for the three months ended March 31, 2006 were $20.6 million compared
            to $20.7
            million in the same period of 2005. Shipments for the three months ended
            March
            31, 2006 climbed 29% to 53,547 tons from 41,421 tons due to overall increase
            in
            productivity and market development. Average selling price per ton including
            sale of scrap for the three months ended March 31, 2006 slipped to $383
            from
            $491 in the same period of 2005. The decrease in sales price mainly resulted
            from the overall steel market downturn, but the impact was offset by
            the
            increase in sales volume. This is why our net sales amount is still in
            line with
            the same period last year.
  4
 
 Gross
              profit for the three months ended March 31, 2006 was $1.37 million,
              a decrease
              of 27% or $0.5 million from $1.87 million for the same period last
              year. Gross
              profit margin decreased to 6.6% from 9.0% for the three months ended
              March 31,
              2006 and 2005. This decrease in gross profit margin is mainly due to
              the
              decrease in average selling price. Since April 2005, the price of steel
              products
              has been decreasing globally due to the overall increase in steel supply.
              We
              have to adjust its products’ prices in order to stay competitive in this market.
              The management thinks that the pressure on the selling price will be
              mitigated
              in 2006 as a result of steel industry consolidation in China and overall
              increase in demand.
 
 **Cost
            of sales**
 
 Overall
            cost of sales slightly increased to $19.3 million for the three months
            ended
            March 31, 2006 from $18.8 million for the same period of 2005. Cost of
            sales as
            percentage of sales increased from 91.0% to 93.4%. Average cost per ton
            was $360
            and $455, respectively for the three months ended March 31, 2006 and
            2005. In
            summary the increase in cost of sales mainly resulted from the increase
            in the
            sales volume.
 
 **Selling,
            General and Administrative Expenses**
 
 Selling,
            general and administrative expenses, such as executive compensation,
            office
            expenses, legal and accounting charges, travel charges, and various taxes
            were
            $0.74 million in the first quarter of 2006, compared to $0.65 million
            in the
            first quarter of 2005, a 13.6% increase. A large component of the increase
            came
            from the legal and accounting expenses and investor and public relations
            charges
            for the public listed company.
 
 **Other
            income (expense)**
 
 Other
              income (expense) for the three months ended March 31, 2006 consisted
              mainly of
              finance charges, interest income and other non-operating income (expense).
              Interest expense was $0.55 million in the first quarter of 2006, compared
              to
              $0.44 million in the first quarter of 2005. Outstanding bank loans
              increased to
              $32.2 million from $27.1 million as of March 31, 2006 and 2005, respectively.
              This increase in debt borrowing is mainly used for the construction
              of the new
              plant.
 
 **Income
            taxes**
 
 We
              did
              not carry on any business and did not maintain any branch office in
              the United
              States during the three months ended March 31, 2006 and 2005. Therefore,
              no
              provision for withholding or U.S. federal income taxes or tax benefits
              on the
              undistributed earnings and/or losses of the Company has been
              made.
 
 Pursuant
              to the relevant laws and regulations in the People's Republic of China,
              Daqiuzhuang Metal, as a foreign owned enterprise in the People's Republic
              of
              China, is entitled to an exemption from the PRC enterprise income tax
              for two
              years commencing from its first profitable year. We have been approved
              for this
              tax benefit and will be exempt from income tax for the years ended
              December 31,
              2005 and 2006 and 50% income tax reduction for the years ended December
              31,
              2007, 2008 and 2009.
 
 **Liquidity
            and capital resources**
 
 Due
              to
              the good market demand for our steel products, we plan to maintain
              higher-than-average debt to equity ratio to better position ourselves
              in this
              fast growing market. The bank loans are considered short-term for the
              purpose of
              the preparation of the financial statements because they are renewable
              with the
              banks every year. Due to the recent joint venture agreement with Baotou
              Iron and
              Steel (Group) Co., Ltd., we are reserving cash for the first 30% of
              its capital
              contribution, approximately $3.7 million, which needs to be paid when
              the
              business license for the joint venture is issued. Cash balance including
              restricted cash amounted to $4.9 million and $11.4 million as of March
              31, 2006
              and 2005.
 
