UNITED
              STATES
 SECURITIES
              AND EXCHANGE COMMISSION
 WASHINGTON,
              DC 20549
 
 FORM
              10-Q
 
 ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE ACT
              OF 1934.
 
 For
              the
              quarterly period ended June 30, 2006
 
  ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
              ACT OF
              1934
 
 For
              the
              transition period from __________ to __________
 
 333-105903 Commission
              File Number:
  GENERAL
              STEEL HOLDINGS, INC.
 (Exact
              name of registrant as specified 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)
 
 Tel.
              +86(10) 58797346
 (Registrant’s
              telephone number, including area code)
 
 Indicate
              by check mark whether the registrant (1) has filed all reports required
              to be
              filed by Section 13 or 15(d) of the 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 August 11, 2006 was
              32,426,665.
 
 
 
 **Table
              of Content**
   **Part I**Item 1. Financial Information
                    
                    1Item
                      2. Management's Discussion and Analysis of Financial Condition
                      and Results
                      of Operations
                    
                    22Item
                      3. Quantitative and Qualitative Disclosures About Market
                      Risk
                    
                    29Item
                      4. Controls and Procedures
                    
                    29**Part
                      II**
                    
                    30Item
                      1. Legal Proceedings
                    
                    30Item
                      1A. Risk Factors
                    
                    30Item
                      2. Unregistered Sales of Equity Securities and Use of
                      Proceeds
                    
                    38Item
                      3. Defaults Upon Senior Securities
                    
                    38Item
                      4. Submission of Matters to a Vote of Security Holders
                    
                    38Item
                      5. Other Information
                    
                    38Item
                      6. Exhibits
                    
                    38
   
  **PART
              I - FINANCIAL INFORMATION**
 
 Certain
              financial information included in this quarterly report has been derived
              from
              data originally prepared in Renminbi ("RMB"), the currency of the People's
              Republic of China ("China" or "PRC"). For the purposes of this quarterly
              report,
              the balance sheet amounts with the exception of equity at June 30,
              2006 were
              translated at 7.99 RMB to $1.00 USD as compared to 8.26 RMB at June
              30,
              2005.  The equity accounts were stated at their historical rate.  The
              average translation rate of 8.03 RMB for the six months ended June
              30, 2006 was
              applied to income statement accounts.
  **Item
              1. Financial Statements**


GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  BALANCE SHEETSAS
                  OF JUNE 30, 2006 AND DECEMBER 31, 2005A
                  S S E T SJune
                  30,
                2006
              
              December
                  31,
                2005(Unaudited)CURRENT
                  ASSETS:Cash
              
              $
              2,506,063
              
              $
              8,648,373Restricted
                  cash
              
              
              2,479,335
              
              
              2,735,583Accounts
                  receivable, net of allowance for doubtful accountsof
                  $1,414 and $1,371 as of June 30, 2006 and December 31,
                  2005
              
              
              4,254,287
              
              
              993,417Notes
                  receivables
              
              
              568,784
              
              
              4,960Note
                  receivables - related party
              
              
              2,005,138
              
              
              2,976,000Other
                  receivables
              
              
              91,967
              
              
              109,769Other
                  receivables- related party
              
              
              970,000Inventories
              
              
              23,866,808
              
              
              10,730,941Advances
                  on inventory purchases
              
              
              6,861,664
              
              
              10,716,293Short-term
                  investment
              
              
              37,560
              
              
              37,200Prepaid
                  expenses - current
              
              
              65,273
              
              
              64,647Total
                  current assets
              
              
              43,706,879
              
              
              37,017,183PLANT
                  AND EQUIPMENT, net
              
              
              22,892,288
              
              
              18,213,872OTHER
                  ASSETS:Advances
                  on equipment purchases
              
              
              -
              
              
              1,053,169Prepaid
                  expenses - non current
              
              
              785,176
              
              
              669,460Intangible
                  assets - land use right, net of accumulated amortization
              
              
              1,910,742
              
              
              2,039,532Total
                  assets
              
              $
              69,295,085
              
              $
              58,993,216L
                  I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T
                  YCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              4,138,593
              
              $
              823,760Short
                  term loans - bank
              
              
              31,368,860
              
              
              27,118,800Short
                  term notes payable
              
              
              4,957,920
              
              
              5,406,400Other
                  payables
              
              
              313,236
              
              
              69,667Other
                  payable - related party
              
              
              -
              
              
              980,000Accrued
                  liabilities
              
              
              1,692,917
              
              
              916,957Customer
                  deposits
              
              
              1,966,463
              
              
              1,276,536Deposits
                  due to sales representatives
              
              
              1,712,736
              
              
              1,261,080Taxes
                  payable
              
              
              2,613,393
              
              
              1,682,330Total
                  current liabilities
              
              
              48,764,118
              
              
              39,535,530SHARES
                  SUBJECT TO MANDATORY REDEMPTION
              
              
              1,950,327
              
              
              1,720,875Total
                  liabilities
              
              
              50,714,445
              
              
              41,256,405MINORITY
                  INTEREST
              
              
              5,709,216
              
              
              5,387,026SHAREHOLDERS'
                  EQUITY:Common
                  Stock, $0.01 par value, 75,000,000 shares authorized,31,250,000
                  shares issued and outstanding
              
              
              31,250
              
              
              31,250Paid-in-capital
              
              
              6,871,358
              
              
              6,871,358Retained
                  earnings
              
              
              4,546,239
              
              
              4,207,236Statutory
                  reserves
              
              
              840,753
              
              
              840,753Accumulated
                  other comprehensive income
              
              
              581,824
              
              
              399,188Total
                  shareholders' equity
              
              
              12,871,424
              
              
              12,349,785Total
                  liabilities and shareholders' equity
              
              $
              69,295,085
              
              $
              58,993,216




-
          1 -





GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                  THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2006 AND
                  2005(Unaudited)Three
                    months ended
                    June
                      30
              
              Six
                  months ended
                June
                  302006
              
              2005
              
              2006
              
              2005REVENUES
              $
              29,398,358
              
              $
              25,290,342
              
              $
              50,040,860
              
              $
              45,989,076COST
                  OF SALES
              
              27,807,959
              
              
              21,448,304
              
              
              47,082,163
              
              
              40,276,856GROSS
                  PROFIT
              
              1,590,399
              
              
              3,842,038
              
              
              2,958,697
              
              
              5,712,220SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              807,633
              
              
              587,172
              
              
              1,549,811
              
              
              1,240,643INCOME
                  FROM OPERATIONS
              
              782,766
              
              
              3,254,866
              
              
              1,408,886
              
              
              4,471,577OTHER
                  EXPENSE, NET
              
              (587,552
              )
              
              (444,649
              )
              
              (747,693
              )
              
              (860,396
              )INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              195,214
              
              
              2,810,217
              
              
              661,193
              
              
              3,611,181AND
                  MINORITY INTERESTPROVISION
                  FOR INCOME TAXES
              
              
              
              
              972,293
              
              
              
              
              
              1,266,996NET
                  INCOME BEFORE MINORITY INTEREST
              
              195,214
              
              
              1,837,924
              
              
              661,193
              
              
              2,344,185LESS
                  MINORITY INTEREST
              
              108,616
              
              
              571,896
              
              
              322,190
              
              
              771,716NET
                  INCOME
              
              86,598
              
              
              1,266,027
              
              
              339,003
              
              
              1,572,470OTHER
                  COMPREHENSIVE INCOME (LOSS):Foreign
                  currency translation adjustment
              
              61,231
              
              
              
              
              
              182,636COMPREHENSIVE
                  INCOME
              $
              147,829
              
              $
              1,266,027
              
              $
              521,639
              
              $
              1,572,470WEIGHTED
                  AVERAGE NUMBER OF SHARES
              
              31,250,000
              
              
              31,250,000
              
              
              31,250,000
              
              
              31,250,000EARNING
                  PER SHARE, BASIC AND DILUTED
              $
              0.004
              
              $
              0.04
              
              
              0.02
              
              $
              0.05




-
          2 -





GENERAL
                    STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                    STATEMENTS OF SHAREHOLDERS' EQUITYFOR
                    THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005Number
                      of shares
                
                Common
                  stock
                
                Paid-in
                    capital
                
                Statutory
                    reserves
                
                Retained
                    earnings
                
                Accumulated
                    other
                    comprehensive
                    income
                      (loss)
                
                Totals(Restated)
                
                
                
                (Restated)BALANCE,
                    January 1, 2005
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358
                
                $
                154,794
                
                $
                2,152,976
                
                $
                
                
                $
                9,210,378Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,572,470
                
                
                
                
                
                1,572,470BALANCE,
                    June 30, 2005 (Unaudited)
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358
                
                $
                154,794
                
                $
                3,725,446
                
                $
                
                
                $
                10,782,848Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,167,749
                
                
                
                
                
                1,167,749Adjustment
                    to statutory reserve
                
                
                
                
                
                
                
                
                
                
                
                685,959
                
                
                (685,959
                )Foreign
                    currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                399,188
                
                
                399,188BALANCE,
                    December 31, 2005
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358
                
                $
                840,753
                
                $
                4,207,236
                
                $
                399,188
                
                $
                12,349,785Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                339,003
                
                
                
                
                
                339,003Foreign
                    currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                182,636
                
                
                182,636BALANCE,
                    June 30, 2006 (Unaudited)
                
                
                31,250,000
                
                $
                31,250
                
                $
                6,871,358
                
                $
                840,753
                
                $
                4,546,239
                
                $
                581,824
                
                $
                12,871,424




-
          3 -




GENERAL
                  STEEL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF CASH FLOWSFOR
                  THE SIX MONTHS ENDED JUNE 3, 2006 AND 2005(Unaudited)2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              339,003
              
              $
              1,572,470Adjustments
                  to reconcile net income to cash(used
                  in) provided by operating activities:Minority
                  Interest
              
              
              322,190
              
              
              771,716Depreciation
              
              
              548,685
              
              
              532,574Amortization
              
              
              147,839
              
              
              143,545Loss
                  (gain) on disposal of equipment
              
              
              28,859
              
              
              34,205Interest
                  expense accrued on mandatory redeemable stock
              
              
              229,452
              
              
              -(Increase)
                  decrease in assets:Accounts
                  receivable
              
              
              (3,236,194
              )
              
              357,279Notes
                  receivable
              
              
              (561,164
              )
              
              (12,160,048
              )Notes
                  receivable-related party
              
              
              995,031Other
                  receivables
              
              
              18,777
              
              
              13,088Other
                  receivables -related party
              
              
              (970,000
              )Inventories
              
              
              (12,971,648
              )
              
