UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      DC 20549







FORM
      10-Q





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





For
      the
      quarterly period ended March 31, 2007





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





For
      the
      transition period from __________ to __________





GENERAL
      STEEL HOLDINGS, INC.


(Name
      of
      Issuer in Its Charter)




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





Incorp
      Services Inc.


6075
      S.
      Eastern Avenue


Suite
      1,
      Las Vegas, Nevada, 89119-3146


Tel:
      (702) 866-2500


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





+
      86 (10)
      58797346


(Issuer's
      telephone number)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x 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
                filerx





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




The
      number of shares of Common Stock outstanding on May 11, 2007 was
      32,444,665.




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







TABLE
        OF
        CONTENTS
 
 PART
                  I - FINANCIAL INFORMATIONITEM
                  1. FINANCIAL STATEMENTSCONSOLIDATED
                  BALANCE SHEETS AS
                  OF MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006
              2CONSOLIDATED
                  STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE THREE
                  MONTHS
                ENDED
                  MARCH 31, 2007 AND 2006 (UNAUDITED)
              3CONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS’EQUITY FOR THE THREE MONTHS ENDED MARCH 31,
                  2007 AND 2006 (UNAUDITED)
              4CONSOLIDATED
                  STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2007
                  AND
                  2006 (UNAUDITED)
              5NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
              6ITEM
                  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS
                  OF OPERATIONS
              24ITEM
                  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
              28ITEM
                  4. CONTROL AND PROCEDURES
              29PART
                  II - OTHER INFORMATIONITEM
                  1. LEGAL PROCEEDINGS
              29ITEM
                  1A. RISK FACTORS
              .29ITEM
                  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS
              37ITEM
                  3. DEFAULTS UPON SENIOR SECURITIES
              37ITEM
                  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              37ITEM
                  5. OTHER INFORMATION
              37ITEM
                  6. EXHIBITS
              37





Certain
      financial information included in this quarterly report has been derived from
      data originally prepared in Renminbi ("RMB"), the currency of the People's
      Republic of China ("China" or "PRC"). For the purposes of this quarterly report,
      the balance sheet amounts with the exception of equity at March 31, 2007 were
      translated at 7.72 RMB to $1.00 USD as compared to 7.80 RMB at December 31,
      2006. The equity accounts were stated at their historical rate. The average
      translation rate of 7.75 RMB for the three months ended March 31, 2007 was
      applied to income statement accounts.





PART
      I.
      FINANCIAL INFORMATION




ITEM
      1.
      FINANCIAL STATEMENTS




GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
          BALANCE SHEETS
 AS
            OF
            MARCH 31, 2007 AND DECEMBER 31, 2006
  March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)ASSETSCURRENT
                  ASSETS:Cash
              
              $
              4,797,815
              
              $
              6,831,549Restricted
                  cash
              
              
              4,274,434
              
              
              4,231,523Accounts
                  receivable, net of allowance for doubtful accounts of
                  $138,522and
                  $137,132 as of March 31, 2007 and December 31, 2006,
                  respectively
              
              
              11,348,292
              
              
              17,095,718Notes
                  receivable
              
              
              2,066,340
              
              
              537,946Other
                  receivables
              
              
              188,256
              
              
              268,784Other
                  receivables - related parties
              
              
              517,400
              
              
              850,400Inventories
              
              
              14,382,854
              
              
              12,489,290Advances
                  on inventory purchases
              
              
              13,725,067
              
              
              2,318,344Prepaid
                  expenses - current
              
              
              46,620
              
              
              46,152Total
                  current assets
              
              
              51,347,078
              
              
              44,669,706PLANT
                  AND EQUIPMENT, net
              
              
              26,439,964
              
              
              26,606,594OTHER
                  ASSETS:Prepaid
                  expenses - non current
              
              
              872,009
              
              
              740,868Intangible
                  assets - land use right, net of accumulated amortization
              
              
              1,745,923
              
              
              1,804,440Total
                  other assets
              
              
              2,617,932
              
              
              2,545,308Total
                  assets
              
              $
              80,404,974
              
              $
              73,821,608LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              4,991,010
              
              $
              3,001,775Short
                  term loans - bank
              
              
              31,886,785
              
              
              30,284,686Short
                  term notes payable
              
              
              8,236,200
              
              
              8,153,520Other
                  payables
              
              
              81,198
              
              
              355,142Accrued
                  liabilities
              
              
              1,032,995
              
              
              1,064,012Customer
                  deposits
              
              
              2,742,278
              
              
              1,093,602Deposits
                  due to sales representatives
              
              
              1,658,895
              
              
              2,051,200Taxes
                  payable
              
              
              6,232,648
              
              
              5,391,602Shares
                  subject to mandatory redemption
              
              
              1,950,000
              
              
              2,179,779Total
                  current liabilities
              
              
              58,812,009
              
              
              53,575,318MINORITY
                  INTEREST
              
              
              6,465,791
              
              
              6,185,797SHAREHOLDERS'
                  EQUITY:Common
                  Stock, $0.001 par value, 75,000,000 shares authorized, 32,444,665
                  and32,426,665
                  shares issued and outstanding (including 1,000,000 and 1,176,665redeemable
                  shares) as of March 31, 2007 and December 31, 2006,
                  respectively
              
              
              31,445
              
              
              31,250Paid-in-capital
              
              
              7,239,428
              
              
              6,871,358Retained
                  earnings
              
              
              5,449,052
              
              
              4,974,187Statutory
                  reserves
              
              
              1,107,010
              
              
              1,107,010Accumulated
                  other comprehensive income
              
              
              1,300,239
              
              
              1,076,688Total
                  shareholders' equity
              
              
              15,127,174
              
              
              14,060,493Total
                  liabilities and shareholders' equity
              
              $
              80,404,974
              
              $
              73,821,608
  The
          accompanying notes are an integral part of these statements.
 -
            2 -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
 FOR
        THE
        THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 (Unaudited)
  2007
              
              2006REVENUES
              
              $
              37,607,971
              
              $
              20,642,503COST
                  OF SALES
              
              
              35,874,966
              
              
              19,371,587GROSS
                  PROFIT
              
              
              1,733,005
              
              
              1,270,916SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              630,200
              
              
              644,795INCOME
                  FROM OPERATIONS
              
              
              1,102,805
              
              
              626,121OTHER
                  EXPENSE, NET
              
              
              220,676
              
              
              160,139INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              882,129
              
              
              465,982AND
                  MINORITY INTERESTPROVISION
                  FOR INCOME TAXES
              
              
              127,270
              
              
              -NET
                  INCOME BEFORE MINORITY INTEREST
              
              
              754,859
              
              
              465,982LESS
                  MINORITY INTEREST
              
              
              279,994
              
              
              213,574NET
                  INCOME
              
              
              474,865
              
              
              252,408OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustments
              
              
              223,551
              
              
              121,405COMPREHENSIVE
                  INCOME
              
              $
              698,416
              
              $
              373,813WEIGHTED
                  AVERAGE NUMBER OF SHARES
              
              
              31,320,251
              
              
              31,250,000EARNING
                  PER SHARE, BASIC AND DILUTED
              
              $
              0.015
              
              $
              0.008
  The
          accompanying notes are an integral part of these statements.
  -
              3 -
  GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
  CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
        THE
        THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 
 Common
                  Stock
              
              
              
              Retained
                  earnings
              
              Accumulated
                otherPaid-in
              
              Statutory
              
              
              
              comprehensiveShares
              
              Par
                  value
              
              capeital
              
              reserves
              
              Unrestricted
              
              income
              
              TotalsBALANCE,
                January 1, 2006
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              840,753
              
              $
              4,207,236
              
              $
              399,188
              
              $
              12,349,785Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              252,408
              
              
              
              
              
              252,408Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              121,405
              
              
              121,405BALANCE,
                  March 31, 2006, unaudited
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              840,753
              
              $
              4,459,644
              
              $
              520,593
              
              $
              12,723,598Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              780,800
              
              
              
              
              
              780,800Adjustment
                  to statutory reserve
              
              
              
              
              