 **Operating
            activities**
 
 Net
              cash
              used in operating activities for the three months ended March 31, 2006
              was $8.3
              million compared to $7.7 million provided by operating activities in
              the same
              period last year. Increase in accounts receivable, inventories, and
              advance on
              inventory purchases, and less customer deposit became the major factors
              of this
              increase in cash used in operating activities. As the raw materials
              price showed
              signs of going back up in March this year, the management decided to
              stock up
              raw materials inventory in order to maximize the
              profitability.
  5
 
 **Investing
            activities**
 
 Net
              cash
              used in investing activities was $3.0 million for the three months
              ended March
              31, 2006 compared to $4.8 million used in investing activities in the
              same
              period last year. We have been building a new plant with four new production
              lines next to the existing facility since the third quarter last year.
              As of
              March 31, 2006, We have spent $7.6 million on construction in
              progress.
 
 **Financing
            activities**
 
 Net
              cash
              provided by investing activities was $4.9 million for the three months
              ended
              March 31, 2006 compared to $1.1 million provided by investing activities
              in the
              same period last year. We signed a new borrowing agreement with Shenzhen
              Development Bank to borrow $4,992,000. The proceeds were mainly used
              to pay for
              inventory purchases and the construction of the new plant.
 
 **Compliance
            with environmental laws and regulations**
 
 Based
              on
              the equipment, technologies and measures adopted, we are not considered
              a
              high-pollution factory in China. The production process does not need
              much water
              and produces only a minimal amount of chemical pollution. We use gas-fired
              reheat furnaces recommended by the State Environmental Protection Agency
              to heat
              our raw materials and semi-finished products.
 
 In
              2005,
              the Daqiuzhuang County ordered an environmental clean-up campaign and
              required
              harmless waste water discharge. In order to meet these requirements,
              we invested
              $94,190 to remodel our industrial water recycling system to reduce
              new water
              consumption and industrial water discharge. This wastewater recycling
              system is
              able to process 350 tons of wastewater daily. We can realize approximately
              $10,000 savings per year using this system. As for the remodeling of
              gas furnace
              and desulphurization of discharged gas, the local government has not
              posted any
              control measures currently and we have no plans to proceed with this
              remodeling
              until such time regulations are mandated.
 
 We
              believe that future costs relating to environmental compliance will
              not have a
              material adverse effect on our financial position. There is always
              the
              possibility, however, that unforeseen changes, such as new laws or
              enforcement
              policies, could result in materially adverse costs.
 
 **Impact
            of inflation**
 
 We
              are
              subject to commodity price risks arising from price fluctuations in
              the market
              prices of the raw materials. We have generally been able to pass on
              cost
              increases through price adjustments. However, the ability to pass on
              these
              increases depends on market conditions driven by the overall economic
              conditions
              in China. We manage the price risks through productivity improvements
              and
              cost-containment measures.
 
 Management
            does not believe that inflation risk is material to our business or our
            financial position, results of operations or cash flows.
 
 **Off-balance
            sheet arrangements**
 
 There
            are
            currently no off-balance sheet arrangements.
 
 **OUTLOOK**
 
 Certain
            statements contained herein constitute "forward-looking statements" within
            the
            meaning of the Private Securities Litigation Reform Act of 1995. Such
            forward-looking statements involve known and unknown risks, uncertainties
            and
            other factors, which may cause the actual results, performance or achievements
            of General Steel Holdings, Inc. ("the Company”) or industry results, to be
            materially different from any future results, performance, or achievements
            expressed or implied by such forward-looking statements. The Company's
            future
            operating results are dependent upon many factors, including but not
            limited to
            the risk factors discussed in this periodic report and developments beyond
            the
            Company's control as well as other risk factors discussed in the Company's
            periodic filings with the Securities and Exchange Commission which are
            available
            for review at www.sec.gov under "Search for Company Filings."
  6
 
 We
            are
            expecting strong results in the second quarter of 2006 as shipments and
            average
            realized prices are expected to improve compared to the first quarter
            of 2006.
            Due to our new plant’s full operation in the second quarter of 2006, we expect a
            considerable jump on the sales volume compared to the same period of
            2005. In
            addition, our selection of steel strip as our new raw materials could
            also
            increase our productivity and reduce manufacturing costs.
 
