**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-K**





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





For
      the
      fiscal year ended December 31, 2006





OR





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





For
      the
      transition period from ____________ to ____________





Commission
      file number: 333-105903





**GENERAL
      STEEL HOLDINGS, INC.**


(Exact
      name of registrant as specified in its charter)





NEVADA
            
            412079252(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)





Kuntai
                International Mansion Building, Suite 2315Yi
                No. 12 Chaoyangmenwai Avenue, Chaoyang 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)
      5879-7346


(Registrant's
      telephone number, including area code)








Securities
      registered pursuant to Section 12(b) of the Act: none





Securities
      registered pursuant to Section 12(g) of the Act:





Title
                of each class
            
            Name
                of each exchange on which registeredCommon
                Stock, $ .001 par value per share
            
            Not
                applicable













Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes o No x





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
o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x





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.


Large
      accelerated filer oAccelerated
      filer oNon-accelerated
      filer x





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





As
      of
      March 30, 2007, the aggregate market value of the registrant's common stock
      held
      by non-affiliates of the registrant was $119,720,814 based on the $3.69 as
      reported on the OTC Bulletin Board.





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Class
            
            Outstanding
                at March 30, 2007Common
                Stock, $ .001 par value per share
            
            32,444,665
                shares








DOCUMENTS
      INCORPORATED BY REFERENCE





Document
            
            Parts
                Into Which IncorporatedNone
            
            Not
                applicable




-2-




PART
      I





ITEM
      1.
      BUSINESS.





**Overview**





Our
      company was initially incorporated as “American Construction Company” (“ACC”) on
      August 5, 2002 in the State of Nevada for the purpose of commencing a business
      of general construction contracting.





On
      October 14, 2004, ACC, Northwest Steel Company, a wholly-owned Nevada subsidiary
      of ACC (“Merger Sub”), and General Steel Investment Co., Ltd., a British Virgin
      Islands company (“General Steel Investment”) entered into an Agreement and Plan
      of Merger pursuant to which ACC acquired General Steel Investment, and its
      70%
      ownership in its subsidiary Tianjin Daqiuzhuang Metal Sheet Co., Ltd., a PRC
      company of limited liability (“Daqiuzhuang Metal”) in exchange for shares of
      ACC’s common stock.





Effective
      March 7, 2005, ACC changed its name to “General Steel Holdings,
      Inc.”





Daqiuzhuang
      Metal started its operation in 1988 and was corporatized under its current
      form
      on August 18, 2000 in Jinghai County, Tianjin City, Hebei Province, China.
      Daqiuzhuang Metal is a Sino-foreign joint venture with an operating term that
      will expire on June 24, 2024, at which point we expect to file a request for
      an
      extension of the term permitted under the then applicable laws. General Steel
      owns approximately 70% of the share capital of Daqiuzhuang Metal. On May 16,
      2004, General Steel Investment purchased approximately 70% equity interest
      in
      Daqiuzhuang Metal for the amount of 55.45 million RMB or approximately
      $6,709,450. Daqiuzhuang Metal received a new business license certifying the
      new
      ownership structure as a Chinese Foreign Joint Venture on June 25, 2004.





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 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.





**Marketing
      and Customers**





Hot
      rolled carbon and silicon steel sheets are semi-finished products. We sell
      our
      products primarily to distributors, service centers, or manufacturers. Our
      products are primarily used by domestic manufacturers of economy agricultural
      vehicles: small, motorized, 3-wheel vehicles with a payload from 1,650 to 4,400
      lbs. (750 to 2,000 kgs), retailing between 1,200 and 1,800 USD (10,000 - 15,000
      RMB).





These
      inexpensive agriculture vehicles are targeted to the low income farming
      populations in the rural areas of China. International non-government
      organizations estimate that approximately 80% of China’s population of 1.3
      billion people is comprised of low-income rural farmers.




Based
      on
      the production and sales figures supplied by our customers producing economy
      agricultural vehicles, we estimates that we supply approximately 50% of this
      industry’s nationwide demand for hot-rolled steel products.  -3-


Our
      marketing efforts are mainly directed toward those customers who have exacting
      requirements for on-time delivery, customer support and product quality. We
      believe that our enhanced product quality and delivery capabilities, and our
      emphasis on customer support and product planning, are critical factors in
      our
      ability to serve this segment of the market.





Our
      revenue is dependent, in large part, on significant contracts from a limited
      number of customers. During the fiscal year ended December 31, 2006
      approximately 30 % of sales were to five customers and approximately 6% of
      sales
      were to one customer. During the fiscal year ended December 31, 2005
      approximately 37% of sales were to five customers and approximately 9% of sales
      were to one customer. During the fiscal year ended December 31, 2004
      approximately 47% of sales were to five customers and approximately 23% of
      sales
      were to one customer. We believe that revenue derived from current and future
      large customers will continue to represent a significant portion of our total
      revenue.