              
              
              
              
              
              
              266,257
              
              
              (266,257
              )Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              556,095
              
              
              556,095BALANCE,
                  December 31, 2006
              
              
              31,250,000
              
              $
              31,250
              
              $
              6,871,358
              
              $
              1,107,010
              
              $
              4,974,187
              
              $
              1,076,688
              
              $
              14,060,493Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              474,865
              
              
              
              
              
              474,865Common
                  stock issued for conversion ofredeemable
                  stock, $1.95/share
              
              
              176,665
              
              
              177
              
              
              344,328
              
              
              
              
              
              
              
              
              
              
              
              344,505Common
                  stock issued for service, $1.32/share
              
              
              18,000
              
              
              18
              
              
              23,742
              
              
              
              
              
              
              
              
              
              
              
              23,760Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              223,551
              
              
              223,551BALANCE,
                  March 31, 2007, unaudited
              
              
              31,444,665
              
              $
              31,445
              
              $
              7,239,428
              
              $
              1,107,010
              
              $
              5,449,052
              
              $
              1,300,239
              
              $
              15,127,174
 The
          accompanying notes are an integral part of these statements.
  -
            4 -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 CONSOLIDATED
          STATEMENTS OF CASH FLOWS
 FOR
            THE
            THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 (Unaudited)
  2007
                
                2006CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    income
                
                $
                474,865
                
                $
                252,408Adjustments
                    to reconcile net income to cashused
                    in operating activities:Minority
                    interest
                
                
                279,994
                
                
                213,574Depreciation
                
                
                561,709
                
                
                273,775Amortization
                
                
                76,524
                
                
                73,718Loss
                    on disposal of equipment
                
                
                -
                
                
                27,845Stock
                    issued for services
                
                
                23,760
                
                
                -Interest
                    expense accrued on mandatory redeemable stock
                
                
                114,726
                
                
                114,724(Increase)
                    decrease in assets:Accounts
                    receivable
                
                
                5,898,381
                
                
                (1,577,243
                )Other
                    receivables
                
                
                82,939
                
                
                61,389Other
                    receivables - related parties
                
                
                333,000
                
                
                -Inventories
                
                
                (1,760,231
                )
                
                (5,227,041
                )Advances
                    on inventory purchases
                
                
                (11,340,142
                )
                
                (3,598,499
                )Prepaid
                    expenses - current
                
                
                (123,161
                )
                
                (162,611
                )Increase
                    (decrease) in liabilities:Accounts
                    payable
                
                
                1,951,381
                
                
                (60,529
                )Other
                    payables
                
                
                (275,480
                )
                
                90,567Other
                    payable - related party
                
                
                -
                
                
                (650,000
                )Accrued
                    liabilities
                
                
                (41,648
                )
                
                279,506Customer
                    deposits
                
                
                1,631,391
                
                
                1,282,375Taxes
                    payable
                
                
                783,398
                
                
                260,995Net
                    cash used in operating activities
                
                
                (1,328,594
                )
                
                (8,345,047
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Restricted
                    cash
                
                
                (2
                )
                
                (18,968
                )Notes
                    receivable
                
                
                (1,517,176
                )
                
                (989,269
                )Advances
                    on equipment purchases
                
                
                -
                
                
                1,055,547Deposits
                    due to sales representatives
                
                
                (411,542
                )
                
                310,700Purchase
                    of equipment
                
                
                (126,928
                )
                
                (3,382,390
                )Net
                    cash used in investing activities
                
                
                (2,055,648
                )
                
                (3,024,380
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Borrowings
                    on short term loans - bank
                
                
                8,785,581
                
                
                7,220,668Payments
                    on short term loans - bank
                
                
                (7,495,481
                )
                
                (2,361,320
                )Borrowings
                    on short term notes payable
                
                
                1,161,090
                
                
                621,400Payments
                    on short term notes payable
                
                
                (1,161,090
                )
                
                (621,400
                )Net
                    cash provided by financing activities
                
                
                1,290,100
                
                
                4,859,348EFFECTS
                    OF EXCHANGE RATE CHANGE IN CASH
                
                
                60,407
                
                
                35,707DECREASE
                    IN CASH
                
                
                (2,033,735
                )
                
                (6,474,372
                )CASH,
                    beginning of period
                
                
                6,831,550
                
                
                8,648,373CASH,
                    end of period
                
                $
                4,797,815
                
                $
                2,174,001
 
 The
          accompanying notes are an integral part of these statements.
  -
              5 -
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 
 **Note
        1–
        Background**
 
 The
        Company was established on August 5, 2002, and, through its subsidiary in
        China,
        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.
  **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:
 PercentageSubsidiary
                
                
                
                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. Assets and liabilities
        are translated at the unified exchange rate as quoted by the People’s Bank of
        China at the end of the period. Translation adjustments resulting from this
        process are included in accumulated other comprehensive income in the statement
        of shareholders’ equity. Transaction gains and losses that arise from exchange
        rate fluctuations on transactions denominated in a currency other than the
        functional currency are included in the results of operations as
        incurred.
 
 Translation
        adjustments amounted to $1,300,239 and $1,076,688 as of March 31, 2007 and
        December 31, 2006, respectively. Asset and liability amounts at March 31,
        2007
        and December 31, 2006 were translated at 7.72 RMB to $1.00 USD and 7.80 RMB
        to
        $1.00 USD, respectively. Equity accounts were stated at their historical
        rate.
        The average translation rates applied to income statement accounts for the
        three
        months ended March 31, 2007 and 2006 were 7.75 RMB and 8.04 RMB, respectively.
        Cash flows are also translated at average translation rates for the period,
        therefore, amounts reported on the statement of cash flows will not necessarily
        agree with changes in the corresponding balances on the balance
        sheet.
  -
            6
            -
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
            31,
            2007
 (UNAUDITED)
 Plant
        and equipment, net
 
 Plant
        and
        equipment are stated at cost less accumulated depreciation. Depreciation
        is
        computed using the straight-line method over the estimated useful lives of
        the
        assets with 3% residual value. The depreciation expense for the three months
        ended March 31, 2007 and 2006 amounted to $561,709 and $273,775,
        respectively.
 
 Estimated
        useful lives of the assets are as follows:
 EstimatedUseful
                    LifeBuildings
                
                
                10-30
                    yearsMachinery
                    and equipment
                
                
                8-15
                    yearsOther
                    equipment
                
                
                5-8
                    yearsTransportation
                    equipment
                
                
                5-15
                    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.
 
 Long-term
        assets of the Company are reviewed annually or more often if circumstance
        dictate, to determine whether their carrying value has become impaired. The
        Company considers assets to be impaired if the carrying value exceeds the
        future
        projected cash flows from related operations. The Company also re-evaluates
        the
        periods of amortization to determine whether subsequent events and circumstances
        warrant revised estimates of useful lives. As of March 31, 2007, the Company
        expects these assets to be fully recoverable.
 
 Plant
        and
        equipment consist of the following at:
  March
                    31,
                
                December
                    31,2007
                
                2006(unaudited)Buildings
                    and improvements
                
                $
                9,433,564
                
                $
                9,338,865Transportation
                    equipment
                
                
                1,054,691
                
                
                1,019,698Machinery
                
                
                23,008,053
                
                
                22,675,357Total
                
                
                33,496,308
                
                
                33,033,920Less
                    Accumulated depreciations
                
                
                7,056,344
                
                
                6,427,326Total
                
                $
                26,439,964
                
                $
                26,606,594
  -
            7
            -
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
            31,
            2007
 (UNAUDITED)
  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. For example, the Company estimates
        its potential losses on uncollectible receivable. Management believes that
        the
        estimates utilized in preparing its financial statements are reasonable and
        prudent. Actual results could differ from these estimates.
 
 Cash
        and concentration of risk
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with
        state **** owned
        banks within the People’s Republic of China and Hong Kong. Total cash (including
        restricted cash balances) in these banks at March 31, 2007 and December 31,
        2006
        amounted to $7,792,150 and $11,058,636, 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 amounts are
        $4,274,434 and $4,231,523 as of March 31, 2007 and December 31, 2006,
        respectively.
 