 **ACCOUNTING
            STANDARDS**
 
 CRITICAL
            ACCOUNTING POLICIES
 
 Management's
            discussion and analysis of its financial condition and results of operations
            are
            based upon our consolidated financial statements, which have been prepared
            in
            accordance with accounting principles generally accepted in the United
            States.
            Our financial statements reflect the selection and application of accounting
            policies which require management to make significant estimates and judgments.
            See note 2 to our consolidated financial statements, "Summary of Significant
            Accounting Policies." Management bases its estimates on historical experience
            and on various other assumptions that are believed to be reasonable under
            the
            circumstances. Actual results may differ from these estimates under different
            assumptions or conditions. We believe that the following reflect the
            more
            critical accounting policies that currently affect our financial condition
            and
            results of operations.
 
 Revenue
            recognition
 
 The
            Company recognizes revenue when the goods are delivered and title has
            passed.
            Sales revenue represents the invoiced value of goods, net of a value-added
            tax
            (VAT). All of the Company’s products that are sold in the PRC are subject to a
            Chinese value-added tax at a rate of 17% of the gross sales price. This
            VAT may
            be offset by VAT paid by the Company on raw materials and other materials
            included in the cost of producing their finished product.
 
 Use
            of
            estimates
 
 The
            preparation of financial statements in conformity with generally accepted
            accounting principles of the United States of America requires management
            to
            make estimates and assumptions that affect the amounts reported in the
            combined
            financial statements and accompanying notes. Management believes that
            the
            estimates utilized in preparing its financial statements are reasonable
            and
            prudent. Actual results could differ from these estimates.
 
 Inventories
 
 We
            record
            reserves against our inventory to provide for estimated obsolete or unsalable
            inventory based on assumptions about future demand for its products and
            market
            conditions. If future demand and market conditions are less favorable
            than
            management's assumptions, additional reserve could be required. Likewise,
            favorable future demand and market conditions could positively impact
            future
            operating results if previously reserved for inventory is sold.
 
 ITEM
                4.
                CONTROLS AND PROCEDURES
 
 As
                of the
                end of the period covered by this report, General Steel’s management carried out
                an evaluation, with the participation of General Steel’s principal executive
                officer and principal financial officer, of the effectiveness of
                General Steel’s
                disclosure controls and procedures (as defined in Rules 13a-15(e)
                and 15d-15(e)
                promulgated under the Securities Exchange Act of 1934). Based upon
                that
                evaluation, General Steel’s principal executive officer and principal financial
                officer concluded that General Steel’s disclosure controls and procedures were
                effective as of the end of the period covered by this report.
 
 There
                were no changes in General Steel’s internal controls over financial reporting
                that occurred during General Steel’s most recent fiscal quarter that have
                materially affected, or are reasonably likely to materially affect,
                General
                Steel’s internal control over financial reporting.
 7





ITEM
      6.
      EXHIBITS




(a)
      Exhibits





31.1
      Certification of Chief Executive Officer;




31.2
      Certification of Chief Financial Officer;




32.1
      Certification of Chief Executive Officer; and




32.2
      Certification of Chief Financial Officer.





8


SIGNATURES





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


General
                Steel Holdings, Inc.
              (Registrant)Date:
                February 12, 2007
            By:
            /s/
              Zuo
              Sheng YuZuo
                Sheng YuChief
                Executive Officer and President




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




9