We
      currently sell our products through the following thirty-five distributors:


Alashankou
                Jinrui Business and Trade Co., Ltd.Chengdu
                Shenghua Supply Materials Co., Ltd.Chongqing
                Yongdan Supply Materials Co., Ltd.Gansu
                Chunwang Supply Materials Co., Ltd.Guangdong
                Foshan Shunde District Huiying Trade Co., Ltd.Henan
                Changge Stone Supply Materials Co., Ltd.Henan
                Yuanyang Jinxin Metal Sheet Co., Ltd.Henan
                Zhengzhou Supply Supporting Materials Co., Ltd.Jiangsu
                Nantong Guangda Metal Materials Co., Ltd.Jiangsu
                Wuxi Dazhuang Supply Materials Co., Ltd.Jiangsu
                Yancheng Dinghua Supply Materials Co., Ltd.Jiangsu
                Zongshen Motorcycle Manufacturing Co., Ltd.Jinfeng
                Cold &Hot-rolled Plates Co., Ltd.Kunming
                Mintian Industry and Trade Co., Ltd.Nanjing
                Mingrui Steel Trade Co., Ltd.Nanjing
                Suyan Trade and Development Industry Co., Ltd.Nanjing
                Wenxuan Metal Industry Co., Ltd.Qinghai
                Xining Zhenning Supply Materials Co., Ltd.Shaanxi
                Baotian Supply Materials Co., Ltd.Shandong
                Liaocheng Xinda Steel Products Co., Ltd.Shandong
                Boxing County Boyuan Supply Materials Co., Ltd.Shandong
                GaomiXinfeng Supply Materials Co., Ltd.Shandong
                Jining Tonghui Commercial Trading Co., Ltd.Shandong
                Qufu Erqing Industrial Supply and Sales Co., Ltd.Shandong
                Zibo Zhoucun Jinzhou Supply Materials Co., Ltd.Shijiazhuang
                Heshunda Industry and Trade Co., LtdTianjin
                Beihua Industrial Trading Co., Ltd.Tianjin
                Shengze Industry and Trade Co., Ltd.Tianjin
                Yongxinyuan Industry and Trade Co., Ltd.Xinjiang
                Wulumuqi Huibang Industry and Trade Co., Ltd.Xuzhou
                Hengye Metal Sheet Co., Ltd.Yangzhou
                Xinxing Metal Materials Co., Ltd.




-4-




Zhejiang
                Metallurgical Supply Materials Co., Ltd.Zhejiang
                Wenzhou Jianlong Steel Co., Ltd.Zhejiang
                Xingguang Economy and Trade Co.,
                Ltd.





Upon
      inception of business, each distributor pays between 100,000 RMB and 1,000,000
      RMB, ** that
      is,
      approximately $12,820 and $128,200 deposit to us. Distributors must submit
      a
      monthly sales plan for each calendar year. Distributors are required to have
      a
      minimum annual order requirement of between 1,000 tons and 5,000 tons.
      Distributors who do not meet this quota are penalized based on a certain
      percentage of the difference between the minimum requirement and their actual
      sales. Thus far, we have not experienced such a problem with any of our
      distributors and hence did not have to enforce any penalty.





Since
      April 2006 when we began offering the credit terms to our main customers with
      whom we have a well-established business relationship. We have not had any
      delinquent accounts. For customers to whom credit terms are not extended, we
      require full payment upon or prior to delivery. All customers must place orders
      30 days prior to requested delivery.





ABOUT
      OUR
      PRODUCTS





Principal
      Products





We
      produce hot rolled carbon and silicon steel sheets. Hot rolling is a process
      in
      which steel slabs are reduced in thickness. The slabs are first reheated and
      then passed through rolls in a hot mill to reduce their thickness. The sizes
      of
      sheets are roughly 2,000 mm (width) x 1,000 mm (length) x 0.75 to 2.0 mm
      (thickness). Limited size adjustments are possible to meet specific order
      requirements.





We
      believe our product is thinner, lighter and more durable than our competitors.
      Through our production process, we are able to roll our sheets to a minimum
      thickness of 0.75 mm while maintaining even durability throughout the surface
      area. This level of thinness makes our sheets suitable substitutes for sheets
      produced with more expensive cold-rolled technology. This gives us an advantage
      in pricing our product. We are able to price our product slightly above the
      market price for traditional hot-rolled sheets and below the market price for
      cold-rolled sheets.