 Inventories
 
 Inventories
        are stated at the lower of cost or market using weighted average method.
        Inventories consisted of the following:
 March
                    31,
                
                December
                    31,2007
                
                2006(unaudited)Supplies
                
                $
                1,241,227
                
                $
                1,061,773Raw
                    materials
                
                
                4,093,577
                
                
                2,827,127Finished
                    goods
                
                
                9,048,050
                
                
                8,600,390Totals
                
                $
                14,382,854
                
                $
                12,489,290
  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
        includes direct costs of raw materials as well as direct labor used in
        production. Indirect production costs such as utilities and indirect labor
        related to production such as assembling, shipping and handling costs are
        also
        included in the cost of inventory. The Company reviews its inventory
        periodically for possible obsolete goods and to determine if any reserves
        are
        necessary for potential obsolescence. As of March 31, 2007 and December 31,
        2006, the Company believes no reserves are necessary.
 
 -
            8
            -
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 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.
 
 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” to use the land. Daqiuzhuang Metal acquired land use rights during
        the years ended 2000 and 2003 for a total amount of $2,870,902. The land
        use
        rights are for 50 years and expire in 2050 and 2053. However, Daqiuzhuang
        Metal's initial business license had ten-year term. Therefore management
        elected
        to amortize the land use rights over the ten-year business term. Daqiuzhuang
        Metal became a Sino Joint Venture in 2004 and obtained a new business license
        for twenty years; however, the Company decided to continue amortizing the
        land
        use rights over the original ten-year business term. As of March 31, 2007
        and
        December 31, 2006, accumulated
        amortization amounted to $1,326,654 and $1,237,293, respectively.
 
 Intangible
        assets of the Company are reviewed annually to determine whether their carrying
        value has become impaired. The Company considers assets to be impaired if
        the
        carrying value exceeds the future projected cash flows from related operations.
        The Company also re-evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        As of March 31, 2007, the Company expects these assets to be fully
        recoverable.
 
 Total
        amortization expense for the three months ended March 31, 2007 and 2006,
        amounted to $76,524 and $73,718, respectively.
 
 Shares
        subject to mandatory redemption
 
 The
        Company 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
        Company issued redeemable stock in September 2005. The amount is presented
        as a
        liability on the balance sheet at the fair market value on the date of issuance
        plus accrued interest at the balance sheet date, see note 16.
  -
            9
            -
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 Income
        taxes
 
 The
        Company adopted Statement of Financial Accounting Standards No. 109, “Accounting
        for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred
        income tax liabilities and assets for the expected future tax consequences
        of
        temporary differences between income tax basis and financial reporting basis
        of
        assets and liabilities. Provision for income taxes consist of taxes currently
        due plus deferred taxes. There are no deferred tax amounts at March 31, 2007
        and
        December 31, 2006.
 
 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 using tax rates that are expected
        to
        apply to the period when the asset is realized or the liability is settled.
        Deferred tax is charged or credited in the income statement, except when
        it is
        related to items credited or charged directly to equity, in which case the
        deferred tax is also dealt with in equity. Deferred tax assets and liabilities
        are offset when they relate to income taxes levied by the same taxation
        authority and the Company intends to settle its current tax assets and
        liabilities on a net basis.
 
 The
        Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
        Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
        benefit only if it is “more likely than not” that the tax position would be
        sustained in a tax examination, with a tax examination being presumed to
        occur.
        The amount recognized is the largest amount of tax benefit that is greater
        than
        50% likely of being realized on examination. For tax positions not meeting
        the
“more likely than not” test, no tax benefit is recorded. The adoption had no
        affect on the Company’s financial statements.
 
 Under
        the
        Income Tax Laws of PRC, the Company’s subsidiary, Daqiuzhuang Metal, is
        generally subject to an income tax at an effective rate of 33% (30% state
        income
        taxes plus 3% local income taxes) on income reported in the statutory financial
        statements after appropriate tax adjustments, unless the enterprise is located
        in a specially designated region where it allows foreign enterprises a two-year
        income tax exemption and a 50% income tax reduction for the following three
        years.
 
 Under
        the
        Income Tax Laws of Tianjin City of PRC, any
        enterprise located in Tianjin Costal Economic Development Zone is subject
        to
        income tax rate of 24%.
 
 T he
        Company’s subsidiary, Daqiuzhuang Metal, became a Chinese Sino-foreign joint
        venture at the time of the merger on October 14, 2004 and it became eligible
        to
        the tax benefit. The
        Company is exempt from income taxes for the years ended December 31, 2005
        and
        2006 and 50% income tax reduction of the special income tax rate of 24%,
        which
        is a rate of 12% for the years ended December 31, 2007, 2008 and 2009.
  -
            10
            -
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 Beginning
        January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
        existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
        (“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
        applicable to both DES and FIEs. The two years tax exemption, three years
        50%
        tax reduction tax holiday for production-oriented FIEs will be eliminated.
        The
        Company is currently evaluating the effect of the new EIT law will have on
        its
        financial position.
 
 The
        provision for income taxes for the three months ended March 31 consisted
        of the
        following:
 
 2007
              
              2006(unaudited)
              
              (unaudited)Provision
                  for China Income Tax
              
              $
              115,700
              
              $
              -Provision
                  for China Local Tax
              
              
              11,570
              
              
              -Total
                  Provision for Income Taxes
              
              $
              127,270
              
              $
              -
  The
          following table reconciles the U.S. statutory rates to the Company’s effective
          tax rate for the three months ended March 31:
  2007
                
                2006U.S.
                    Statutory rates
                
                
                34.0
                %
                
                34.0
                %Foreign
                    income not recognized in USA
                
                
                (34.0
                )
                
                (34.0
                )China
                    income taxes
                
                
                33.0
                
                
                33.0China
                    income tax exemption
                
                
                (21.0
                )
                
                (33.0
                )Total
                    provision for income taxes
                
                
                12.0
                %
                
                -
                %
  The
        estimated tax savings for the three months ended March 31, 2007 and 2006
        amounted to $222,722 and $191,674, respectively. The net effect on earnings
        per
        share had the income tax been applied would decrease earnings per share from
        $0.015 to $0.008 and $0.011 to $0.005 for the three months ended March 31,
        2007
        and 2006, respectively.
 
 Value
        Added Tax
 
 Enterprises
        or individuals who sell commodities, engage in repair and maintenance or
        import
        and export goods in the PRC are subject to a value added tax in accordance
        with
        Chinese laws. The value added tax standard rate is 17% of the gross sales
        price.
        A credit is available whereby VAT paid on the purchases of semi-finished
        products or raw materials used in the production of the Company’s finished
        products can be used to offset the VAT due on sales of the finished product.
 
 VAT
        on
        sales and VAT on purchases amounted to $5,830,752 and $5,574,487 for the
        three
        months ended March 31, 2007 and $2,792,718 and $2,501,389 for the three months
        ended March 31, 2006, respectively. Sales and purchases are recorded net
        of VAT
        collected and paid as the Company acts as an agent for the government. VAT
        taxes
        are not impacted by the income tax holiday.
  -
            11
            -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 Taxes
        payable consisted of the following:
 March
                    31,
                
                December
                    31,2007
                
                2006(unaudited)VAT
                    taxese payable
                
                $
                6,009,970
                
                $
                5,317,466Income
                    taxese payable
                
                
                127,753
                
                
                -Misc
                    taxes
                
                
                94,925
                
                
                74,136Total
                
                $
                6,232,648
                
                $
                5,391,602
  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 did not have a material
        effect on the Company’s financial position or results of
        operations.
 
 In
        June
        2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF No.
        06-3, How Taxes Collected from Customers and Remitted to Governmental
        Authorities Should Be Presented in the Income Statement (EITF No. 06-3).
        EITF
        No. 06-3 permits that such taxes may be presented on either a gross basis
        or a
        net basis as long as that presentation is used consistently. The adoption
        of
        EITF No. 06-3 on January 1, 2007 did not impact our consolidated financial
        statements. We present the taxes within the scope of EITF No. 06-3 on a net
        basis.
 