              (1,984,610
              )Advances
                  on inventory purchases
              
              
              3,939,998
              
              
              8,105,211Prepaid
                  expenses - non current
              
              
              (108,732
              )
              
              -Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              3,291,541
              
              
              70,872Other
                  payables
              
              
              242,167
              
              
              286,014Other
                  payable - related party
              
              
              (980,000
              )
              
              (831,012
              )Accrued
                  liabilities
              
              
              763,533
              
              
              (52,933
              )Customer
                  deposits
              
              
              674,434
              
              
              4,040,738Taxes
                  payable
              
              
              910,544
              
              
              719,509Net
                  cash (used in) provided by operating activities
              
              
              (6,375,685
              )
              
              1,618,618CASH
                  FLOWS FROM INVESTING ACTIVITIES:Restricted
                  cash
              
              
              256,248
              
              
              692,493Advances
                  on equipment purchases
              
              
              1,058,435Purchase
                  of equipment
              
              
              (5,058,840
              )
              
              (220,708
              )Deposits
                  due to sales representatives
              
              
              437,416
              
              
              240,790Net
                  cash (used in) provided by investing activities
              
              
              (3,306,741
              )
              
              712,575CASH
                  FLOWS FINANCING ACTIVITIES:Borrowings
                  on short term loans-bank
              
              
              14,125,677
              
              
              15,959,900(Payments)
                  on short term loans-bank
              
              
              (10,156,530
              )
              
              (14,641,000
              )Borrowings
                  on short term notes payable
              
              
              10,542,852
              
              
              5,880,600(Payments)
                  on short term notes payable
              
              
              (11,041,332
              )
              
              (6,776,000
              )Net
                  cash provided by financing activities
              
              
              3,470,667
              
              
              423,500EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              69,449
              
              
              -(DECREASE)
                  INCREASE IN CASH
              
              
              (6,142,310
              )
              
              2,754,693CASH,
                  beginning of period
              
              
              8,648,373
              
              
              5,547,810CASH,
                  end of period
              
              $
              2,506,063
              
              $
              8,302,503




-
          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.,
      Ltd. are the historical financial statements of the Company, formerly the
      operations of Daqiuzhuang Metal Sheet Co., Ltd.





Based
      on
      the Company's Plan of Merger with General Steel Investment Co., Ltd., the Board
      of Directors determined to change the Registrant's fiscal year end from January
      31 to December 31.






The
      Company through its subsidiary Daqiuzhuang Metal principally engages in the
      manufacturing of hot rolled carbon and silicon steel sheets which are mainly
      used on tractors, agricultural vehicles and in other specialty markets. The
      Company sells its products through both retailers and wholesalers.




-
          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 - 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.




-
          6 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      2 - 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 $182,636
      an d
      $0 as
      of June 30, 2006 and 2005, respectively. The balance sheet amounts with the
      exception of equity at June 30, 2006 were translated at 7.99 RMB to $1.00 USD
      as
      compared to 8.26 RMB at June 30, 2005. The equity accounts were stated at their
      historical rate. The average translation rate of 8.03 RMB for the six months
      ended June 30, 2006 was applied to income statement accounts.





Plant
      and equipment, net





Plant
      and
      equipment are stated at cost less accumulated depreciation. Depreciation is
      computed using the straight-line method over the estimated useful lives of
      the
      assets with 3% residual value. The depreciation expense for the six months
      ended
      June 30, 2006 and 2005 amounted to
      $548,685 and $532,574, respe ctively.





Estimated
      useful lives of the assets are as follows:


EstimatedUseful
                  LifeBuildings
              
              10-30
                  yearsMachinery
                  and equipment
              
              8-15
                  yearsOther
                  equipment
              
              5-8
                  yearsTransportation
                  equipment
              
              10-15
                  years





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.





-
          7 -





GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      2 - 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 June 30, 2006, the Company expects these assets to be fully
      recoverable.





Plant
      and
      equipment consisted of the following:





June
                  30,
                2006
              
              December
                  31,
                2005UnauditedBuildings
                  and improvements
              
              $
              8,345,653
              
              $
              5,391,378Transportation
                  equipment
              
              
              859,303
              
              
              485,699Machinery
              
              
              18,901,934
              
              
              12,752,995Construction
                  in progress
              
              
              -
              
              
              4,231,318Totals
              
              
              28,106,890
              
              
              22,861,390Less
                  accumulated depreciation
              
              
              5,214,602
              
              
              4,647,518Totals
              
              $
              22,892,288
              
              $
              18,213,872




Use
      of
      estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles of the United States of America requires management to
      make estimates and assumptions that affect the amounts reported in the combined
      financial statements and accompanying notes. Management believes that the
      estimates utilized in preparing its financial statements are reasonable and
      prudent. Actual results could differ from these estimates.





Cash
      and concentration of risk





Cash
      includes cash on hand and demand deposits in accounts maintained with
      state **** owned
      banks within the People’s Republic of China and Hong Kong. Total cash (including
      restricted cash balances) in these banks at June 30, 2006 and December 31,
      2005,
      amounted to $4,283,206 and $11,446,120, respectively of which no deposits are
      covered by insurance. The Company has not experienced any losses in such
      accounts and believes it is not exposed to any risks on its cash in bank
      accounts.





Restricted
      cash





The
      Company through its bank agreements is required to keep certain amounts on
      deposit that are subject to withdrawal restrictions and these amoun ts
      are
      $2,479,335 and
      $2,735,583 as of June 30, 2006 and December 31, 2005, respectively.




-
          8 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




**Note
      2 - 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:


June
                  30,
                2006
              
              December
                  31,
                2005UnauditedSupplies
              
              $
              1,182,711
              
              $
              1,524,332Raw
                  materials
              
              
              1,366,694
              
              
              1,195,022Finished
                  goods
              
              
              21,317,403
              
              
              8,011,587Totals
              
              $
              23,866,808
              
              $
              10,730,941




Inventories
      consist of supplies, raw materials and finished goods. Raw materials consist
      primarily of iron and steel used in production. The cost of finished goods
      included direct costs of raw materials as well as direct labor used in
      production. Indirect production costs such as utilities and indirect labor
      related to production such as assembling, shipping and handling costs are also
      included in the cost of inventory. No work in process inventory existed at
      June
      30, 2006 and December 31, 2005, as all inventory in process was completed and
      transferred to finished goods prior to the physical inventory count. The Company
      reviews its inventory annually for possible obsolete goods or to determine
      if
      any reserves are necessary for potential obsolescence. As of June 30, 2006
      and
      December 31, 2005, the Company has determined that no reserves are
      necessary.





Financial
      instruments





Statement
      of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
      Value of Financial Instruments” requires disclosure of the fair value of
      financial instruments held by the Company. 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.





-
          9 -





GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      2 - 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
      ten-year business term. Daqiuzhuang Metal became Sino Joint Venture in 2004
      as
      discussed in Note 1 and obtained a new business license for twenty years;
      however, the Company decided to continue amortizing the land use rights over
      the
      original ten-year business term.





As
      of
      June 30, 2006 and December 31, 2005, accumulated amortization amounted to
      $1,059,812 and $902,550. The costs of these rights are being amortized over
      ten
      years using the straight-line method.





Intangible
      assets of the Company are reviewed annually as to whether their carrying value
      has become impaired. The Company considers assets to be impaired if the carrying
      value exceeds the future projected cash flows from related operations. The
      Company also re-evaluates the periods of amortization to determine whether
      subsequent events and circumstances warrant revised estimates of useful lives.
      As of June 30, 2006, the Company expects these assets to be fully
      recoverable.





Total
      amortization expense for the six months ended June 30, 2006 and 2005, amounted
      to $147,839 and $143,545, respectively.





Shares
      subject to mandatory redemption





The
      Company has adopted Statement of Financial Accounting Standards No. 150, “Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity”. FAS 150 established classification and measurement standards for three
      types of freestanding financial instruments that have characteristics of both
      liabilities and equity. Instruments within the scope of FAS 150 must be
      classified as liabilities within the Company’s Consolidated Financial Statements
      and be reported at settlement date value. The provisions of FAS 150 are
      effective for (1) instruments entered into or modified after May 31, 2003,
      and
      (2) pre-existing instruments as of July 1, 2003. In November 2003, through
      the
      issuance of FSP 150-3, the FASB indefinitely deferred the effective date of
      certain provisions of FAS 150, including mandatory redeemable instruments as
      they relate to minority interests in consolidated finite-lived
      entities.





The
      Company issued new redeemable stock in September, 2005. The amount is presented
      as a liability on balance sheet at the fair market value on the date of issuance
      plus any interest amortized to the balance sheet date, see note 19.




-
          10 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      2 - 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
      June 30, 2006 and December 31, 2005.





The
      charge for taxation is based on the results for the year as adjusted for items,
      which are non-assessable or disallowed. It is calculated using tax rates that
      have been enacted or substantively enacted by the balance sheet
      date.





Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit.





In
      principle, deferred tax liabilities are recognized for all taxable temporary
      differences, and deferred tax assets are recognized to the extent that it is
      probably that taxable profit will be available against which deductible
      temporary differences can be utilized.





Deferred
      tax is calculated at the tax rates that are expected to apply to the period
      when
      the asset is realized or the liability is settled. Deferred tax is charged
      or
      credited in the income statement, except when it related to items credited
      or
      charged directly to equity, in which case the deferred tax is also dealt with
      in
      equity.





Deferred
      tax assets and liabilities are offset when they relate to income taxes levied
      by
      the same taxation authority and the Company intends to settle its current tax
      assets and liabilities on a net basis.





Under
      the
      Income Tax Laws of PRC, the Company is generally subject to an income tax at
      an
      effective rate of 33% (30% state income taxes plus 3% local income taxes) on
      income reported in the statutory financial statements after appropriate tax
      adjustments, unless the enterprise is located in a specially designated region
      where it allows foreign enterprises a two-year income tax exemption and a 50%
      income tax reduction for the following three years.





-
          11 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      2 - Summary of significant accounting policies,
      (continued)**





Income
      taxes, continued





The
      Company’s subsidiary, Daqiuzhuang Metal Sheet Co., Ltd., became a Chinese
      Sino-foreign joint venture at the time of the merger on October 14, 2004 and
      it
      became eligible to receive a tax benefit. The Company is exempt from income
      taxes for the years ended December 31 ô 2005
      and
      2006 and 50% income tax reduction for the years ended December 31, 2007, 2008
      and 2009. The Company received the tax exemption approval from the local tax
      authorities during the last quarter of 2005 and the Company had been recording
      a
      provision for income taxes for the first three quarters of 2005. During the
      last
      quarter of 2005 the Company reversed the provision for income taxes once they
      received the approval from the local tax authorities. The local Chinese tax
      authority waived the previously accrued tax accumulated prior to January 1,
      2005
      in the amount of $253,250 which was recorded as other nonoperating income for
      the six months ended June 30, 2006 for previously accrued income taxes.