“Qiu
      Steel” is the registered trademark under which our Company sells its products.
      Our logo has been registered with the China National Trademark Bureau under
      No.
      586433. “Qiu Steel” is registered under the GB 912-89 national quality standard,
      and certified under the National Quality Assurance program.




Our
      Company was awarded the “Excellent Quality Product” award by the Tianjin
      Products Technical Quality Assurance Bureau in 2001, and the “Famous Trade Mark
      Award” by the Tianjin Commerce Bureau in 2002.





From
      2005
      to 2006, our overall sales volume increased by 68% from 203,422 tons in 2005
      to
      341,702 tons in 2006.





Raw
      Materials





We
      mainly
      purchase two types of raw materials from our suppliers, namely, slabs and steel
      strip. We purchase raw materials from several local steel manufacturers and
      distributors including but not limited to Tianjin Rong Steel Co., Ltd., Tianjin
      Ren Ai Steel Co., Ltd., Tianjin Hengying Commercial Trading Co., Ltd., etc. ****





Employees




As
      of
      December 31, 2006, we had 1,250 employees on a full time basis. As of December
      31, 2005, we had 900 employees on a full time basis. The increase in number
      of
      employees from 2005 to 2006 is largely due to the addition of our four new
      production lines and additional employees necessary to operate them.  -5-


ABOUT
      OUR
      RECENT STRATEGIC ALLIANCE





In
      2005,
      we signed a joint venture agreement (the “Joint Venture Agreement”) with Baotou
      Iron and Steel Group (“Baotou Steel”) to form Baotou Steel - General Steel
      Special Steel Joint Venture Company Limited, a limited liability company formed
      under the laws of the People’s Republic of China (the “Joint Venture Company”).
      The Joint Venture Company has not been launched and is not operational
      yet.





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




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




The
      Joint
      Venture is contemplated to be implemented in three stages. The total investment
      in the Joint Venture Company may be up to US$30,000,000, with an anticipated
      registered capital of approximately US$24,000,000. The total investment in
      the
      first stage is contemplated to be $5,000,000. Pursuant to the Joint Venture
      Agreement, Baotou Steel will contribute land, existing equipment and materials
      whereas General Steel Investment and Daqiuzhuang Metal will each contribute
      cash
      capital to the Joint Venture Company. The completion of this transaction is
      subject to the provision of both General Steel Investment and Daqiuzhuang Metal
      by Baotou Steel of relevant financial statements and an independent appraisal
      of
      the assets to be contributed to the Joint Venture Company, which as of the
      end
      of 2006 have not been produced thus far. In addition, China’s State Assets
      Supervision and Administration Committee will need to assign an independent
      appraisal firm to perform an appraisal of the assets contributed by Baotou
      Steel. At the end of 2006, we were still waiting for the Chinese government
      to
      appoint an appraisal firm to complete the appraisal and the evaluation process
      of the joint venture project. As a result, as of the end of 2006, we are not
      in
      a position to determine the amount of cash capital General Steel Investment
      and
      Daqiuzhuang Metal will be required to contribute to the Joint Venture Company.
      As of the end of 2006, we are working to encourage relevant parties to provide
      the requisite documentation and initiate the needed procedures.




%
                OwnershipBaotou
                Iron and Steel (Group) Co., Ltd.
            
            
            49
            %General
                Steel Investment Co., Ltd.
            
            
            31
            %Daqiuzhuang
                Metal Sheet Co., Ltd
            
            
            20
            %





-6-




ITEM
      1A.
      Risk Factors.





**Risks
      related to our business**




***We
      face substantial competition which, among other things, may lead to price
      pressure and adversely affect our sales.***




In
      the
      sale of flat rolled carbon steel and silicon steel, we compete with other market
      players on the basis of product quality, responsiveness to customer needs and
      price. There are two types of steel and iron companies in China: State Owned
      Enterprises (“SOEs”), and privately owned companies.




Criteria
      for our customers include:




·
            Quality;




·
            Price/cost
                competitiveness;




·
            System
                and product performance;




·
            Reliability
                and timeliness of delivery;




·
            New
                product and technology development
                capability;




·
            Excellence
                and flexibility in operations;




·
            Degree
                of global and local presence;




·
            Effectiveness
                of customer service; and




·
            Overall
                management capability.