 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”). The Company adopted Interpretation No. 48 on January 1, 2007. See
        income taxes section above for details.
 
 In
        September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
        which
        addresses the measurement of fair value by companies when they are required
        to
        use a fair value measure for recognition or disclosure purposes under GAAP.
        SFAS
        No. 157 provides a common definition of fair value to be used throughout
        GAAP
        which is intended to make the measurement of fair value more consistent and
        comparable and improve disclosures about those measures. SFAS No. 157 will
        be
        effective for an entity's financial statements issued for fiscal years beginning
        after November 15, 2007. The Company is currently evaluating the effect SFAS
        No.
        157 will have on its consolidated financial position, liquidity, or results
        of
        operations.
  -
            12
            -
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
            31,
            2007
 (UNAUDITED)
  In
        February 2007, the Financial Accounting Standards Board (‘‘FASB’’) issued
        Statement of Financial Accounting Standards (‘‘SFAS’’) No. 159, The Fair Value
        Option for Financial Assets and Financials Liabilities — Including an Amendment
        of FASB Statement No. 115. This standard permits measurement of certain
        financial assets and financial liabilities at fair value. If the fair value
        option is elected, the unrealized gains and losses are reported in earnings
        at
        each reporting date. Generally, the fair value option may be elected on an
        instrument-by-instrument basis, as long as it is applied to the instrument
        in
        its entirety. The fair value option election is irrevocable, unless a new
        election date occurs. SFAS No. 159 requires prospective application and also
        establishes certain additional presentation and disclosure requirements.
        The
        standard is effective as of the beginning of the fiscal year that begins
        after
        November 15, 2007. The Company is currently evaluating the provisions
        of SFAS No. 159 to determine the potential impact, if any, the adoption will
        have on the Company’s financial statements.
 
 Reclassifications
 
 Certain
        prior period amounts have been reclassified to conform to the current period
        presentation. These reclassifications have no effect on net income or cash
        flows.
 
 **Note 3
        - 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 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 1,000,000 shares described
        in
        note 16 have been excluded from the earnings per share calculation.
  The
        weighted average number of shares used to calculate EPS for the three months
        ended March 31, 2007 and 2006 totaled 31,320,251, and 31,250,000, respectively,
        and reflect only the shares outstanding for those periods.
  **Note 4
        - Supplemental disclosure of cash flow information**
 
 Interest
        paid amounted to $523,307 and $499,877 for the three months ended March 31,
        2007
        and 2006, respectively.
 
 No
        income
        tax payments were made during the
        three months ended March 31, 2007 and 2006.
 
 -
            13
            -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 **Note 5
        - Accounts receivable and allowance for doubtful accounts**
 
 The
        Company conducts its business operations in the People’s Republic of China.
        Account receivables include trade accounts due from the customers. Management
        believes that the trade accounts are fully collectible as these amounts are
        being collected throughout the year. Also, management reviews its accounts
        receivable on a regular basis to determine if the bad debt allowance is adequate
        and adjusts the allowance when necessary. The allowance for doubtful accounts
        as
        of March 31, 2007 and December 31, 2006 amounted to $138,522 and $137,132,
        respectively.
 
 Schedule
        of valuation and qualifying accounts:
  Balance
                    at
                
                
                
                
                
                Effect
                    ofAllowance
                    for doubtful
                
                beginning
                    of
                
                
                
                
                
                exchange
                
                Balance
                    ataccount
                
                period
                
                Additions
                
                Deductions
                
                rate
                
                end
                    of periodThree
                      months endedMarch, 31, 2007
                
                $
                137,132
                
                $
                -
                
                $
                -
                
                $
                1,390
                
                $
                138,522Year
                      ended December31, 2006
                
                $
                1,371
                
                $
                135,761
                
                $
                -
                
                $
                -
                
                $
                137,132
  **Note 6
        - Notes receivable**
 
 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 the payment request
        early.
        The Company had $2,066,340 and $537,946 outstanding as of March 31, 2007
        and
        December 31, 2006, respectively.
 
 **Note 7
        - Prepaid expenses**
  Prepaid
        expenses at March 31, 2007 and December 31, 2006 consisted of the
        followings:
  March
                    31, 2007
                
                December
                    31, 2006(unaudited)Current
                
                Long-term
                
                Current
                
                Long-termRent
                
                $
                46,620
                
                $
                356,663
                
                $
                46,152
                
                $
                225,523Land
                    use right
                
                
                -
                
                
                515,346
                
                
                -
                
                
                515,345Total
                
                $
                46,620
                
                $
                872,009
                
                $
                46,152
                
                $
                740,868
  The
            Company’s prepaid expenses are prepaid rent for dormitory for its employees and
            land use rights in order to expand its manufacturing capabilities. As
            of March
            31, 2007 and December 31, 2006, prepaid rent for dormitory amounted to
            $403,283
            and $271,675, respectively, and prepaid rent for land use right amounted
            to
            $515,346 and $515,345, respectively. See note 21 for more
            details
  -
            14
            -
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
            31,
            2007
 (UNAUDITED)
 **Note 8
        - Advances on inventory purchases**
 
 Advances
        on inventory purchases are monies deposited or advanced to outside vendors
        or
        related parties on future inventory purchases. Due to the high shortage of
        steel
        in China, most of the Company’s vendors require a certain amount of money to be
        deposited with them as a guarantee that the Company will receive their purchases
        on a timely basis.
 
 This
        amount is refundable and bears no interest. The Company has a legal binding
        contract with their vendors for the guarantee deposit, which is to be returned
        to the Company at the end of the contract. The inventory is normally delivered
        within one month after the monies has been advanced. The total outstanding
        amount was $13,725,067 and $2,318,344 as of March 31, 2007 and December 31,
        2006, respectively.
 
 **Note 9
        - Related party transactions**
 
 The
        Company has a cash advance to 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
        advanced to Golden Glister Holdings Limited for business operations. Golden
        Glister Holdings Limited has agreed to pay back the amount on a short term
        basis. The Company had a receivable from Golden Glister for $517,400 at March
        31, 2007 and a receivable from Golden Glister for $850,400 at December 31,
        2006.
        The receivable is short term and non interest bearing.
 
 The
        Company subleased a portion of its land use rights to Tianjin Jing Qiu Steel
        Market Company, a related party under common control. The CEO, Yu Zuo Zheng,
        is
        the chairman of the largest shareholder of Jing Qiu Steel Market
        Company. The total rental income for three months ended March 31, 2007 and
        2006
        was $387,030
        and $0 ,
        respectively.
 
 The
        Company’s short term loan of $6,475,000 from Shenzhen Development Bank is
        personally guaranteed by Yu Zuo Sheng, CEO and majority holder of the
        Company.
 -
              15
              -
 GENERAL
        STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 **Note
          10 - Debt**
 Short
          term loans - bank
 
 Short
        term loans - bank represent amounts due to various banks which are normally
        due
        within one year. These loans can be renewed with the banks. The Company had
        a
        total of $31,886,785 and $30,284,686 short term bank loans with various banks
        as
        of March 31, 2007 and December 31, 2006, respectively, and consisted of the
        following:
  March
                  31,
              
              December
                  31,2007
              
              2006(unaudited)Loan
                  from China Bank, JingHai Branch, dueOctober
                  2007. Monthly interest only payment at6.732%
                  per annum, secured by equipmentand
                  property
              
              $
              1,165,500
              
              $
              1,153,800Loans
                  from Agriculture Bank, DaQuiZhuang Branch, duevarious
                  dates from April to March 2008.Monthly
                  interest only payments ranging from6.696%
                  to 7.65% per annum, guaranteed by anunrelated
                  third party and secured by property andequipment
              
              
              9,722,860
              
              
              9,625,256Loan
                  from Construction Bank of China, JinHai Branch, duevaries
                  dates in Auguest 2007. Monthly interest onlypayment
                  at 8.323% per annum, secured by properties.
              