The
      provision for income taxes for the period ended June 30 consisted of the
      following:


2006
              
              2005Unaudited
              
              UnauditedProvision
                  for China Income Tax
              
              $
              -
              
              $
              265,231Provision
                  for China Local Tax
              
              
              -
              
              
              29,470Total
                  provision for income taxes
              
              $
              -
              
              $
              294,701




The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the six months ended June 30:


2006
              
              2005U.S.
                  statutory rates
              
              
              34.0
              %
              
              34.0
              %Foreign
                  income not recoginized in USA
              
              
              (34.0
              )
              
              (34.0
              )China
                  income taxes
              
              
              -
              
              
              33.0Total
                  provision for income taxes
              
              
              -
              %
              
              33.0
              %




The
      estimated tax savings for the six months ended June 30, 2006 amounted to
      $354,409. The net effect on earnings per share had the income tax been applied
      would decrease earnings per share from $0.02 to $0.01.





Value
      added tax





Enterprises
      or individuals who sell commodities, engage in repair and maintenance or import
      and export goods in the PRC are subject to a value added tax in accordance
      with
      Chinese laws. The value added tax standard rate is 17% of the gross sales price.
      A credit is available whereby VAT paid on the purchases of semi-finished
      products or raw materials used in the production of the Company’s finished
      products can be used to offset the VAT due on sales of the finished
      product.





-
          12 -




GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




**Note
      2 - Summary of significant accounting policies,
      (continued)**





Value
      added taxes, continued





Taxes
      payable consisted of the followings:





June
                  30,
                2006
              
              December
                  31,
                2005UnauditedVAT
                  taxes payable
              
              $
              2,611,609
              
              $
              1,290,982Income
                  taxes payable
              
              
              -
              
              
              385,510Misc
                  taxes
              
              
              1,784
              
              
              5,838Totals
              
              $
              2,613,393
              
              $
              1,682,330








Recently
      issued accounting pronouncements





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
      for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
      No. 140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
      simplify the accounting for certain hybrid instruments by permitting fair value
      remeasurement for any hybrid financial instrument that contains an embedded
      derivative, as well as, clarifies that beneficial interests in securitized
      financial assets are subject to FAS 133. In addition, FAS 155 eliminates a
      restriction on the passive derivative instruments that a qualifying
      special-purpose entity may hold under FAS 140. FAS 155 is effective for all
      financial instruments acquired, issued or subject to a new basis occurring
      after
      the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. The adoption of SFAS No. 155 is not expected to have a
      material effect on the Company’s financial position or results of
      operations.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“FAS 156”), which amends SFAS No. 140. FAS 156 specifically
      provides guidance addressing the recognition and measurement of separately
      recognized servicing assets and liabilities, common with mortgage securitization
      activities, and provides an approach to simplify efforts to obtain hedge
      accounting treatment. FAS 156 is effective for all separately recognized
      servicing assets and liabilities acquired or issued after the beginning of
      an
      entity’s fiscal year that begins after September 15, 2006, with early
      adoption being permitted. The adoption of SFAS No. 156 is not expected to have
      a
      material effect on the Company’s financial position or results of
      operations.





-
          13 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Recently
      issued accounting pronouncements , continued





In
      July
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in a company’s financial statements in accordance with FAS 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. FIN 48 also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The requirements
      of
      FIN 48 are effective for our fiscal year beginning January 1, 2007. The
      adoption of this interpretation is not expected to have a material effect on
      the
      Company’s financial position or results of operations.





**Note
      3 - Consolidated financial statements and condensed
      footnotes**





The
      interim consolidated financial statements presented herein have been prepared
      by
      the Company and include the unaudited accounts of the Company and its
      subsidiaries. All significant inter-company accounts and transactions have
      been
      eliminated in the consolidation.





These
      consolidated financial statements have been prepared in accordance with
      generally accepted accounting principles in the United States for interim
      financial information and the instructions for Form 10-Q and Article 10 of
      Regulation S-X.





Certain
      information and footnote disclosures that are normally included in financial
      statements presented in accordance with generally accepted accounting principles
      have been condensed or omitted. Management of the Company believes the
      disclosures made are adequate to make the information presented not misleading.
      The condensed consolidated financial statements should be read in conjunction
      with the Company’s audited financial statements included in its Annual Report on
      Form 10-K dated March 31, 2006.





In
      the
      opinion of management, the unaudited consolidated financial statements reflect
      all adjustments (which include only normal recurring adjustments) necessary
      to
      present fairly the financial position of the Company as of June 30, 2006 and
      December 31, 2005, and the results of operations, changes in shareholders’
equity and cash flows for the six months ended June 30, 2006 and 2005. Interim
      results are not necessarily indicative of full year performance because of
      the
      impact of seasonal and short-term variations.






-
          14 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note
      4 - Earnings per
      share




The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128, "Earnings Per Share." SFAS No. 128 requires presentation of basic and
      diluted earnings per share in conjunction with the disclosure of the methodology
      used in computing such earnings per share. Basic earnings per share excludes
      dilution and is computed by dividing income available to common stockholders
      by
      the weighted average common shares outstanding during the period. Diluted
      earnings per share takes into account the potential dilution that could occur
      if
      securities or other contracts to issue common stock were exercised and converted
      into common stock.




Under
      SFAS 150 " Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity", entities
      that have issued mandatory redeemable shares of common stock or entered into
      forward contracts that require physical settlement by repurchase of a fixed
      number of the issuer’s equity shares of common stock in exchange for cash shall
      exclude the common shares that are to be redeemed or repurchased in calculating
      basic and diluted earnings per share. Thus the 1,176,665 shares described in
      no te
      18
      have been excluded from the earnings per share calculation.






The
      weighted average number of shares used to calculate EPS for the six months
      ended
      June 30, 2006 (31,250,000), 2005 (31,250,000) reflect only the shares
      outstanding for those periods.




**Note
      5 - Supplemental disclosure of cash flow information**





Interest
      paid amounted to $993,519 and $883,110 for the six months ended June 30, 2006
      and 2005, respectively.





Income
      tax payments amounted
      to $0 and $485,615 for the six months ended June 30, 2006 and 2005,
      respectively.





**Note
      6 - Accounts receivable and allowance for doubled accounts**





The
      Company conducts its business operations in the People’s Republic of China.
      Account receivables include trade accounts due from the customers. Management
      believes that the trade accounts are fully collectible as these amounts are
      being collected throughout the year. Also, management reviews its accounts
      receivable on a regular basis to determine if the bad debt allowance is adequate
      and adjusts the allowance amount at the year end. The allowance for doubtful
      accounts as of June 30, 2006 and December 31, 2005 amounted to $1,414 and $1,371
      respectively.






-
          15 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note
      7 - Notes receivable and note receivable
      - related party




Notes
      receivable represents trade accounts receivable due from various customers
      where
      the customers’ bank has guaranteed the payment of the receivable. This amount is
      non-interest bearing and is normally paid within three to six months. The
      Company has the ability to submit their request for payment to the customer’s
      bank earlier than the scheduled payment date. However the Company will incur
      an
      interest charge and a processing fee when they submit a payment request early.
      The Company had $568,784
      and $4,960 outstand ing
      as of
      June 30, 2006 and December 31, 2005, respectively.





The
      note
      receivable from related party represents a note from Yang Pu Automotive
      Investment Limited for business purpose on November 15, 2005. The note is in
      the
      amount of RMB 24,000,000, translated to $2,995,200, for one year with an
      interest rate at 7% and due at maturity. On June 26, 2006, Yang Pu Automotive
      Investment Limited paid $999,662 towards the principal of the loan. The Company
      will calculate the interest based on the new balance. The Company periodically
      reviews the financial statements of Yang Pu Automotive Investment Limited to
      determine its ability to repay the debt.





**Note
      8 - Prepaid expenses**





Prepaid
      expenses at June 30, 2006 consisted of the followings:


Current
              
              Long-term
              
              TotalRent
              
              $
              45,072
              
              $
              291,991
              
              $
              337,063Land
                  use right
              
              
              20,201
              
              
              493,185
              
              
              513,386Total
              
              $
              65,273
              
              $
              785,176
              
              $
              850,449




The
      Company rented a dormitory for its employees during 2005. The rent is for ten
      years starting on January 1, 2006 at RMB 90,000 per quarter or RMB 360,000
      per
      year. The Company's prepayment at June 30, 2006 a mounted
      to RMB 3,034,000 or $337,063.





The
      Company also entered into another rental agreement on July 21, 2005 to rent
      the
      land use right for its manufacture expansion. The total amount of the rental
      is
      RMB 8,067,400 for a period of 50 years starting on September 1, 2005. The
      Company made a prepayment of RMB 4,234,981 or $528,505 and prepaid balance
      remained at June 30, 2006 amoun ted
      to
      RMB 4,194,644 or $513,386.





**Note
      9 - 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.




-
          16 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      9 - Advances on inventory purchases (continued)**





This
      amount is refundable and bears no interest. The Company has a legal binding
      contract with their vendors for the guarantee deposit, which is to be returned
      to the Company at the end of the contract. The inventory is normally delivered
      within one month
      after the monies has been advanced. The total outstanding amount was $6,861,664
      and $10,716,293 as of June 30, 2006 and December 31, 2005,
      respectively.





**Note
      10 - Related party transactions**





The
      Company has a short term loan from Golden Glister Holdings Limited. Golden
      Glister holdings limited is incorporated in the territory of the British Virgin
      Islands which our president Yu Zuo Sheng is the majority shareholder. The amount
      was loaned to General Steel Investment Co., Ltd. for business operations. In
      the
      second quarter of 2006, General Steel Investment Co., Ltd. advanced $1,300,000
      to Golden Glister Holdings Limited for its operations. Golden Glister has agreed
      to pay back the amount in short term. The Compan y
      has a
      receivable from Golden Glister for $970,000 and a payable to Golden Glister
      for
      $980,000 as of June 30, 2006 and December 31, 200 5,
      respectively. These receivable and payable are short-term and are non interest
      bearing.





**Note
      11 - Short term loans - bank**





Short
      term loans - bank represent amounts due to various banks which are due on demand
      or normally within one year. These loans can be renewed, are short term bearing
      no interest and has not due date. The table below summarizes the loans
      outstanding at June 30, 2006 and December 31, 2005.