We
      compete with both SOEs and privately owned steel manufacturers. While we believe
      that our price and quality are superior to other manufacturers, many of our
      competitors are better capitalized, more experienced, and have deeper ties
      in
      the Chinese marketplace. We consider there to be three major competitors of
      similar size, production capability and product line in the market place:
      Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan
      Fengrun Metal Sheet Plant. In addition, with China’s entry into the World Trade
      Organization and China’s agreements to lift many of the barriers to foreign
      competition, we believe that competition will increase in the agricultural
      equipment market in China as a whole with the entry of foreign companies into
      this market. This may limit our opportunities for growth, lead to price pressure
      and reduce our profitability. We may not be able to compete favorably and this
      increased competition may harm our business, our business prospects and results
      of operations.




***Our
      limited operating history may not serve as an adequate basis to judge our future
      prospects and results of operations.***




Our
      limited operating history may not provide a meaningful basis on which to
      evaluate our business. Although our revenues have grown rapidly since inception,
      we might not be able to maintain our profitability or we may incur net losses
      in
      the future. We expect that our operating expenses will increase as we expand.
      Any significant failure to realize anticipated revenue growth could result
      in
      significant operating losses. We will continue to encounter risks and
      difficulties frequently experienced by companies at a similar stage of
      development, including our potential failure to:




·
            Implement
                our business model and strategy and adapt and modify them as
                needed;




·
            Increase
                awareness of our brands, protect our reputation and develop customer
                loyalty;


-7-




·
            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.




***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 year 2006, approximately 28% 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.


-8-




***We
      may not be able to pass on to customers the increases in the costs of our raw
      materials, particularly iron and steel.***




The
      major
      raw materials that we purchase for production are steel slabs and strip steel.
      The price and availability of these raw materials are subject to market
      conditions affecting supply and demand. Our financial condition or results
      of
      operations may be impaired by further increases in raw material costs to the
      extent we are unable to pass those increases to our customers. In addition,
      if
      these materials are not available on a timely basis or at all, we may not be
      able to produce our products and our sales may decline.




***The
      price of steel may decline due to an overproduction by the Chinese steel
      companies.***




According
      to the survey conducted by China Iron and Steel Association, there are more
      than
      1,500 steel companies in China. Among those, only 15 companies have over 5
      million tons of production capacity. Each steel company has its own production
      plan. The Chinese government posted a new guidance on steel industry to
      encourage consolidation within the fragmented steel sector to mitigate problems
      of low-end repetitive production and inefficient use of resources. The current
      situation of overproduction may not be solved by these measures posted by the
      Chinese government. If the current state of overproduction continues, our
      products shipments could decline, our inventory could build up and eventually
      we
      may be required to decrease our sales price, which may eventually decrease
      our
      profitability.




***Because
      we are a holding company with substantially all of our operations conducted
      through our subsidiaries, our performance will be affected by the performance
      of
      such subsidiaries.***




We
      have
      no operations independent of those of Daqiuzhuang Metal, and our principal
      assets are our investments in Daqiuzhuang Metal. As a result, we are dependent
      upon the performance of Daqiuzhuang Metal and we will be subject to the
      financial, business and other factors affecting Daqiuzhuang Metal as well as
      general economic and financial conditions. As substantially all of our
      operations are and will be conducted through our subsidiaries, we will be
      dependent on the cash flow of our subsidiaries to meet our
      obligations.




Because
      virtually all of our assets are and will be held by operating subsidiaries,
      the
      claims of our stockholders will be structurally subordinate to all existing
      and
      future liabilities and obligations, and trade payables of such subsidiaries.
      In
      the event of our bankruptcy, liquidation or reorganization, our assets and
      those
      of our subsidiaries will be available to satisfy the claims of our stockholders
      only after all of the our and our subsidiaries’ liabilities and obligations have
      been paid in full.





***We
      depend on 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$30.3 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.




-9-




***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.




***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  -10-


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.




***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  -11-


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.




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  -12-


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.





**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  -13-


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.




***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
      1B.
      Unresolved Staff Comments.





None





ITEM
      2.
      Properties.





Our
      manufacturing sites and the office buildings are located in the Jinghai county,
      about 20 miles (45 kilometers) southwest of the Tianjin city center. The sites
      are situated on a total of 17.81 acres (7.21 hectares) of land and resides
      within 320,390 sq. ft. (29,667 sq. m.) of building space.  -14-


Under
      Chinese law, all land in the PRC is owned by the government, which grants a
      “land use right” to an individual or entity after a purchase price for such
“land use right” is paid to the government. The land use right allows the holder
      the right to use the land for a specified long-term period of time and enjoy
      all
      the ownership incidents to the land. We are the registered owner of the land
      use
      rights for the parcels of land identified in the chart below.