              
              1,573,425
              
              
              1,557,630Loans
                  from ShangHai PuFa Bank, due various dates fromJuly
                  2007 to March 2008. Monthly interest onlypayments
                  ranging from 6.435% to 6.732% per annum,guaranteed
                  by an unrelated third party
              
              
              5,180,000
              
              
              5,128,000Loan
                  from China Merchants Bank, due various dates fromJune
                  2007 to September 2007. Quarterly interest onlypayments,
                  annual interest rate of 6.1425%,guaranteed
                  by an unrelated third parties.
              
              
              7,770,000
              
              
              7,692,000Loan
                  from ChenZhen Development Bank, due variousdates
                  in March 2008. Month interest onlypayment
                  at 6.426% to 6.710% per annum, secured byinventory
                  and guaranteed by CEO of the Company.
              
              
              6,475,000
              
              
              5,128,000Total
              
              $
              31,886,785
              
              $
              30,284,686
  Short
        term notes payable
 
 Short-term
        notes payable are lines of credit extended by the banks. When purchasing
        raw
        materials, the Company often issues a short term note payable to the vendor.
        This short term note payable is guaranteed by the bank for its complete face
        value. The banks usually require the Company to deposit a certain amount
        of cash
        at the bank as a guarantee deposit which is classified on the balance sheet
        as
        restricted cash.
  -
            16
            -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 The
        Company has the following short term notes payable outstanding as of March
        31,
        2007 and December 31, 2006:
  March
                    31,
                
                December
                    31,2007
                
                2006(unaudited)China
                    Bank, Jing Hai Branch, various amounts, dueApril
                    2007, restricted cash required of 50%of
                    loan amount, guaranteed by the Company
                
                $
                1,502,200
                
                $
                1,487,120Agricultural
                    Bank of China, various amounts, due datesranging
                    between April and September 2007,restricted
                    cash required of 50% of loan amount,guaranteed
                    by the Company and an unrelated third party
                
                
                1,554,000
                
                
                1,538,400ShangHai
                    PuFa Bank, due various dates from April to May 2007,restricted
                    cash required of 50% of loan balance,guaranteed
                    by an unrelated third party
                
                
                5,180,000
                
                
                5,128,000Totals
                
                $
                8,236,200
                
                $
                8,153,520
  Total
        interest expense for the three months ended March 31, 2007 and 2006 on all
        debt
        amounted to $623,632 and $499,877, respectively.
 
 **Note
        11 - Customer deposits**
 
 Customer
        deposits represent amounts advanced by customers on product orders. The product
        normally is shipped within six months after receipt of the advance payment
        and
        the related sale is recognized in accordance with the Company’s revenue
        recognition policy. As of March 31, 2007 and December 31, 2006, customer
        deposits amounted to $2,742,278 and $1,093,602, respectively.
 
 **Note
        12 - 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 $1,658,895 and
        $2,051,200 in deposits due to sales representatives outstanding as of March
        31,
        2007 and December 31, 2006, respectively.
 
 **Note
        13 - Major customers and suppliers**
 
 The
        Company has five major customers which represent approximately 26% and 62%
        of
        the Company’s total sales for the three months ended March 31, 2007 and 2006,
        respectively. Five customers accounted for 6% of total accounts receivable as of March 31,
        2007.
  -
            17
            -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 For
        the
        three months ended March 31, 2007 and 2006, the Company purchases approximately
        93% and 97%, respectively, of their raw materials from four major suppliers.
        There is no accounts payable due to these vendors at March 31,
        2007.
 
 **Note
        14 - Minority interest**
 
 Minority
        interest represents the outside shareholders’ 30% interest in Tianjin
        Daqiuzhuang Metal Sheet Co., Ltd.
 
 **Note
        15 - Other expenses and income, net**
 
 Other
        income and expense for the three months ended March 31 consist of the
        following:
  2007
              
              2006(Unaudited)
              
              (Unaudited)Finance/interest
                  expense
              
              $
              (640,857
              )
              $
              (546,218
              )Interest
                  income
              
              
              31,654
              
              
              60,033Other
                  nonoperating income
              
              
              388,527
              
              
              354,844Other
                  nonoperating expense
              
              
              -
              
              
              (28,798
              )Total
                  other expense
              
              $
              (220,676
              )
              $
              (160,139
              )
  For
        three
        months ended March 31, 2007, other nonoperating income includes rental
        income totaling $387,030, which represents land use right subleased to a
        related
        party for one year as discussed in note 9.
 
 During
        2005, the Company has received an approval from the PRC local government
        for a
        two year income tax exemption and a three year 50% reduction in income tax
        rates. The
        local
        Chinese tax authority waived the previously accrued income tax accumulated
        prior
        to January 1, 2005 in the amount of $253,250 which was recorded as other
        nonoperating income during the three months ended March 31, 2006
 
 **Note
        16 - Private offering of redeemable stock**
 
 On
        September 18, 2005, the Company entered into a subscription agreement with
        certain investors to sell a total of 1,176,665 shares of common stock at
        $1.50
        per share for gross proceeds of $1,765,000, commissions totaled $158,849,
        leaving net proceeds of $1,606,151. In addition, two warrants are attached
        to
        each share of common stock 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 may be required to repurchase the 1,176,665 shares
        of
        common stock 18 months after the closing date at a per share price of
        $1.95.
 
 In
        accordance with 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 .
  -
            18
            -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 In
        accordance with SFAS 150, the Company recorded this stock issuance as a
        liability in the financial statements due to the mandatory redemption provision.
        The shares are recorded at fair value on the date of issuance, which is the
        net
        cash proceeds, plus any accrued interest up to March 31, 2007. The difference
        between the net proceeds, $1,606,151, and the redemption amount, $2,294,497,
        which is $688,346, was accrued and amortized as interest expense over an
        18
        month period, beginning in October 2005 and ending in March 2007.
 
 On
        March
        1, 2007, the redemption option on all 1,176,665 redeemable shares expired.
        However, holders of 1,000,000 shares requested, and the Company agreed, to
        extend the redemption option for another six months through September 1,
        2007;
        the repurchase price stayed at $1.95, representing total liabilities of
        $1,950,000. The other 176,665 shares, representing $351,122, were reclassified
        from liabilities to equity. The rollforward of these shares is shown
        below.
  Number
                    of
                
                Redemptionshares
                
                valueRedeemable
                    shares issued:Matlin
                    Patterson Global Opportunities Partners II L.P.
                
                
                736,361
                
                $
                1,435,904Matlin
                    Patterson Global Opportunities Partners (Caymans) II L.P.
                
                
                263,639
                
                
                514,096Zayd
                    International Limited
                
                
                70,000
                
                
                136,500Yuji
                    Komiya
                
                
                33,333
                
                
                64,999John
                    Yoo
                
                
                33,333
                
                
                64,999Yun
                    Qian Xie
                
                
                20,000
                
                
                39,000Jun
                    Ren
                
                
                13,333
                
                
                26,000Robertson
                    Investments Limited
                
                
                6,666
                
                
                12,9991,176,665
                
                
                2,294,497Shares
                    reclassified to equity on March 1, 2007:Zayd
                    International Limited
                
                
                (70,000
                )
                
                (136,500
                )Yuji
                    Komiya
                
                
                (33,333
                )
                
                (64,999
                )John
                    Yoo
                
                
                (33,333
                )
                
                (64,999
                )Yun
                    Qian Xie
                
                
                (20,000
                )
                
                (39,000
                )Jun
                    Ren
                
                
                (13,333
                )
                
                (26,000
                )Robertson
                    Investments Limited
                
                
                (6,666
                )
                
                (12,999
                )Balance,
                    March 31, 2007
                
                
                1,000,000
                
                $
                1,950,000
  -
            19
            -
 GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 **Note
        17 - Shareholders’ equity**
 
 On
        February 12, 2007, the Company issued to Aurelius Consulting Group, Inc.,
        (known
        to us as RedChip Companies, Inc.) 18,000 shares of common stock as a portion
        of
        their compensation for investor relations services rendered of
        $23,760.
 
 On
        March
        1, 2007, as discussed in Note 16, 176,665 shares of redeemable stock were
        reclassified from liabilities to common stock upon expiration of the redemption
        feature.
 