-
          17 -




GENERAL
      STEEL HOLDINGS, INC. AND SUBSIDIARIES


CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Notes
                  11- Short term loans- bank (continued)**June
                  30,
                2006
              
              December
                    31,
                  2005UnauditedLoans
                  from China Bank, JingHai Branch,dueNovember
                  2006. Monthly interest only payment at6.138%
                  per annum, secured by equipmentand
                  property
              
              $
              1,126,800
              
              $
              1,116,000Loans
                  from Agriculture Bank, DaQiuZhuang Branch, duevarious
                  dates from October 2006 to April 2007.Monthly
                  interest only payments in 2005 ranging fromfrom6.696%
                  to 6.975% per annum, guaranteed by anunrelated
                  third party and secured by property andequipment
              
              
              9,771,860
              
              
              10,068,800Loan
                  from Construction Bank of China, JinHai Branch, dueAugust
                  15,
                  2006.
                  Monthly interst only payment at7.4604%
                  per annum, secured by properties
              
              
              1,014,120
              
              
              1,004,400Loans
                  from ShangHai PuFa Bank, due various dates fromJuly2006to
                  March 2007.Monthly interest onlypayments
                  ranging from6.138%
                  to 6.42% per month,guaranteed
                  by an unrelated thirdparty
              
              
              6,260,000
              
              
              6,200,000Loans
                  fromChina
                  MerchantsBank, due various dates fromAugust2006toJune2007.Quarterly
                  interest onlypayments,
                  annual interest rate of 5.859%
                  to6.1425%,guaranteed
                  by an unrelated thirdparty
              
              
              7,512,000
              
              
              8,060,000Loan
                  from Construction Bank of China, dueAugust
                  21,
                  2006Monthly
                  interest only payment at7.4604%per annum,guaranteed
                  by an unrelated third party
              
              
              676,080
              
              
              669,600Loans
                  from Shenzhen Development Bank, Tianjin Branchdue
                  various datesfrom February to March 2007Quarterly
                  interest only payments rangingfrom
                  5.856% to 5.859%, secured by inventories
              
              
              5,008,000
              
              
              -Totals
              
              $
              31,368,860
              
              $
              27,118,800





-
          18 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      12 - Short term notes payable**





Short-term
      notes payable are lines of credit extended by the banks. When purchasing raw
      materials, the Company often issues a short term note payable to the vendor.
      This short term note payable is guaranteed by the bank for its complete face
      value. The banks usually require the Company to deposit a certain amount of
      cash
      deposit at the bank deposit as a guarantee deposit.







The
      Company has the following short term notes payable outstanding as for June
      30,
      2006 and December 31, 2005:


June
                    30,
                  2006
              
              December
                      31,
                    2005UnauditedChina
                  Bank, Jing Hai Branch, various amounts, dueOctober
                  2006, restricted cash required 50% of loanamount,
                  secured by land and property
              
              $
              1,452,320
              
              $
              1,438,400Agricultural
                  Bank of China, various amounts, due datesranging
                  between July and October 2006,restricted
                  cash required of 50% of loan amount,secured
                  by land and property1,001,600
              
              
              1,488,000ShangHai
                  PuFa Bank, due November 2006, restrictedcash
                  required of 50% of loan balance, guaranteedby
                  an unrelated third party
              
              
              2,504,000
              
              
              2,480,000Totals
              
              $
              4,957,920
              
              $
              5,406,400




Total
      interest expense for the six months ending June 30, 2006 and 2005 on all debt
      amounted to $993,519
      and $883,110 ,
      respectively.





**Note
      13 - Customer deposits**





Customer
      deposits represent amounts advanced by customers on product orders. The product
      normally is shipped within six months after receipt of the advance payment
      and
      the related sale is recognized in accordance with the Company’s revenue
      recognition policy. As of June 30, 2006 and December 31, 2005, customer deposits
      amounted to $1,966,463
      and $1,276,536, re spectively.





-
          19 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      14 - Deposits due to sales representatives**





The
      Company has entered into agreements with various entities to act as the
      Company’s exclusive sales agent in a specified area. These exclusive sales
      agents must meet certain criteria and are required to deposit a certain amount
      of money with the Company. In return the sales agents receive exclusive sales
      rights to a specified area and discounted prices on products they order. These
      deposits bear no interest and are required to be returned to the sales agent
      once the agreement has been terminated. The Company had $1,712,736 and
      $1,261,080 in deposits due to sales representatives outstanding as of June
      30,
      2006 and December 31, 2005, respectively.








**Note
      15 - Major customers and suppliers**





The
      Company has 5 major customers which represent approximately 35% and 47% of
      the
      Company’s total sales for the six months ended June 30, 2006 and 2005,
      respectively. The Company did not have any one significant customer that
      represented more than 10% of the total sales for the two quarters ended June
      30,
      2006 and 2005.





For
      the
      six months ended June 30, 2006 and 2005, the Company purchases approximately
      97%
      and 80%, respectively, of their raw materials from four major
      suppliers.





**Note
      16 - Minority interest**





Minority
      interest represents the outside shareholders’ 30% interest in Tianjin
      Daqiuzhuang Metal Sheet Co., Ltd.





**Note
      17 - Other expenses and income, net**





Other
      income and expense for the six months ended June 30 consist of the
      following:


2006
              
              2005Unaudited
              
              UnauditedFinance/interest
                  expense
              
              $
              (1,222,971
              )
              $
              (886,873
              )Interest
                  income
              
              
              133,710
              
              
              30,504Other
                  nonoperating income
              
              
              392,873
              
              
              12,063Other
                  nonoperating expense
              
              
              (51,305
              )
              
              (16,089
              )Total
                  other expense
              
              $
              (747,693
              )
              $
              (860,395
              )






Other
      nonoperating income includes the previously accrued income tax. During 2005,
      the
      company has approved from the P.R.C. local government for two years income
      tax
      exempt and three years of 50% income tax reduction. The
      local
      Chinese tax authority waived the previously accrued tax accumulated prior to
      January 1, 2005 in the amount of $253,250 which was recorded as other
      nonoperating income for the six months ended June 30, 2006 for previously
      accrued income taxes.




-
          20 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      18** **-** **Reclassifications**




Certain
      amounts for the six months ended June 30, 2005 in the accompanying financial
      statements have been reclassified to conform to the 2006 presentation. These
      reclassifications have no effect on net income or cash flows.





**Note
      19 - Private Offering of Redeemable Stock**





The
      Company has offered an aggregate of 3,333,333 shares of Common Stock par value
      $0.001 in a private placement to investors at a purchase price of $1.50 per
      share. On September 18, 2005, the Company entered into a subscription agreement
      with certain investors to sell a total of 1,176,665 shares of common stock
      at
      $1.50 per share. In addition, two warrants are attached to each share of common
      stock and each warrant gives the warrant holder the right to purchase an
      additional share of common stock or a total of 2,353,330 of common stock in
      the
      future. The warrants can be exercised on the second anniversary date at $2.50
      per share and on the third anniversary date at $5.00 per share. The number
      of
      shares attached to the warrants will be adjusted due to dividends and changes
      in
      the capital stock structure changes. At the option of the investors the Company
      maybe required to repurchase the 1,176,665 shares of common stock 18 months
      after the closing date at a per share price of $1.95.





Under
      this private offering, the Company raised a total of $1,765,000 and received
      net
      proceeds of $1,606,150 net of $158,850 of commissions paid.





In
      accordance with Accounting Principles Board Opinion No. 14, the Company
      determined the fair value of the detachable warrants issued with redeemable
      stock using the Black-Scholes option pricing model under the following
      assumptions: risk free interest rate of 3.85%, dividend yield of 0% and
      volatility of 11%. The estimated value of the warrants is zero.





In
      accordance with SFAS 150, the Company has recorded this stock
      issuanc e as
      a
      liability in the financial statements due to the mandatory redemption provision.
      The shares were recorded at fair market value on the date of issuance, which
      is
      the net cash proceeds, plus any accrued interest up to December 31, 2005. The
      difference between the net proceeds, $1,606,150, and the redemption amount,
      $2,294,497, which is $688,347, will be accrued and amortized as interest expense
      over an 18 months period beginning in October 2005 and ending in March 2007.
      The
      following table reconciles the June 30, 2006 carrying amount:


Balance
                  at 12/31/2005
              
              $
              1,720,875Interest
                  amortized during the firstsix
                  months
              
              
              229,452Balace
                  at 6/30/2006
              
              $
              1,950,327




Total
      interest amortized since issuance to June 30, 2006 amounted to $344,178 and
      $344,169 is the remaining amount left to be accrued and amortized through March
      2007.





-
          21 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      19 - Private Offering of Redeemable Stock (continued)**





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. The difference
      between the net present value of redeemable stock on September 30, 2005 and
      the
      net proceeds, which is $475,741, was recorded as decrease in paid-in capital.





**Note
      20 - Retirement plan**





Regulations
      in the People’s Republic of China require the Company to contribute to a defined
      contribution retirement plan for all employees. All Joint Venture employees
      are
      entitled to a retirement pension amount calculated based upon their salary
      at
      their date of retirement and their length of service in accordance with a
      government managed pension plan. The PRC government is responsible for the
      pension liability to the retired staff.





The
      Company became a foreign joint venture entity in the year of 2004. For the
      year
      ended December 31, 2005, it was the first year the Company was required to
      make
      contributions to the state retirement plan at 20% of the employees’ monthly
      salary. Employees are required to contribute 7% of their salary to the plan.
      Total pension expense incurred by the Company amounted to
      $157,178 and $0 for the
      six months ended June 30, 2006 and 2005, respectively. No contribution was
      made
      during the first six months of 2005 because the Company contributed the total
      amount near year end of 2005.




**Note
      21 - 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:




-
          22 -


GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





**Note
      21 - Joint venture agreement with Baotou Steel, continued**


%
                  OwnershipBaotou
                  Iron and Steel (Group) Co.,Ltd.
              
              
              49
              %General
                  Steel Investment Co., Ltd.
              
              
              31
              %Daqiuzhuang
                  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. As of June 30, 2006, the Company has not received the approval
      from the Local Chinese authority.





-
          23 -




**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**




The
        following is management's discussion and analysis of certain significant
        factors
        which have affected our financial position and operating results during the
        periods included in the accompanying consolidated financial statements, as
        well
        as information relating to the plans of our current management. The following
        discussion and analysis should be read in conjunction with our consolidated
        financial statements and the related notes thereto and other financial
        information contained elsewhere in this Form 10Q.
 