**Registered
                Owner of Land use Right**
            **Location
                & Certificate of Land Use Right**
            **Usage**Tianjin
                Daqiuzhuang Metal Sheet Co., Ltd.
            No.
                6 West Gangtuan Road, Daqiuzhuang, Jinghai Country,
                Tianjin
            Industrial
                UseTianjin
                Daqiuzhuang Metal Sheet Co., Ltd.
            No.
                35 Baiyi Road, Daqiuzhuang, Jinghai County, Tianjin
            Industrial
                UseTianjin
                Daqiuzhuang Metal Sheet Co., Ltd.
            Ying
                Fong Road North, Daqiuzhouang, Jinghai country Tianjin
            Commerical
                Use





Our
      production equipment includes the following:





Equipment
            
            Quantity1,200
                mm Rolling machine
            
            
            10Gas-fired
                reheat furnace
            
            
            1016mm
                x 2,500mm cut to size shearer
            
            
            818mm
                x 300 cut to size shearer
            
            
            76mm
                x 2,500mm cut to size shearer
            
            
            20Boiler
            
            
            3Annealing
                furnace
            
            
            4Roller
                grinder
            
            
            3Gas
                producer (1.8m, 2.4 m, 3.0m)
            
            
            16Air
                compressor
            
            
            11Flattening
                machine
            
            
            4Straightening
                machine
            
            
            3Overhead
                cranes
            
            
            33Transportation
                vehicles
            
            
            6




ITEM
      3.
      LEGAL PROCEEDINGS.





Not
      applicable.





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





Not
      applicable.


-15-




PART
      II





ITEM
      5.
      MARKET FOR GENERAL STEEL HOLDINGS INC.’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Our
      common stock is listed on the OTC Bulletin Board with the ticker symbol "GSHO."
      Information regarding the high and low sales prices for the common stock for
      each quarter of the last two years is as
      follows:




**HIGH
                AND LOW STOCK PRICES**
            
            **1ST
                QTR**
            
            **2ND
                QTR**
            
            **3RD
                QTR**
            
            **4TH
                QTR**2006High
            
            $
            2.33
            
            $
            1.95
            
            $
            1.45
            
            $
            1.25Low
            
            $
            1.30
            
            $
            1.05
            
            $
            1.20
            
            $
            1.042005High
            
            $
            2.25
            
            $
            1.85
            
            $
            1.75
            
            $
            1.73Low
            
            $
            0.98
            
            $
            1.00
            
            $
            1.21
            
            $
            1.19




As
      of
      March 23, 2007, there were approximately 42 holders of record of our common
      stock. We
      are
      seeking the listing of our shares of common stock on the American Stock Exchange
      (the “AMEX”). The listing application has been submitted to
      AMEX.





Dividend
      Policy




Our
      board
      of directors currently does not intend to declare dividends or make any other
      distributions to our shareholders. Any determination to pay dividends in the
      future will be at our board’s discretion and will depend upon our results of
      operations, financial condition and prospects as well as other factors deemed
      relevant by our board of directors.





ITEM
      6.
      Selected Financial Data.





**SUMMARY
      OF OPERATIONS**


**(USD
      in thousands, except the ratio amount)**




**Years
                ended December 31****2006**
            
            
            **2005
                (Restated)**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**Total
                sales
            
            $
            139,495
            
            $
            89,740
            
            $
            87,832
            
            $
            57,306
            
            $
            44,678Cost
                of sales
            
            
            135,324
            
            
            81,166
            
            
            81,613
            
            
            52,804
            
            
            41,328Selling,
                general, and administrative expenses
            
            
            2,421
            
            
            2,781
            
            
            2,317
            
            
            1,532
            
            
            1,539Income
                from operations
            
            
            1,749
            
            
            5,793
            
            
            3,902
            
            
            2,969
            
            
            1,811Net
                income
            
            $
            1,033
            
            $
            2,740
            
            $
            915
            
            $
            1,091
            
            $
            652Net
                income per common share
            
            
            0.03
            
            
            0.09
            
            
            0.03
            
            
            0.04
            
            
            0.02




**FINANCIAL
      DATA**


**(USD
      in thousands, except the ratio amount)**




**As
                of December 31****2006**
            
            **2005**
              **(restated)**
            
            **2004**
            
            **2003**
            
            **2002**Total
                assets
            
            $
            73,822
            
            $
            58,993
            
            $
            52,969
            
            $
            37,432
            
            $
            33,357Depreciation
                and amortization
            
            
            1,917
            
            
            1,344
            
            
            1,255
            
            
            1,013
            
            
            959Current
                Ratio
            
            
            0.87
            
            
            0.96
            
            
            0.92
            
            
            0.77
            
            
            0.84Basic
                weighted average shares outstanding (in thousands)
            
            
            31,250
            
            
            31,250
            
            
            30,260
            
            
            30,000
            
            
            30,000




-16-




ITEM
      7.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION





**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**





Following
      the acquisition of ownership in General Steel Investment Co., Ltd. in October
      2004, we have shifted our main business focus to general steel products and
      steel manufacturing. As our core-operating unit, Tianjin Daqiuzhuang Metal
      Sheet
      Co., Ltd. (“Daqiuzhuang Metal”) started its operation in 1988. Daqiuzhuang Metal
‘s core business is the manufacturing of high quality hot-rolled carbon and
      silicon steel sheets which are mainly used in the production of tractors,
      agricultural vehicles, shipping containers and in other specialty
      markets.