 **Note
        18 - Retirement plan**
 
 Regulations
        in the People’s Republic of China require the Company to contribute to a defined
        contribution retirement plan for all employees. All Joint Venture employees
        are
        entitled to a retirement pension amount calculated based upon their salary
        at
        their date of retirement and their length of service in accordance with a
        government managed pension plan. The PRC government is responsible for the
        pension liability to the retired staff. It was the first year the Company
        was
        required to make contributions to the state retirement plan. The Company
        is
        required to contribute 20% of the employees’ monthly salary. Employees are
        required to contribute 7% of their salary to the plan. Total pension expense
        incurred by the Company amounted to $60,704 and $61,661 for the three months
        ended March 31, 2007 and 2006, respectively.
  **Note 19
        - Statutory reserves**
 
 The
        laws
        and regulations of the People’s Republic of China require that before an
        enterprise distributes profits to its partners, it must first satisfy all
        tax
        liabilities, provide for losses in previous years, and make allocations,
        in
        proportions determined at the discretion of the board of directors, after
        the
        statutory reserve. The statutory reserves include surplus reserve fund and
        the
        enterprise fund and t hese
        statutory reserves represent restricted retained earnings.
 
 Surplus
        reserve fund
 
 The
        Company is required to transfer 10% of its net income, as determined in
        accordance with the PRC accounting rules and regulations, to a statutory
        surplus
        reserve fund until such reserve balance reaches 50% of the Company’s registered
        capital.
 
 The
        transfer to this reserve must be made before distribution of any dividend
        to
        shareholders. For
        the
        three months ended March 31, 2007 and
        2006,
        the Company did not transfer any fund to this reserve. The surplus reserve
        fund
        is non-distributable other than during liquidation and can be used to fund
        previous years’ losses, if any, and may be utilized for business expansion or
        converted into share capital by issuing new shares to existing shareholders
        in
        proportion to their shareholding or by increasing the par value of the shares
        currently held by them, provided that the remaining reserve balance after
        such
        issue is not less than 25% of the registered capital.
 
 Enterprise
        fund
 
 The
        enterprise fund may be used to acquire plant and equipment or to increase
        the
        working capital to expend on production and operation of the business. No
        minimum contribution is required and the company has not contributed to this
        fund.
  -
            20
            -
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
          31,
          2007
 (UNAUDITED)
 **Note
        20 - 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 metric 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 will contribute land, existing equipment and materials at an estimated
        value of approximately $12,000,000 which will be contributed to the joint
        venture at the date of the approval of Joint Venture or issuance of the business
        license. The value of the assets to be contributed by Baotou Steel will be
        stated at fair market value. General Steel Investment Co., Ltd. will contribute
        approximately $7,500,000 of cash and Daqiuzhuang Metal will contribute
        approximately $5,000,000 cash. These contributions will be required to be
        made
        on the following payment schedule 30% of their capital contribution within
        30
        days of the date of approval of the Joint Venture; 30% of their capital
        contribution within 3 months of the date of approval of the Joint Venture;
        and
        40% of their capital contribution within 6 months of the date of approval
        of the
        Joint Venture. The Company will use the consolidation method to account for
        the
        joint venture.
 
 These
        contributed assets will be used to commence a new operation. The joint venture
        will purchase a 100-tonne electric furnace and a refiner furnace to produce
        high
        quality specialty steel using advanced technology. This type of specialty
        steel
        has not been previously produced by Baotou Steel. This advanced technology
        has
        not been previously utilized by Baotou Steel. This new joint venture will
        aim to
        enter into a new market segment of high-end specialty steel.
 
 Upon
        the
        commencement of the joint venture, the rights of the minority shareholders
        of
        Daqiuzhuang Metal Sheet Co. Ltd. will be limited to receiving a distribution
        of
        profits from the joint venture; the minority shareholders will not have any
        voting rights.
  -
            21
            -
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
            31,
            2007
 (UNAUDITED)
 As
        of
        March 31, 2007, the Company has not received the approval of the Baotou Steel
        Joint Venture and it is still under government review and maybe subject to
        further industry sector review by the relevant authorities in China in view
        of
        the sensitive nature of the steel industry. The management at this point
        is
        uncertain if and when the government approval will be granted. Currently
        none of
        the operations of Baotou Steel is consolidated into the Company’s financial
        statements as there is no ownership or control relationship between the Company
        and Baotou Steel at this time.
 
 On
        April
        27, 2007, the Company had an amendment to the agreement with Baotou Steel,
        changing some of the terms stated above, see note 22.
 
 **Note
        21 - Commitment and contingencies**
 
 Daqiuzhuang
        Metal provides dormitory for its employees under a rental contract. The rent
        for
        ten years starting in January 2006. Daqiuzhuang Metal is required to prepay
        the
        entire ten years’ rent, which is a total of $466,200. As of March 31, 2007, the
        unpaid portion of the prepaid rent is $16,298. Daqiuzhuang Metal will pay
        the
        remaining portion of the rent during the year of 2007. Total rental expense
        of
        the dormitory for the three months ended March 31, 2007 and 2006 amounted
        to
        $11,611 and $11,185.
 
 Daqiuzhuang
        Metal has rented additional land for fifty years starting September 2005.
        The
        agreement was for Daqiuzhuang Metal to pay the first three years’ rent payments
        upon signing the agreement. The other forty years’ rent payment will be paid in
        full three years after the agreement date. Total amount of the rent over
        the 50
        years period is approximately $1, 044,728 (or 8,067,400 RMB). During the
        period,
        the lessor has to assist Daqiuzhuang Metal in obtaining land use right. Upon
        obtaining land use right, Daqiuzhuang Metal will pay the remaining balance
        before September 2008 as stated in the agreement. At March 31, 2007, total
        future minimum lease payments for the unpaid portion under an operating lease
        were as follows:
 
 
 For
                  the year ended December 31,
              
              Amount2007
              
              $
              -2008
              
              
              424,909Thereafter
              
              $
              -
  Total
        rental expense of the land use right for the three months ended March 31,
        2007
        and 2006 amounted to $5,204 and $5,013.
 
 **Note
        22 - Subsequent event**
 
 On
        April
        27, 2007, Daqiuzhuang Metal, a 70% owned subsidiary of the Company, and Baotou
        Iron and Steel Group Co., Ltd. (“Baotou Steel”) entered into an Amended and
        Restated Joint Venture Agreement (the “Agreement”), amending the Joint Venture
        Agreement entered into on September 28, 2005 (“Original Joint Venture
        Agreement”). The Amended and Restated Joint Venture Agreement increased
        Daqiuzhuang Metal's ownership interest in the Joint Venture from 20% to
        80%.
  -
            22
            -
 GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 MARCH
            31,
            2007
 (UNAUDITED)
 The
        Agreement states that the initial capital of the Joint Venture Company will
        be
        approximately US$6,400,000, and the registered capital will be approximately
        US$6,400,000.
 
 The
        Agreement sets outs the initial contributions of each party to the Agreement
        to
        the Joint Venture Company. Baotou Steel will contribute RMB 10,000,000, or
        approximately US$1,270,000 and Daqiuzhuang Metal will contribute RMB 40,000,000,
        or approximately US$5,130,000.
 
 The
        purpose of the amendment is for the convenience of obtaining the business
        license. The following items highlight the significance of the amendment
        from
        the previous agreement:
 
 1.
              Change
                  in total registered capital from approximately US$24,000,000 to
                  US$6,400,000.
 
 2.
              Change
                  in the nature of ownership from a Sino-Foreign Joint Venture Enterprise
                  to
                  a solely Domestic Joint Venture Enterprise, which will be 80% owned
                  by
                  Daqiuzhuang Metals and 20% by Baotou
                  Steel.




-
          23 -




ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
      OPERATIONS




**Forward-Looking
      Statements:**




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




**Overview**




Tianjin
      Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”), our core operating
      unit, 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 can be made to meet order
      requirements. “Qiu Steel” is the registered name for our products.