 **Overview**
 
 Following
        the acquisition of ownership in General Steel Investment Co., Ltd. in October
        2004, the Company has shifted its main business focus to general steel products
        and steel manufacturing. As the core-operating unit of the Company, Tianjin
        Daqiuzhuang Metal Sheet Co., Ltd. (herein referred to as "Daqiuzhuang Metal")
        started its operation in 1988. Daqiuzhuang Metal's core business is the
        manufacturing of high quality hot rolled carbon and silicon steel sheets
        which
        are mainly used in the production of tractors, agricultural vehicles, shipping
        containers and in other specialty markets.
 
 Daqiuzhuang
        Metal uses a traditional rolling mill production sequence, such as heating,
        rolling, cutting, annealing, and flattening to process slabs into steel sheets.
        The sheet sizes are approximately 2,000 mm (length) x 1,000 mm (width) x
        0.75 to
        2.0 mm (thickness). Limited size adjustments are possible to meet order
        requirements. "Qiu Steel" is the registered name for the products of Daqiuzhuang
        Metal.
 
 Daqiuzhuang
        Metal has recently completed an expansion program to build a new plant next
        to
        the existing facility with four new production lines to increase its hot-rolled
        steel sheet production capacity by 150,000 tons. 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, 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
                %Daqiuzhuang
                    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.As of March 31, 2006, the Company has not received the approval
        from the Local Chinese authority.
  -
            24 -
  On
        September 18, 2005, we entered into a certain Subscription Agreement with
        certain investors and sold an aggregate of 1,176,665 shares of our common
        stock,
        in a private placement under Rule 506 under the Securities Act at a purchase
        price of $1.50 per share. Under this private placement, we raised $1,765,000
        in
        the aggregate, with a net proceeds of $ 1,606,150 after deducting $158,850
        paid
        for commissions.
 
 **Results
        of Operations**
 
 The
        results of operations of the Company are largely dependent on the level of
        general economic activity in China. Economic forecasts indicate continued
        fast
        pace growth in China in 2006. As a result, the consumption of our steel products
        is expected to remain at a high level. We believe that we have successfully
        positioned ourselves within the Chinese agricultural vehicle market. As this
        market continues to demonstrate increased demand for steel products, we remain
        focused on building our leadership position by enhancing the quality of our
        products and expanding our production capacity. However, the Company does
        believe that the highly competitive market will exist throughout 2006, with
        pressures for shipment volumes and prices. In view of that, the Company will
        continue to focus on cost control and new market development. The management
        will concentrate on increasing customer base and breaking into new
        markets.
 
 The
        Company’s sales revenue mainly comes from the sale of metal sheets in different
        specifications and steel scrap generated in the cutting process. The Company's
        cost of sales includes the cost of its primary raw materials, rollers, energy
        cost, labor cost, the cost of warehousing and handling finished steel products
        and freight costs.
 
 **Net
        sales and gross profit**
 
 Net
        sales
        for the three months ended June 30, 2006 were approximately $29.4 million
        compared to $25.3 million in the same period of 2005. Shipments for the three
        months ended June 30, 2006 climbed 42% to 66,359 tons from 46,574 tons due
        to
        overall increase in producing capacity, productivity, and market development.
        Average selling price per ton including sale of scrap for the three months
        ended
        June 30, 2006 slipped to $443 from $543 in the same period of 2005. The decrease
        in sales price mainly resulted from the overall steel market downturn, but
        the
        impact was offset by the increase in sales volume. This is why our net sales
        amount is still in line with the same period last year.
 
 Net
        sales
        for the six months ended June 30, 2006 were approximately $50 million compared
        to $46 million in the same period of 2005. Shipments for the six months ended
        June 30, 2006 climbed 36% to 119,906 tons from 87,995 tons. Average selling
        price per ton including sale of scrap for the six months ended June 30, 2006
        slipped to $417 from $523 in the same period of 2005.
 
 Gross
        profit for the three months ended June 30, 2006 was approximately $1.59 million,
        a decrease of 58.6% or $2.25 million from $3.84 million for the same period
        last
        year. Gross profit margin decreased to 5.4% from 15.2% for the three months
        ended June 30, 2006 and 2005. This decrease in gross profit margin is mainly
        due
        to the decrease in average selling price. Since April 2005, the price of
        steel
        products has been decreasing globally due to the overall increase in steel
        supply. The Company has to adjust its products’ prices in order to stay
        competitive in this market. The management expects that the pressure on the
        selling price will be mitigated in later 2006 as a result of steel industry
        consolidation in China and overall increase in demand.
 
 Gross
        profit for the six months ended June 30, 2006 was approximately $3 million,
        a
        decrease of 47% or $2.7 million from $5.7 million for the same period last
        year.
        Gross profit margin decreased to 6% from 12.4% for the six months ended June
        30,
        2006 and 2005.
 
 **Cost
        of sales**
 Overall
        cost of sales increased to $27.8 million or 29.7% for the three months ended
        June 30, 2006 from $21.4 million for the same period of 2005. Cost of sales as
        percentage of sales increased from 84.8% to 94.6%. Average cost per ton was
        $419
        and $460, respectively for the three months ended June 30, 2006 and 2005.
        In
        summary, although the average unit cost dropped, the cost of sales increased
        in
        the second quarter of 2006 due to the increase in the sales volume.
 
 Overall
        cost of sales increased to $47 million or 16.6% for the six months ended
        June
        30, 2006 from $40.3 million for the same period of 2005. Cost of sales as
        percentage of sales increased from 87.6% to 93.9%. Average cost per ton was
        $393
        and $457, respectively for the six months ended June 30, 2006 and
        2005.
 
 -
            25 -
 
 **Selling,
        General and Administrative Expenses**
 
 Selling,
        general and administrative expenses, such as executive compensation, office
        expenses, legal and accounting charges, travel charges, and various taxes
        were
        $0.81 million for the three months ended June 30, 2006, compared to $0.59
        million for the same period of 2005, a 38% increase. A large component of
        the
        increase came from the legal and accounting expenses and investor and public
        relations charges for the public listed company.
 Selling,
        general and administrative expenses were $1.55 million for the six months
        ended
        June 30, 2006, compared to $1.24 million for the same period of 2005, a 25%
        increase.
 
 **Other
        income (expense)**
 Other
        income (expense) for the three months ended June 30, 2006 consisted mainly
        of
        finance charges, interest income and other non-operating income (expense).
        Interest expense was $0.76 million for the three months ended June 30, 2006,
        compared to $0.45 million for the same period in 2005. This increase was
        because
        the outstanding bank loans increased to $31.4 million from $27.1 million
        as of
        June 30, 2006 and 2005, respectively. This increase in debt borrowing was
        mainly
        used for the construction of the new production lines.
 
 Interest
        expense was $1.22 million for the six months ended June 30, 2006, a 37% increase
        compared to $0.89 million for the same period in 2005.
 
 **Income
        taxes**
 The
        Company did not carry on any business and did not maintain any branch office
        in
        the United States during the six months ended June 30, 2006 and 2005. Therefore,
        no provision for withholding or U.S. federal income taxes or tax benefits
        on the
        undistributed earnings and/or losses of the Company has been made.
 
 Pursuant
        to the relevant laws and regulations in the People's Republic of China,
        Daqiuzhuang Metal, as a foreign owned enterprise in the People's Republic
        of
        China, is entitled to an exemption from the PRC enterprise income tax for
        two
        years commencing from its first profitable year. The Company has been approved
        for this tax benefit and will be exempt from income tax for the years ended
        December 31, 2005 and 2006 and 50% income tax reduction for the years ended
        December 31, 2007, 2008 and 2009.
 
 **Liquidity
        and capital resources**
 
 Due
        to
        the good market demand for our steel products, we have increased our production
        capacity by adding four new production lines. The Company plans to maintain
        a
        higher-than-average debt to equity ratio to better position itself in this
        fast
        growing market. The bank loans are considered short-term for the purpose
        of the
        preparation of the financial statements because they are renewable with the
        banks every year. Due to the recent joint venture agreement with Baotou Iron
        and
        Steel (Group) Co., Ltd., the Company is reserving cash for the first 30%
        of its
        capital contribution, approximately $3.7 million, which needs to be paid
        when
        the business license for the joint venture is issued. Cash balance including
        restricted cash amounted to $4.3 million and $11.8 million as of June 30,
        2006
        and 2005.
 
 **Operating
        activities**
  Net
          cash
          used in operating activities for the six months ended June 30, 2006 was
          $6.38
          million compared to $1.62 million provided by operating activities in the
          same
          period last year. This change was mainly due to increase in inventory.
          As the
          new production lines are now in full operation, approximately 13,000 tons
          of
          extra products are now being produced every month. The finished goods
          inventories started to increase since the sales department hasn’t been fully
          able to sell all of these extra products. The finished goods inventories
          at June
          30, 2006 was 50,425 tons compared to 20,726 tons at December 31, 2005.
          The value
          of finished goods inventories also increased to $21.3 million as of June
          30,
          2006 from $8.01 million as of December 31, 2005. Additionally, the raw
          materials
          price has been going up since March this year. Average purchase price of
          steel
          slabs has been going up to approximately $345 in June from $316 in March,
          the
          management decided to stock up raw materials inventories in order to maximize
          the profitability.
 **Accounts
        Receivable**
 
 Accounts
        receivable was $4.25 million as of June 30, 2006 compared to $993,417 at
        December 31, 2006. This is partly due to the credit sales extended to Shanghai
        Qiugang Metal Sheet Co., Ltd. in the amount of $1,700,812. We usually collect
        the deposit from our customers in advance. We granted credit sales to Shanghai
        Qiu Steel Sales Co., Ltd. due to long business relationships between both
        companies.
  -
            26 -
  **Investing
        activities**
 
 Net
        cash
        used in investing activities was $3.31 million for the six months ended June
        30,
        2006 compared to $0.71 million provided by investing activities in the same
        period last year. The cash has been spent on the construction of the new
        plant.
        As of June 30, 2006, all construction in progress has been reclassified to
        fixed
        assets subject to depreciation.
 
 **Financing
        activities**
 
 Net
        cash
        provided by financing activities was $3.47 million for the six months ended
        June
        30, 2006 compared to $0.42 million provided by investing activities in the
        same
        period last year. The Company signed a new borrowing agreement with Shenzhen
        Development Bank to borrow $4,992,000 in the first quarter. The proceeds
        were
        mainly used to pay for inventory purchases and the construction of the new
        plant.
 