Daqiuzhuang
      Metal uses a traditional rolling mill production sequence, such as heating,
      rolling, cutting, annealing, and flattening to process slabs into steel sheets.
      The sheet sizes are approximately 2,000 mm (length) x 1,000 mm (width) x 0.75
      to
      2.0 mm (thickness). Limited size adjustments 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 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.





In
      2006
      we expanded the number of our distributors from 19 to 35 and established 3
      regional sales offices: Nanjing city in Jiangsu province, Shenyang city in
      Liaoning province, and Shanghai.





In
      2006,
      we invested heavily in our operations. We added four new production lines
      increasing our capacity by 150,000 tons. The higher costs associated with the
      start up of these lines and bringing them to full capacity negatively impacted
      our earnings.


-17-




Due
      to
      higher rates of waste, only 88.5% of products produced from the new lines were
      rated “A” quality, compared to 92.29% of the products produced from the
      established lines. This resulted in a selling price differential of $33.96
      per
      ton. In other words, the products produced from the new lines overall sold
      for
      $33.96 less than the products produced from the established lines. Based on
      the
      new lines produced 123,390.34 tons, this resulted in a $4,190,336 effective
      difference. The chart below illustrates this.





**Selling
      Price Differences between Products Produced on (old) Lines 1-6 and (new) Lines
      1-7**





Item
            (old)
                Production Lines
              1-6
            (new)
                ProductionLines
              7-10
            DifferenceQuality
            "A"
                Quality Level
            92.29%
            88.50%
            (3.79%)Production
                Value
            Production
                in Tons
            219,484.03
            123,390.34
            (96,093.68)Average
                Price per Ton/USD
            470.40
            436.44
            (33.96)**Less
                Sales Proceeds Generated**
            **=123,390.34*
                (****33.96)**
            **($4,190,335.94)**





Likewise,
      owing to overall start up inefficiencies a cost differential also existed
      between products produced on the two lines. Products produced on the new lines
      were $9.03 per ton more expensive to produce than products produced on the
      established lines. Since the new lines produced 123,390.34 tons, this resulted
      in a $1,114,215 cost differential. The chart below illustrates
      this.





**Production
      Cost Differences between Products Produced on (old) Lines 1-6 and (new) Lines
      1-7**





Item
            Quantity
                Produced
              (old)
                Lines 1-6
            Quantity
                Produced
              (new)Lines
                7-10
            DifferenceProduction
                in Tons
            219,484.03
            123,390.34
            (96,093.68)Total
                Amount
            Cost
            99,418,282.49
            57,005,675.25
            (337,760,669.22)Cost/Ton
            452.96
            461.99
            9.03**Additional
                Cost to Produce**
            **=123,390.34*
                9.03**
            **$1,114,214.77**





To
      this
      we also must include additional costs for worker training, $188,355, and setting
      up new regional sales offices, $42,713.





The
      combination of the above mentioned four factors $4,190,336 +  $1,114,215
      + $188,355 + $42,713 results in $5,535,619 negative impact to Daqiuzhuang Metals
      income.





We
      have a
      30% minority share holder in our company. After taking out minority shareholders
      interest, the net impact on our income was $3,874,933..





If
      the
      new production lines had produced at the same efficiency and yield, in terms
      of
      producing the same percentage of product of “A” quality and production
      efficiency, as the old lines, our earnings would have been $4,908,141, which
      was
      $3,874,933 higher than the $1,033,208, we reported.





By
      the
      end of the fourth quarter, we believe the new lines are operating at a level
      equal to the efficiencies of our established lines. This puts us in a very
      strong position to begin 2007.


-18-




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”). As of December 31, 2006, the Joint Venture Company has
      not been launched and is not operational yet.