Daqiuzhuang
      Metal currently has ten steel sheet production lines capable of processing
      approximately 400,000 tons of 0.75-2.0 mm hot-rolled carbon steel sheets per
      year, maintaining an approximately 50% market share of all hot-rolled steel
      sheets used in the production of agricultural vehicles in China, out of which
      150,000 tons of production capacity were added since mid-March 2006. Products
      are sold through a nation-wide network of 35 distributors and 3 regional sales
      offices.




-
          24
          -




Joint
      Venture




On
      September 28, 2005, We signed a joint venture agreement (the “Joint Venture
      Agreement”) with Baotou Iron and Steel Group (“Baotou Steel”), to form Baotou
      Steel - General Steel Special Steel Joint Venture Company Limited, a limited
      liability company formed under the laws of the People's Republic of China (the
      “Joint Venture Company”). On
      April
      30, 2007, we amended and restated this Joint Venture Agreement (the “Amended
      Agreement”). 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 improve the product quality and the production
      capacity and competitiveness by adopting advanced technology in the production
      of steel products. The Joint Venture Company is expected to eventually have
      a
      capacity of producing 600,000 metric tons of specialty steel products a
      year.




Pursuant
      to the Amended Agreement, the registered capital of the Joint Venture Company
      will be approximately US$6,400,000 and the initial capital of the Joint Venture
      Company will be approximately $6,400,000, of which Baotou Steel will contribute
      approximately $1,270,000 and Daqiuzhuang Metal will contribute approximately
      $5,130,000. Accordingly Baotou Steel will have a 20% ownership interest and
      Daqiuzhuang Metal will have a 80% ownership interest in the Joint Venture
      Company.




This
      transaction is not considered a business combination as defined under Article
      11
      of Regulation S-X. The revenue producing activity for the new entity is
      different from that of the existing companies. New high-end special steel
      products are produced and marketed to new customers. In order to produce these
      new products, the new entity will build new facilities on the land contributed
      by Baotou Steel. It uses some equipment contributed by Baotou Steel, which
      is
      substantially modified, and will add a 100-ton electric furnace and a refiner
      to
      create a new production line in the future. A new sales force identifies and
      targets new customers. The new entity does not carry the names of either of
      its
      owners.




This
      transaction is not considered as a business acquisition through a non-monetary
      exchange under EITF 98-3 because it does not meet the relevant definition
      thereunder. The assets contributed do not include systems, standards, protocols,
      conventions and rules that act to define the process necessary for normal,
      self-sustaining operations, such as (i) strategic management processes, (ii)
      operational processes, and (iii) resource management processes. The assets
      contributed do not include the ability to obtain access to the customers that
      purchase the outputs of the assets contributed. Additionally, while the newly
      formed entity received certain tangible assets, it is a start-up company. It
      needs to attract and retain talent to install/modify/acquire equipment, manage
      operations, as well as manufacture, market and sell products to newly identified
      customers. The assets contributed by Baotou Steel are insignificant compared
      to
      the total assets of Baotou Steel. Baotou Steel continues to operate at its
      historical levels even assuming the consummation of the transaction. The
      respective owners who contributed certain assets to the new entity continue
      to
      operate as separate entities. They have not reduced or transferred any of their
      respective workforces as a result of this transaction. They continue to operate
      their existing businesses at their historical levels.




**Operating
      Results**




***Sales
      Revenue and Gross Profit***




Sales
      Revenue increased from $20.6 million in the first quarter of 2006 to $37.6
      million in the first quarter of 2007, an 82.2% increase. This increase is a
      result from a combination of factors, including a continued strong demand for
      light agricultural vehicles brought about by the central government’s effort to
      raise rural income, and our ability to capitalize on this demand brought about
      by our increased production capacity and strategic operating investments made
      in
      2006. Additionally, we have adjusted our production mix to include a higher
      percentage of silicon steel sheets which have a higher sales price than our
      carbon steel sheets. Average sales price per ton including sale of scrap for
      the
      three months ended March 31, 2007 was $428 compared to $383 during the same
      period in 2006.




-
          25
          -




As
      part
      of the central government’s 11 th Five-year plan for Economic Development 2006 - 2010, the government has
      initiated a number of programs to aid rural farmers and increase their incomes.
      These programs are varied and include, but are not limited to, such things
      as
      tax relief packages and consumer-durable subsidies. The central government
      targets rural incomes to rise between five and ten percent annually from 2006
      through 2010. We know from our own understanding of the market, that rural
      transportation asset growth closely mirrors rural income growth. In other words,
      when rural income begins to rise, one of the first items purchased by a rural
      household is a small agricultural vehicle - the product for which our hot-rolled
      steel sheets are used to make. According to the central government statistics
      bureau, nationwide rural per capita income rose 15.2% in the first quarter
      of
      2007 compared to the same period last year. We believe the force of this
      macro-economic government policy to raise rural income levels is showing results
      and will continue to be a positive driver in the demand for our product.




Shipment
      volume increased from 53,547 tons in the first quarter of 2006 to 87,786 tons
      in
      the same period of 2007, a 63.9% increase. This high increase in shipped product
      is due to our higher production volume and the efforts of our expanded sales
      infrastructure of 35 distributors and 3 regional sales offices.




Gross Profit
      increased from $1.27 million in the first quarter of 2006 to $1.73 million
      in
      the first quarter of 2007, a 36.4% increase. In the same period the gross profit
      margin decreased from 6.2% to 4.6% owing largely to the increase in cost per
      ton
      outpacing the increase in sales per ton. A more indicative measure of margin
      performance and trend compares the fourth quarter of 2006 with the first quarter
      of 2007. In these continuous quarters, gross margin increased from -0.8% to
      4.6%.




***Cost
      of sales***




Cost
      of
      sales principally consists of the cost of raw materials, labor, utilities,
      manufacturing costs, manufacturing related depreciation and other fixed costs.
      Overall cost of sales increased to $35.9 million in the first quarter of 2007,
      from $19.4 million in the first quarter of 2006, an 85.2% increase. This is
      primarily attributed to the large increase in production volume of 64% over
      the
      year-to-year period. Cost of sales as a percentage of sales increased 2% to
      95.4% measured against the first quarter of 2006. Average cost per ton was
      $409
      for the first quarter of 2007 compared to $360 in the same period of 2006.




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




Selling,
      general and administrative expenses were $630,200 for the first quarter of
      2007,
      compared to $644,795 for the same period of 2006, a 2.3% decrease. This decrease
      can be traced to savings achieved in investor communications. Additionally,
      we
      have improved our cost control procedures.




***Net
      income***




Net
      income was $474,865 for the three months ended March 31, 2007 compared to
      $252,408 for the same period of 2006, a 88% increase. As the market has shown
      strong demand for our products and our cost control procedures started to show
      results, we were able to finish the first quarter with this 88% increase in
      net
      earnings.




***Other
      income (expense)***




Interest
      expense was $640,857 for the first quarter of 2007 compared to $500,921 for
      the
      first quarter of 2006, a 27.9% increase. This increase is due to more debt
      borrowing which was mainly used for bulk purchases of raw materials and our
      credit program to our main customers.




-
          26
          -




***Income
      taxes***




We
      did
      not carry on any business and did not maintain a branch office in the United
      States during the three months ended March 31, in the years 2007 and 2006.
      Therefore, no provision for withholding or U.S. federal income taxes or tax
      benefits on our undistributed earnings and/or losses has been made.




Pursuant
      to the relevant laws and regulations in the People’s Republic of China,
      Daqiuzhuang Metal, as a Sino-foreign joint venture in the People’s Republic of
      China, is entitled to an exemption from the PRC enterprise income tax for two
      years commencing from its first profitable year. We are approved for this tax
      benefit and are exempt from income tax for the years ended December 31, 2005
      and
      2006. We are entitled to a 50% income tax reduction for the years ended December
      31, 2007, 2008 and 2009.




In
      the
      first quarter of 2007 we had a tax expense of $127,270.