 **Compliance
        with environmental laws and regulations**
 
 Based
        on
        the equipment, technologies and measures adopted, the Company is not considered
        a high-pollution factory in China. The production process does not need much
        water and produces only a minimal amount of chemical 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
          waster water recycling system is able to process 350 tons waste water everyday.
          It could save the Company approximately $10,000 per year.
 As
        for
        the remodeling of gas furnace and desulphurization of discharged gas, the
        local
        government has not posted any control measures currently and we have no plans
        to
        proceed with this remodeling until such time regulations have been implemented.
        The Company believes that future costs relating to environmental compliance
        will
        not have a material adverse effect on the Company's financial position. There
        is
        always the possibility, however, that unforeseen changes, such as new laws
        or
        enforcement policies, could result in material adverse costs.
 
 **Impact
        of inflation**
 
 We
        are
        subject to commodity price risks arising from price fluctuations in the market
        prices of the raw materials. The Company has 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. Price risks are managed by the Company through productivity
        improvements and cost-containment measures.
 
 Management
        does not believe that inflation risk is material to our business or our
        financial position, results of operations or cash flows.
 
 **OUTLOOK**
 
 Certain
        statements contained herein constitute "forward-looking statements" within
        the
        meaning of the Private Securities Litigation Reform Act of 1995. Such
        forward-looking statements involve known and unknown risks, uncertainties
        and
        other factors, which may cause the actual results, performance or achievements
        of General Steel Holdings, Inc. ("the Company”) or industry results, to be
        materially different from any future results, performance, or achievements
        expressed or implied by such forward-looking statements. The Company's future
        operating results are dependent upon many factors, including but not limited
        to
        the risk factors discussed in this periodic report and developments beyond
        the
        Company's control as well as other risk factors discussed in the Company's
        periodic filings with the Securities and Exchange Commission which are available
        for review at www.sec.gov under "Search for Company Filings."
 
 We
        are
        expecting strong results in the third quarter of 2006 as shipments and average
        realized prices are expected to improve compared to the first six months
        of
        2006. We have stepped up our effort on sales distribution by breaking into
        new
        markets and setting up new regional offices in some major cities in
        China.
 
 -
            27 -
 
 **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.
 
 **Contractual
        obligations and commercial commitments**
  We
        have
        certain fixed contractual obligations and commitments that include future
        estimated payments. Changes in our business needs, cancellation provisions,
        changing interest rates, and other factors may result in actual payments
        differing from the estimates. We cannot provide certainty regarding the timing
        and amounts of payments. We have presented below a summary of the most
        significant assumptions used in our determination of amounts presented in
        the
        tables, in order to assist in the review of this information within the context
        of our consolidated financial position, results of operations, and cash flows.
 
 The
        following tables summarize our contractual obligations as of June 30, 2006,
        and
        the effect these obligations are expected to have on our liquidity and cash
        flows in future periods.
  -
            28 -
 Payment
                    due by periodTotal
                
                Less
                    than 1 year
                
                1-3
                    years
                
                3-5
                    yearsContratual
                    obligationsDollars
                    amounts in thousandsBank
                    loans (1)
                
                $
                33,380.1
                
                $
                33,380.1
                
                $
                
                
                $Notes
                    payable
                
                
                4,957.9
                
                
                4,957.9Deposits
                    due to sales representatives
                
                
                1,712.7
                
                
                1,712.7Land
                    lease obligations (2)
                
                
                571.8
                
                
                5.2
                
                
                10.4
                
                
                556.2Redeemable
                    stock
                
                
                1,950.3
                
                
                1,950.3Total
                
                $
                42,572.8
                
                $
                42,006.2
                
                $
                10.4
                
                $
                556.2
 (1)  Bank
        loans in China are due on demand or normally within one year. These loans
        can be
        renewed with the banks. This amount includes estimated interest payments
        as well
        as debt maturities.
 
 (2)  Land
        lease obligations consist primarily of land lease agreements for our plant
        No.
        3. According to the agreement, the total lease amount for the land is $1,010,038
        and we have already paid $438,200 in advance as of June 30, 2006.
 
 **Item
        3. Quantitative and Qualitative Disclosures About Market
        Risk**
 
 **Commodity
        Price Risk and Related Risks**
 
 In
        the
        normal course of its business, General Steel is exposed to market risk or
        price
        fluctuations related to the purchase, production or sale of steel products
        over
        which we have little or no control. General Steel does not use any derivative
        commodity instruments to manage the price risk. General Steel’s market risk
        strategy has generally been to obtain competitive prices for its products
        and
        allow operating results to reflect market price movements dictated by supply
        and
        demand. Based upon an assumed annual production capacity of 400,000 tons,
        a $1
        change in the annual average price would change annual pre-tax profits by
        approximately $400,000.
 
 **Interest
        Rate Risk**
  The
        Company is subject to interest rate risk since its outstanding debts are
        short-term and bear interest at variable interest rates. The future interest
        expense would fluctuate in case of any change in the borrowing rates. We
        do not
        use swaps or other interest rate protection agreements to hedge this risk.
        We
        believe our exposure to interest rate risk is not material.
 
 **Foreign
        Currency Exchange Rate Risk**
 
 General
        Steel’s operating unit, Daqiuzhuang Metal, is located in China. The operation
        purchase, produce and sell all of the steel products domestically. It is
        subject
        to the foreign currency exchange rate risk due to the effects of fluctuations
        in
        the Chinese Renminbi on revenues and operating cost and existing assets or
        liabilities. General Steel has not generally used derivative instruments
        to
        manage this risk. A 10 percent decrease in the average Renminbi exchange
        rate
        would result in a $107,397 charge to income for the six months ended June
        30,
        2006.
 **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.
          It
          should be noted that the design of any system of controls is based in part
          upon
          certain assumptions about the likelihood of future events, and there can
          be no
          assurance that any design will succeed in achieving its stated goals under
          all
          potential future conditions, regardless of how remote.
 
 -
              29 -
 There
          were no changes in General Steel’s internal controls over financial reporting
          that occurred during General Steel’s most recent fiscal quarter that have
          materially affected, or are reasonably likely to materially affect, General
          Steel’s internal control over financial reporting.
  **PART
        II - OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
  There
        has been no legal proceedings issued against or
        commercial by the company.
  **Item
        1A. Risk Factors**
 
 An
        investment in our common stock being offered for resale by the selling
        shareholders involves a high degree of risk. You should carefully consider
        the
        risk factors described below, together with all other information in this
        prospectus before making an investment decision. If any of the following
        risks
        actually occurs, our business, financial condition or operating results could
        be
        materially and adversely affected. In such case, the trading price of our
        common
        stock could decline, and you may lose all or part of your
        investment.
  -
            30 -
  **Risks
        related to our business**
  ***We
        face substantial competition which, among other things, may lead to price
        pressure and adversely affect our sales.***
  In
        the
        sale of flat rolled carbon steel and silicon steel, we compete with other
        market
        players on the basis of product quality, responsiveness to customer needs
        and
        price. There are two types of steel and iron companies in China: State Owned
        Enterprises (“SOEs”), and privately owned companies.
  Criteria
        for our customers include:
  ·
              Quality;
  ·
              Price/cost
                  competitiveness;
  ·
              System
                  and product performance;
  ·
              Reliability
                  and timeliness of delivery;
  ·
              New
                  product and technology development
                  capability;
  ·
              Excellence
                  and flexibility in operations;
  ·
              Degree
                  of global and local presence;
  ·
              Effectiveness
                  of customer service; and
  ·
              Overall
                  management capability.
  We
        compete with both SOEs and privately owned steel manufacturers. While we
        believe
        that our price and quality are superior to other manufacturers, many of our
        competitors are better capitalized, more experienced, and have deeper ties
        in
        the Chinese marketplace. We consider there to be three major competitors
        of
        similar size, production capability and product line in the market place:
        Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan
        Fengrun Metal Sheet Plant. In addition, with China’s entry into the World Trade
        Organization and China’s agreements to lift many of the barriers to foreign
        competition, we believe that competition will increase in the agricultural
        equipment market in China as a whole with the entry of foreign companies
        into
        this market. This may limit our opportunities for growth, lead to price pressure
        and reduce our profitability. We may not be able to compete favorably and
        this
        increased competition may harm our business, our business prospects and results
        of operations.
  ***Our
        limited operating history may not serve as an adequate basis to judge our
        future
        prospects and results of operations.***
  Our
        limited operating history may not provide a meaningful basis on which to
        evaluate our business. Although our revenues have grown rapidly since inception,
        we might not be able to maintain our profitability or we may incur net losses
        in
        the future. We expect that our operating expenses will increase as we expand.
        Any significant failure to realize anticipated revenue growth could result
        in
        significant operating losses. We will continue to encounter risks and
        difficulties frequently experienced by companies at a similar stage of
        development, including our potential failure to:
  ·
              Implement
                  our business model and strategy and adapt and modify them as
                  needed;
  -
            31 -
  ·
              Increase
                  awareness of our brands, protect our reputation and develop customer
                  loyalty;
  ·
              Manage
                  our expanding operations and service offerings, including the integration
                  of any future acquisitions;
  ·
              Maintain
                  adequate control of our expenses;
  ·
              Anticipate
                  and adapt to changing conditions in the agricultural equipment
                  markets in
                  which we operate as well as the impact of any changes in government
                  regulation;
  ·
              Anticipate
                  mergers and acquisitions involving our competitors, technological
                  developments and other significant competitive and market
                  dynamics.
  Our
        business, business prospects and results of operations will be affected if
        we
        are not successful in addressing any or all of these risks and difficulties.
  ***Our
        inability to fund our capital expenditure requirements may adversely affect
        our
        growth and profitability.***
  Our
        continued growth is dependent upon our ability to raise additional capital
        from
        outside sources. We believe that in order to grow our company further, we
        intend
        to seize opportunities in Chinese SOEs’ privatization and set up strategic joint
        ventures with these SOEs. That will require us to obtain additional financing
        through capital markets. In the future we may be unable to obtain the necessary
        financing on a timely basis and on favorable terms, and our failure to do
        so may
        weaken our financial position, reduce our competitiveness, limit our growth
        and
        reduce our profitability. Our ability to obtain acceptable financing at any
        given time may depend on a number of factors, including:
 