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





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





The
      Joint
      Venture is contemplated to be implemented in three stages. The total investment
      in the Joint Venture Company may be up to US$ 30,000,000, with an anticipated
      registered capital of approximately US$ 24,000,000. The initial investment
      in
      the first stage is projected to be $5,000,000. Pursuant to the Joint Venture
      Agreement, Baotou Steel will contribute land, existing equipment
      and materials whereas General Steel Investment and Daqiuzhuang Metal will
      each contribute cash capital to the Joint Venture Company. The completion of
      this transaction is subject to the provision to both General Steel Investment
      and Daqiuzhuang Metal by Baotou Steel of relevant financial statements and
      an
      independent appraisal of the assets to be contributed to the Joint Venture
      Company, which have not been produced thus far. In addition, China’s State
      Assets Supervision and Administration Committee will need to assign an
      independent appraisal firm to perform an appraisal of the assets contributed
      by
      Baotou Steel. As of December 31, 2006, we are still waiting for the Chinese
      government to appoint an appraisal firm to complete the appraisal and the
      evaluation process of the joint venture project. As a result, as of December
      31,
      2006, we are not in a position to determine the amount of cash capital General
      Steel Investment and Daqiuzhuang Metal will be required to contribute to the
      Joint Venture Company. We are working to encourage relevant parties to provide
      the requisite documentation and initiate the needed procedures.




%
                OwnershipBaotou
                Iron and Steel (Group) Co.,Ltd.
            
            
            49
            %General
                Steel Investment Co., Ltd.
            
            
            31
            %Daqiuzhuang
                Metal Sheet Co., Ltd.
            
            
            20
            %





-19-





Trends





Industry
      Consolidation:


In
      2006,
      the domestic steel industry continued to remain fragmented and competitive.
      However, we began to see encouraging results of the central government’s plan to
      bring about consolidation in the industry.


-
            Slowing
                annual growth rate: For the second consecutive year, the annual growth
                rate in crude steel production declined (see chart
                below):





2006
                Growth in Crude
            YoY
                Decrease
            2005
                Growth in Crude
            YoY
                Decrease
            2004
                Growth in Crude19.7%
            5.1%
            24.8%
            7.5%
            27.2%





-
            Large
                SOE mergers: Laiwu Steel Corporation and Jinan Iron and Steel Group
                merged
                (the sixth and seventh largest domestic producers), and Anshan Iron
                and
                Steel Group merged with Benxi Iron and Steel Group (the second and
                fifth
                largest in the domestic market).


-
            Closures:
                The central government announced targeted closure of blast furnaces
                of
                less than 200cbm and converters of 200 tonne or below - representing
                an
                elimination of 55 million tons of capacity by
                2010.


-
            Fixed
                asset investment down: Fixed asset investment in the steel and iron
                industry dropped 2.5% from 2006 to 2005 - the first time in 5
                years.




Overall,
      we see the central government’s effort is beginning to gain traction to bring
      consolidation and reduce the number of producers in the market. We have foreseen
      this trend, have formed relationship with targeted steel companies and are
      now
      in a position to capitalize on this consolidation trend.





Western
      China Development:


In
      the
      central government’s 11 th Five-year Economic Development Plan for 2006 - 2010, China’s western region is
      prioritized for targeted economic and infrastructure development.





Raw
      Material Costs:


We
      anticipate in 2007 that the cost of imported iron ore will continue to be a
      driver in the price of crude rolled steel. Crude steel is a primary input
      material used in making our product. China must import 60% of the iron ore
      it
      uses. Because the domestic industry is so fragmented, no cohesive bargaining
      leverage exists to negotiate better terms with the main foreign iron ore
      suppliers: Rio Tinto, CVRD, & BHP Billiton. In developed countries with a
      consolidated steel industry profile, the collective bargaining leverage of
      the
      dominant players results in lower prices.





Export
      Subsidies for Steel Products:


Complaints
      from other countries about China’s export subsidy program for selected steel
      products violating its World Trade Organization commitments appeared often,
      especially in the fourth quarter, in the international media throughout the
      year. Many countries have called for China to eliminate these subsidies. We
      do
      not export our product. We will not be directly affected in our ability to
      sell
      our product by any government decision whether to end or continue these export
      subsidies for steel products.


-20-




**Operating
      Results**




Summary:





Below
      is
      a summary of changes to our principal financial indicators for the year. An
      explanation of the reasons for the changes follows:





Net
      sales
      from operations increased from $89.7 million in 2005 to $139.5 million in 2006,
      a 55% increase.





Gross
      profit decreased from $8.6 million in 2005 to $4.2
      million in 2006 million. In the same period gross profit margin decreased from
      9.6% in 2005 to 3.0% in 2006, representing a 6% decrease.





Overall
      cost of sales increased to $135.3 million in 2006, from $81.2 million in 2005,
      a
      67% increase.