***Accounts
      Receivable***




Accounts
      receivable were $11.3 million as of March 31, 2007 compared to $17.1 million
      on
      December 31, 2006, a 33.6% decrease. This decrease is largely due to the fact
      that we are reducing the number of credit sales and also shortening the time
      period for credit payments.




We
      recognize the revenue when we ship out products and passed the titles of the
      products to our customers and distributors.  We extended short-term credit
      to our customers and distributors with good reputations and long-term business
      relationships. We have not experienced any bad debt in these accounts. Also
      we
      review our accounts receivable on a regular basis to determine if the bad debt
      allowance is adequate and adjusts the allowance amount if needed. We believe
      the
      accounts receivable is collectible. Never-the-less, to be conservative and
      prudent in our management practice, as of March 31, 2007, we reserved $138,522
      for bad debt allowance based on our reasonable estimate.




***Advances
        on*** ***inventory
        purchases***
 
 Advances
        on inventory purchases were $13.7 million as of March 31, 2007 compared to
        $2.3
        million on December 31, 2006, increased by $11.4 million. This increase resulted
        from the large deposit we made to our vendors to secure low price on the
        raw
        materials. As the steel market recovered since December 2006, raw materials
        price went up even in a faster pace than sales price. We decided to prepay
        some
        of our vendors for raw materials in order to lock in a low purchase price.
        It
        has been one of our cost cutting measures.




***Liquidity
      and capital resources***




Due
      to
      the strong market demand for our products and our 2006 addition of four new
      production lines, we plan to maintain a higher-than-average debt to equity
      ratio
      to better position ourselves in this fast growing market. The bank loans are
      considered short term for the purpose of the preparation of the financial
      statements because they are renewable with the banks every year. Cash balance
      including restricted cash amounted to $9.07 million and $11.06 million as of
      March 31, 2007 and December 31, 2006, respectively.




***Operating
      activities***


Net
        cash
        used in operating activities for the first quarter of 2007 was $1.3 million
        compared to $8.3 million in the same period of 2006. This change is attributable
        to a combination of major factors. Accounts receivable at March 31, 2007
        decreased $5.9 million from $17.1 as of December 31, 2006. Due to the
        improvement of the steel market in the first quarter this year, we have reduced
        the number of credit sales and shortened the time period for credit payments.
        These measures generated cash in-flow for us. At the same time, we saw raw
        materials price going up as well. We decided to prepay some of our vendors
        for
        raw materials in order to lock in a low purchase price. This resulted in
        the
        increase in advances on inventory purchases for $11.3 million at March 31,
        2007
        compared to December 31, 2006.




***Investing
      activities***




Net
      cash
      used in investing activities was $2.1 million for the three-month period ended
      March 31, 2007 compared to $3.0 million used in investing activities in the
      same
      period in the previous year. The decrease is mainly attributed to a decrease
      in
      equipment purchases. In the first quarter of last year, we purchased most of
      the
      equipment used in our four new production lines.




***Financing
      activities***




Net
      cash
      provided by financing activities was $1.3 million for the first quarter of
      2007
      compared to $4.9 million in the same period of the previous year. The decrease
      reflects reduction in bank borrowing.




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          27
          -




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




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




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




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




As
      for
      the remodeling of gas furnace and desulphurization of discharged gas, the local
      government has not posted any control measures currently and we have no plans
      to
      proceed with this remodeling until such time regulations are mandated. We
      believe that future costs relating to environmental compliance will not have
      a
      materially adverse effect on the Company’s financial position. There is always
      the possibility, however, that unforeseen changes, such as new laws or
      enforcement policies, could result in materially adverse costs.




***Off-balance
      sheet arrangements***




There
      are
      currently no off-balance sheet arrangements.




***New
      Accounting Standards***




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No
      157, "Fair Value Measurements". This statement defines fair value, establishes
      a
      framework for measuring fair value under generally accepted accounting
      principles, and expands disclosures about fair value measurements. The statement
      is effective in the fiscal first quarter of 2008 and the Company will adopt
      the
      statement at that time. The Company is currently in the process of evaluating
      this pronouncement and the impact of the adoption of SFAS No. 159 would have
      on
      its results of operations, cash flows and financial position.




In
      June
      2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement No 109".
      This
      interpretation 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. The interpretation also provides guidance
      on derecognition, classification and other matters. The statement was effective
      for the fiscal year 2007 and the Company adopted the Interpretation at that
      time. See Note 3 to the Unaudited Consolidated Financial Statements for more
      details.




In
      February 2007, the FASB issued Statement No. 159, "Fair Value Option for
      Financial Assets and Financial Liabilities", which permits an entity to measure
      certain financial assets and financial liabilities at fair value. Statement
      159
      is effective for fiscal year 2008 but early adoption is permitted. The Company
      is currently in the process of evaluating this pronouncement and the impact
      of
      the adoption of FASB 159 would have on its results of operations, cash flows
      and
      financial position.




ITEM
      3 . QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS




**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.




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          28
          -




**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 $93,331 charge to income for the three months ended March
      31,
      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.




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
      have been no legal proceedings issued against or commenced by the
      company.




ITEM
      1A.
      RISK FACTORS




***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;




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          29
          -


·
              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;
 
 ·
              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; and
 
 ·
              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.




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          30
          -




***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 first quarter of 2007, approximately 26%
      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.




***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.




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          31
          -




***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 acquiring companies to fulfill our growth plan*** **




An
      important element of our planned growth strategy is the pursuit and acquisitions
      of other businesses that increase our existing production capacity. However,
      integrating businesses involves a number of special risks, including the
      possibility that management may be distracted from regular business concerns
      by
      the need to integrate operations, unforeseen difficulties in integrating
      operations and systems, problems relating to assimilating and retaining
      employees of the acquisition, challenges in retaining customers, and potential
      adverse short-term effects on operation results. If we are unable to
      successfully complete and integrate strategic acquisitions in a timely manner,
      our growth strategy may be adversely impacted.




***We
      depend on bank financing for our working capital
      needs.***




We
      have
      various financing facilities amounting to approximately US$31.9 million, of
      which all are due on demand or within one year **.** So far,
      we have not experienced any difficulties in repaying such financing facilities.
      However, we may in the future encounter difficulties to repay or refinance
      such
      loans on time and may face severe difficulties in our operations and financial
      position.




***We
      rely on Yu, Zuo Sheng for important business
      leadership***




We
      depend, to a large extent, on the abilities and operations of our current
      management team. However, we have a particular reliance upon Yu, Zuo Sheng,
      our
      chairman and chief executive officer, for the redirection of our business and
      leadership in our growth effort. The loss of the services of Yu, Zuo Sheng,
      for
      any reason, may have a material adverse effect on our business and prospects.
      We
      cannot be guarantee that Yu, Zuo Sheng will continue to be available to us,
      or
      that we will be able to find a suitable replacement for Yu, Zuo Sheng on a
      timely basis.




**Risks
      Related to Operating Our Business in China**




***We
      face the risk that changes in the policies of the Chinese government could
      have
      significant impact upon the business we may be able to conduct in China and
      the
      profitability of such business.***




The
      economy of China is 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.




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          32
          -




***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.




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.




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          33
          -




***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.




***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.




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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.




***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.




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**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 all 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.




All
      our
      directors reside outside of 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.




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.




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          36
          -




***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.




None
      for
      the period covered by this report.




ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES




None
      for
      the period covered by this report.




ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None
      for
      the period covered by this report.




ITEM
      5.
      OTHER INFORMATION




None
      for
      the period covered by this report.




ITEM
      6.
      EXHIBITS




(a)
      Exhibits







31.1
      Certification of Chief Executive Officer;


31.2
      Certification of Chief Financial Officer;


32.1
      Certification of Chief Executive Officer;


32.2
      Certification of Chief Financial Officer.





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          37
          -





SIGNATURES





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




General
                Steel Holdings, Inc.
              (Registrant)Date:
                May 15, 2007
            
            By:
                /s/ Zuo Sheng YuZuo
                Sheng Yu
              Chief
                Executive Officer and PresidentDate:
              May 15, 2007
            
            By:
                /s/ John ChenJohn
                Chen
              Director
                and Chief Financial Officer




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