 ·
              Our
                  financial condition and results of
                  operations,
  ·
              The
                  condition of the PRC economy and the agricultural equipment industry
                  in
                  the PRC, and
  ·
              Conditions
                  in relevant financial markets in the U.S., the PRC and elsewhere
                  in the
                  world.
  ***We
        may not be able to effectively control and manage our
        growth.***
  If
        our
        business and markets grow and develop, it will be necessary for us to finance
        and manage such an expansion in an orderly fashion. This growth will lead
        to an
        increase in the responsibilities of existing personnel, the hiring of additional
        personnel and expansion of our scope of operations. It is possible that we
        may
        not be able to obtain the required financing under terms that are acceptable
        to
        us or hire additional personnel to meet the needs of our expansion.
  ***Our
        business, revenues and profitability are dependent on a limited number of
        large
        customers.***
  Our
        revenue is dependent, in large part, on significant contracts with a limited
        number of large customers. For the six months ended June 30, 2006, approximately
        35% of our sales were to five customers. We believe that revenue derived
        from
        our current and future large customers will continue to represent a significant
        portion of our total revenue. Our inability to continue to secure and maintain
        a
        sufficient number of large contracts or the loss of, or significant reduction
        in
        purchases by, one or more of our major customers would have the effect of
        reducing our revenues and profitability.
  Moreover,
        our success will depend in part upon our ability to obtain orders from new
        customers, as well as the financial condition and success of our customers
        and
        general economic conditions in China.
    -
            32 -
 *We
        may not be able to pass on to
        customers the increases in the costs of our raw materials, particularly iron
        and
        steel.*
  The
        major
        raw materials that we purchase for production are steel slabs and strip steel.
        The price and availability of these raw materials are subject to market
        conditions affecting supply and demand. Our financial condition or results
        of
        operations may be impaired by further increases in raw material costs to
        the
        extent we are unable to pass those increases to our customers. In addition,
        if
        these materials are not available on a timely basis or at all, we may not
        be
        able to produce our products and our sales may decline.
  ***The
        price of steel may decline due to an overproduction by the Chinese steel
        companies.***
  According
        to the survey conducted by China Iron and Steel Association, there are more
        than
        1,500 steel companies in China. Among those, only 15 companies have over
        5
        million tons of production capacity. Each steel company has its own production
        plan. The Chinese government posted a new guidance on steel industry to
        encourage consolidation within the fragmented steel sector to mitigate problems
        of low-end repetitive production and inefficient use of resources. The current
        situation of overproduction may not be solved by these measures posted by
        the
        Chinese government. If the current state of overproduction continues, our
        products shipments could decline, our inventory could build up and eventually
        we
        may be required to decrease our sales price, which may eventually decrease
        our
        profitability.
  ***Because
        we are a holding company with substantially all of our operations conducted
        through our subsidiaries, our performance will be affected by the performance
        of
        such subsidiaries.***
 
 We
        have no operations independent of those of Daqiuzhuang Metal, and our principal
        assets are our investments in Daqiuzhuang Metal. As a result, we are dependent
        upon the performance of Daqiuzhuang Metal and we will be subject to the
        financial, business and other factors affecting Daqiuzhuang Metal as well
        as
        general economic and financial conditions. As substantially all of our
        operations are and will be conducted through our subsidiaries, we will be
        dependent on the cash flow of our subsidiaries to meet our
        obligations.
  Because
        virtually all of our assets are and will be held by operating subsidiaries,
        the
        claims of our stockholders will be structurally subordinate to all existing
        and
        future liabilities and obligations, and trade payables of such subsidiaries.
        In
        the event of our bankruptcy, liquidation or reorganization, our assets and
        those
        of our subsidiaries will be available to satisfy the claims of our stockholders
        only after all of the our and our subsidiaries’ liabilities and obligations have
        been paid in full.
 
 ***We
        depend on bank financing for our working capital needs.***
 
 We
        have
        various financing facilities amounting to approximately US$36 millions, of
        which
        all are due on demand or within one year. So far, we have not experienced
        any
        difficulties in repaying such financing facilities. However, we may in the
        future encounter difficulties to repay or refinance such loans on time and
        may
        face severe difficulties in our operations and financial position.
 
 ***We
        have a potential US $2.3 million liability in connection with the put right
        granted in the private placement closed in September
        2005.***
  According
        to contract terms, the investors have a one-time right to require us to
        repurchase 1,176,665 shares of our common stock on March 18, 2007 (the
“Repurchase Date”) at a price of $1.95 per share. The investors cannot exercise
        such put right before or after the Repurchase Date, but only on that day.
        After
        the Repurchase Date, the put right will expire. To exercise such one time
        put
        right, the investors are required to give us a notice 60 day prior to the
        Repurchase Date. Pursuant to the terms of this put option, we may be required
        to
        repay the stock with an amount up to $2,294,497. In case of exercise of this
        put
        right, we intend to pay this amount from our existing cash position. In case
        we
        are not be able to raise such funds in time or on acceptable terms, we may
        need
        to operate with a reduced cash flow.
 
 **Risks
        Related to Operating Our Business in China**
  ***We
        face the risk that changes in the policies of the Chinese government could
        have
        significant impact upon the business we may be able to conduct in China and
        the
        profitability of such business.***
  -
            33 -
  The
        economy of China is at a transition from a planned economy to a market oriented
        economy subject to five-year and annual plans adopted by the government that
        set
        down national economic development goals. Policies of the Chinese government
        can
        have significant effects on the economic conditions of China. The Chinese
        government has confirmed that economic development will follow a model of
        market
        economy under socialism. Under this direction, we believe that the PRC will
        continue to strengthen its economic and trading relationships with foreign
        countries and business development in China will follow market forces. While
        we
        believe that this trend will continue, there can be no assurance that such
        will
        be the case. A change in policies by the Chinese government could adversely
        affect our interests by, among other factors: changes in laws, regulations
        or
        the interpretation thereof; confiscatory taxation; restrictions on currency
        conversion, imports or sources of supplies; or the expropriation or
        nationalization of private enterprises. Although the Chinese government has
        been
        pursuing economic reform policies for approximately two decades, the Chinese
        government may significantly alter such policies, especially in the event
        of a
        change in leadership, social or political disruption, or other circumstances
        affecting China’s political, economic and social life.
  ***The
        PRC laws and regulations governing our current business operations and
        contractual arrangements are uncertain, and if we are found to be in violation,
        we could be subject to sanctions. In addition, any changes in such PRC laws
        and
        regulations may have a material and adverse effect on our
        business.***
  There
        are
        substantial uncertainties regarding the interpretation and application of
        PRC
        laws and regulations, including but not limited to the laws and regulations
        governing our business, or the enforcement and performance of our arrangements
        with customers in the event of the imposition of statutory liens, death,
        bankruptcy and criminal proceedings. Our subsidiaries and we are considered
        foreign persons or foreign funded enterprises under PRC laws, and as a result,
        we are required to comply with PRC laws and regulations. These laws and
        regulations are relatively new and may be subject to future changes, and
        their
        official interpretation and enforcement may involve substantial uncertainty.
        The
        effectiveness of newly enacted laws, regulations or amendments may be delayed,
        resulting in detrimental reliance by foreign investors. New laws and regulations
        that affect existing and proposed future businesses may also be applied
        retroactively. In addition, the PRC authorities retain broad discretion in
        dealing with violations of laws and regulations, including levying fines,
        revoking business licenses and requiring actions necessary for compliance.
        In
        particular, licenses, permits and beneficial treatments issued or granted
        to us
        by relevant governmental bodies may be revoked at a later time under contrary
        findings of higher regulatory bodies. We cannot predict what effect the
        interpretation of existing or new PRC laws or regulations may have on our
        businesses. Such restructuring may not be effective or result in similar
        or
        other difficulties. We may be subject to sanctions, including fines, and
        could
        be required to restructure our operations. As a result of these substantial
        uncertainties, there is a risk that we may be found in violation of any current
        or future PRC laws or regulations.
  ***A
        slowdown or other adverse developments in the PRC economy may materially
        and
        adversely affect our customers, demand for our services and our
        business.***
  All
        of
        our operations are conducted in the PRC and all of our revenues are generated
        from sales to businesses operating in the PRC. Although the PRC economy has
        grown significantly in recent years, such growth may not continue. We do
        not
        know how sensitive we are to a slowdown in economic growth or other adverse
        changes in the PRC economy which may affect demand for agricultural equipment.
        A
        slowdown in overall economic growth, an economic downturn or recession or
        other
        adverse economic developments in the PRC may materially reduce the demand
        for
        our products and in turn reduce our results of operations and our productivity.
  -
            34 -
  In
        China,
        farmers are key consumers for agricultural vehicles. The consumption is closely
        related to the economic developments in different regions and areas. With
        the
        continuous development of rural economy in central and western China, there
        is
        increasing demand for agricultural vehicles. In addition, the implementation
        of
        the “Go West” strategy and China’s entry into the World Trade Organization have
        prodded the government to increase investment in the agricultural sector
        in
        central and western China. China’s western areas will become a high growth
        market for agricultural vehicles. However the new government policies may
        as
        well bring competition to this market. More steel companies may turn their
        focus
        to the agricultural sector which will increase the supply of steel products
        used
        for agricultural vehicles. This new competition may force us to lower our
        product price or reduce the production volume.
  ***Inflation
        in China could negatively affect our profitability and
        growth.***
  While
        the
        Chinese economy has experienced rapid growth, such growth has been uneven
        among
        various sectors of the economy and in different geographical areas of the
        country. Rapid economic growth can lead to growth in the money supply and
        rising
        inflation. If prices for our products rise at a rate that is insufficient
        to
        compensate for the rise in the costs of supplies, it may have an adverse
        effect
        on profitability. In order to control inflation in the past, the Chinese
        government has imposed controls on bank credits, limits on loans for fixed
        assets and restrictions on state bank lending. Such an austerity policy can
        lead
        to a slowing of economic growth. In October 2004, the People’s Bank of China,
        China’s central bank, raised interest rates for the first time in nearly a
        decade and indicated in a statement that the measure was prompted by
        inflationary concerns in the Chinese economy. Repeated increases in interest
        rates by the central bank will likely slow economic activity in China which
        could, in turn, materially increase our costs and also reduce demand for
        our
        products.
  ***If
        relations between the United States and China worsen, our stock price may
        decrease and we may experience difficulties accessing the U.S. capital
        markets.***
  At
        various times during recent years, the United States and China have had
        disagreements over political and economic issues. Controversies may arise
        in the
        future between these two countries. Any political or trade controversies
        between
        the United States and China could impact the market price of our common stock
        and our ability to access US capital markets.
  ***The
        Chinese Government could change its policies toward private enterprises,
        which
        could result in the total loss of our investments in
        China.***
  Our
        business is subject to political and economic uncertainties in China and
        may be
        adversely affected by its political, economic and social developments. Over
        the
        past several years, the Chinese Government has pursued economic reform policies
        including the encouragement of private economic activity and greater economic
        decentralization. The Chinese Government may not continue to pursue these
        policies or may alter them to our detriment from time to time. Conducting
        our
        business might become more difficult or costly due to changes in policies,
        laws
        and regulations, or in their interpretation or the imposition of confiscatory
        taxation, restrictions on currency conversion, restrictions or prohibitions
        on
        dividend payments to stockholders, devaluations of currency or the
        nationalization or other expropriation of private enterprises. In addition,
        nationalization or expropriation could result in the total loss of our
        investments in China.
 
 ***Our
        business, results of operations and overall profitability are linked to the
        economic, political and social conditions in China.***
  All
        of
        our business, assets and operations are located in China. The economy of
        China
        differs from the economies of most developed countries in many respects,
        including government involvement, level of development, growth rate, control
        of
        foreign exchange, and allocation of resources. The economy of China has been
        transitioning from a planned economy to a more market-oriented economy. Although
        the Chinese Government has implemented measures recently emphasizing the
        utilization of market forces for economic reform, the reduction of state
        ownership of productive assets and the establishment of sound corporate
        governance in business enterprises, a substantial portion of productive assets
        in China is still owned by the Chinese Government. In addition, the Chinese
        Government continues to play a significant role in regulating industry by
        imposing industrial policies. It also exercises significant control over
        China’s
        economic growth through the allocation of resources, controlling payment
        of
        foreign currency-denominated obligations, setting monetary policy and providing
        preferential treatment to particular industries or companies. Therefore,
        the
        Chinese Government’s involvement in the economy may affect our business
        operations, results of operations and our financial condition.
  -
            35 -
  ***Governmental
        control of currency conversion may cause the value of your investment in
        our
        common stock to decrease.***
  The
        PRC
        government imposes controls on the convertibility of Renminbi into foreign
        currencies and, in certain cases, the remittance of currency out of the PRC.
        We
        receive substantially all of our revenues in Renminbi, which is currently
        not a
        freely convertible currency. Shortages in the availability of foreign currency
        may restrict our ability to remit sufficient foreign currency to pay dividends,
        or otherwise satisfy foreign currency denominated obligations. Under existing
        PRC foreign exchange regulations, payments of current account items, including
        profit distributions, interest payments and expenditures from the transaction,
        can be made in foreign currencies without prior approval from the PRC State
        Administration of Foreign Exchange by complying with certain procedural
        requirements. However, approval from appropriate governmental authorities
        is
        required where Renminbi is to be converted into foreign currency and remitted
        out of China to pay capital expenses such as the repayment of bank loans
        denominated in foreign currencies.
  The
        PRC
        government may also at its discretion restrict access in the future to foreign
        currencies for current account transactions. If the foreign exchange control
        system prevents us from obtaining sufficient foreign currency to satisfy
        our
        currency demands, we may not be able to pay certain of our expenses as they
        come
        due.
  ***The
        fluctuation of the Renminbi may cause the value of your investment in our
        common
        stock to decrease.***
  The
        value
        of the Renminbi against the U.S. dollar and other currencies may fluctuate
        and
        is affected by, among other things, changes in the PRC’s political and economic
        conditions. As we rely entirely on revenues earned in the PRC, our cash flows,
        revenues and financial condition will be affected by any significant revaluation
        of the Renminbi. For example, to the extent that we need to convert U.S.
        dollars
        we receive from an offering of our securities into Renminbi for our operations,
        if the Renminbi appreciates against the U.S. dollar, the Renminbi equivalent
        of
        the US dollar we convert would be reduced. Conversely, if we decide to convert
        our Renminbi into U.S. dollars for the purpose of making payments for dividends
        on our common shares or for other business purposes and the U.S. dollar
        appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi
        we
        convert would be reduced. To date, however, we have not engaged in transactions
        of either type. In addition, the depreciation of significant U.S. dollar
        denominated assets could result in a charge to our income statement and a
        reduction in the value of these assets.
  Since
        1994 the PRC has pegged the value of the Renminbi to the U.S. dollar. We
        do not
        believe that this policy has affected our business. However, there have been
        indications that the PRC government may be reconsidering its monetary policy
        in
        light of the overall devaluation of the U.S. dollar against the Euro and
        other
        currencies during the last two years. In July 2005, the PRC government revalued
        the Renminbi by 2.1% against the U.S. dollar, moving from Renminbi 8.28 to
        Renminbi 8.11 per dollar. Because of the pegging of the Renminbi to the U.S.
        dollar is loosened, we anticipate that the value of the Renminbi will appreciate
        against the dollar with the consequences discussed above.
 
 ***We
        are subject to environmental and safety regulations, which may increase our
        compliance costs and reduce our overall
        profitability.***
  We
        are
        subject to the requirements of environmental and occupational safety and
        health
        laws and regulations in China. We may incur substantial costs or liabilities
        in
        connection with these requirements. Additionally, these regulations may become
        stricter, which will increase our costs of compliance in a manner that could
        reduce our overall profitability. The capital requirements and other
        expenditures that may be necessary to comply with environmental requirements
        could increase and become a significant expense linked to the conduct of
        our
        business.
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            36 -
  ***Because
        the Chinese legal system is not fully developed, our legal protections may
        be
        limited.***
  The
        PRC
        legal system is based upon written statutes. Prior court decisions may be
        cited
        for reference but are not binding on subsequent cases and have limited value
        as
        precedents. Since 1979, the PRC legislative bodies have promulgated laws
        and
        regulations dealing with economic matters such as foreign investment, corporate
        organization and governance, commerce, taxation and trade. However, the PRC
        has
        not developed a fully integrated legal system and the array of new laws and
        regulations may not be sufficient to cover all aspects of economic activities
        in
        the PRC. In particular, because these laws and regulations are relatively
        new,
        and because of the limited volume of published decisions and their non-binding
        nature, the interpretation and enforcement of these laws and regulations
        involve
        uncertainties. In addition, published government policies and internal rules
        may
        have retroactive effects and, in some cases, the policies and rules are not
        published at all. As a result, we may be unaware of our violation of these
        policies and rules until some time later. The laws of the PRC govern our
        contractual arrangements with our affiliated entities. The enforcement of
        these
        contracts and the interpretation of the laws governing these relationships
        are
        subject to uncertainty. For the above reasons, legal
        compliance in China may be more difficult or expensive.
 
 **Risks
        Related to Our Common Stock**
 
 ***Our
        officers, directors and affiliates control us through their positions and
        stock
        ownership and their interests may differ from other
        stockholders.***
  Our
        officers, directors and affiliates beneficially own approximately 96% of
        our
        common stock. Mr. Yu, Zuo Sheng our major shareholder, beneficially owns
        approximately 76.5% of our common stock. Mr. Yu can effectively control us
        and
        his interests may differ from other stockholders.
  Because
        our principal assets are located outside of the United States and most of
        our
        directors and officers reside outside of the United States, it may be difficult
        for you to enforce your rights based on U.S. federal securities laws against
        us
        and our officers and directors in the U.S. or enforce U.S. court judgments
        against us or them in the PRC.
  Among
        all
        of our directors only one director resides in the United States. In addition,
        Daqiuzhuang, our operating subsidiary, is located in China and substantially
        all
        of its assets are located outside of the United States. It may therefore
        be
        difficult for investors in the United States to enforce their legal rights
        based
        on the civil liability provisions of the U.S. federal securities laws against
        us
        in the courts of either the U.S. and the PRC and, even if civil judgments
        are
        obtained in U.S. courts, to enforce such judgments in PRC courts. Further,
        it is
        unclear if extradition treaties now in effect between the United States and
        the
        PRC would permit effective enforcement against us or our officers and directors
        of criminal penalties under the U.S. federal securities laws or otherwise.
  ***We
        have never paid cash dividends and are not likely to do so in the foreseeable
        future.***
  We
        currently intend to retain any future earnings for use in the operation and
        expansion of our business. We do not expect to pay any cash dividends in
        the
        foreseeable future but will review this policy as circumstances
        dictate.
  ***There
        is only a limited trading market for our common
        stock.***
  Our
        common stock is now listed on the over-the-counter Bulletin Board. There
        is
        currently limited trading market for our common stock and we do not know
        if any
        trading market will ever develop. You may be unable to sell your shares due
        to
        the absence of a trading market.
  -
            37 -
  In
        addition, broker-dealers who recommend our common stock to people who are
        not
        established customers or qualifying investors must follow special sales
        procedures, including getting the purchaser’s written consent prior to the sale.
        We are currently subject to the “penny stock” rules promulgated under the
        Securities Exchange Act of 1934. During the period(s) that our stock trades
        below $5.00 per share, as it currently does, trading in our common stock
        is
        subject to the requirements of the “penny stock” rules. These rules require
        additional disclosure by broker dealers in connection with any trades generally
        involving any non-NASDAQ equity security that has a market price of less
        than
        $5.00 per share, subject to certain exceptions. Such rules require the delivery,
        before any “penny stock” transaction, of a disclosure schedule explaining the
        penny stock market and the risks associated therewith, and impose various
        sales
        practice requirements on broker dealers who sell penny stocks to persons
        other
        than established customers and accredited investors (generally institutions).
        For these types of transactions, the broker-dealer must determine the
        suitability of the penny stock for the purchaser and receive the purchaser’s
        written consent to the transaction before sale. The additional burdens imposed
        upon broker dealers by such requirements may discourage broker-dealers from
        effecting transactions in our common stock affected. As a consequence, the
        market liquidity of General Steel’s common stock could be severely limited by
        these regulatory requirements.
  ***Our
        common stock is subject to price volatility unrelated to our
        operations.***
  The
        market price of our common stock could fluctuate substantially due to a variety
        of factors, including market perception of our ability to achieve our planned
        growth, quarterly operating results of other steel makers, trading volume
        in our
        common stock, changes in general conditions in the economy and the financial
        markets or other developments affecting our competitors or us.
  In
        addition, the stock market is subject to extreme price and volume fluctuations.
        This volatility has had a significant effect on the market price of securities
        issued by many companies for reasons unrelated to their operating performance
        and could have the same effect on our common stock.
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**





Not
      applicable.





**Item
      3. Defaults Upon Senior Securities**





Not
      applicable.





**Item
      4. Submission of Matters to a Vote of Security Holders**





Not
      applicable.





**Item
      5. Other Information**





Not
      applicable.





**Item
      6. Exhibits**





31.1
      Certification of Chief Executive Officer


31.2
      Certification of Chief Financial Officer


32.1
      Certification of Chief Executive Officer


32.2
      Certification of Chief Financial Officer






-
          38 -





SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




GENERAL
                STEEL HOLDINGS, INC
              (Registrant)Date: August
              14, 2006
            By:
            /s/ Zuo
              Sheng
              YuZuo
                Sheng Yu
              Title:
                Chief Executive Officer and PresidentDate: August 14, 2006
            By:
            /s/ John ChenJohn Chen
              Title:
                Director and Chief Financial Officer


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            39 -