Selling,
      general and administrative expenses were $2.4 million for 2006, compared to
      $2.8
      million for the same period of 2005, a 12.9% decrease.





Interest
      expense was $2.07million for the fiscal year ended December 31, 2006, a 20%
      increase compared to $1.72 million in 2005.





Cash
      balance including restricted cash amounted to $11.1 million and $11.4 million
      as
      of December 31, 2006 and 2005.





Accounts
      receivable were $17.1 million as of December 31, 2006 compared to $993,417
      at
      December 31, 2005.





***Net
      sales and gross profit***





***Fiscal
      year ended December 31, 2006 compared to Fiscal year ended December 31,
      2005***




Net
      sales
      from operations increased from $89.7 million in 2005 to $139.5 million in 2006,
      a 55% increase. This increase is a result from a combination of factors,
      including:


·
            increase
                in our production volume with our four new productions lines with
                a total
                capacity of 150,000 tons annually,


·
            increase
                in the number of distributors from 19 to 35;


·
            establishment
                of 3 new regional sales offices in Nanjing city in Jiangsu province,
                Shenyang city in Liaoning province and Shanghai municipality;


·
            increase
                in demand for light agricultural vehicles brought about by the central
                government’s effort to raise rural income.





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. We believe the force of this macro-economic
      government policy to raise rural income levels will continue to be a positive
      driver in the demand for our product.


-21-




Shipments:
      Shipment volume increased from 203,422 tons in 2005 to 341,702 tons in 2006,
      a
      68% increase. In addition to the reasons cited above, this rise is also
      attributable to the fact that we instituted in the second quarter a credit
      system for our best customers. This allowed them to more easily purchase large
      quantities of product at a single time. Have larger quantities of inventory
      on
      hand made it easier for them to sell larger quantities.





Gross
      profit decreased from $8.6 million in 2005 to $4.2
      million in 2006 million. In the same period gross profit margin decreased from
      9.6% in 2005 to 3.0% in 2006, representing a 6% decrease.





With
      the
      establishment of our four new production lines in April and their associated
      start up costs discussed above, our gross margins were under the greatest
      pressure in the 2 nd and
      3 rd quarters.
      It was not until the fourth quarter when our promotional pricing period ended
      and an upswing in overall domestic pricing came about that we were able to
      see a
      margin recovery.





The
      inching downward of market steel prices for the first three quarters of the
      year
      put continuing pressure on our margins. We were able to offset much of the
      decline by obtaining greater efficiencies in our original production lines.
      However, the start-up costs of the new lines negatively impacted
      margins.





We
      must
      also point out that during April through December, the pilot phase of our new
      operating lines, we initiated a promotional pricing strategy whereby we offered
      our product to new customers at a price favorable to prevailing market rate.
      We
      did this to attract new distributors (we expanded from 19 to 35 distributors),
      to gain market share in new areas and to support new sales in our 3 newly
      established regional sales offices. Additionally, because of our dominant size
      in the market, the power of our pricing effect helped to put pressure on smaller
      and less efficient producers and drive them out of the market.





Although
      we were under strong margin pressure for most of the year, both from general
      market steel prices and our own new lines start-up costs, we managed to protect
      our net income from severe damage by pursuing five key actions,


a)
            Production
                increase: By starting the operation of four new production lines,
                by sheer
                volume of a 68% increase in product produced, we were able to offset
                in
                large part the drop in price.


b)
            Credit
                policy: In April we initiated a credit policy for our main customers
                which
                allow them to more easily buy larger quantities of our product at
                a
                time.


c)
            Pre-payment
                of raw materials: Throughout the year we pursued a strategy to purchase
                our raw materials in bulk by pre-paying for them. We did this at
                the times
                of the year we believed the prices to be at their lowest. This allowed
                us
                to lock-in low and secure pricing for raw materials for a longer
                period of
                time than we could otherwise do by purchasing more frequently in
                small
                quantities. We were able to pursue this cost saving action because
                of
                long-standing and favorable relationships with our financing partners.
                We
                will continue to view this action as a viable option in 2007. Because
                of
                our size and long operating history, we do not believe that our
                competitors are in a position to also pursue this
                strategy.


d)
            Improved
                finished product scrap usage: Throughout the year we collected the
                large
                remnants after the cutting process for standard sized sheets. We
                cut these
                remnants and sold them as smaller than standard size sheets. As the
                sale
                price for our product is higher than sale price of scrap, we were
                able to
                earn additional income.


e)
            Improved
                production efficiency: In early 2006 we began purchasing our raw
                materials
                in the form of steel strip coils instead of 6-meter long slabs. This
                change improved our production efficiency in two ways: First, the
                amount
                of raw material scrap was reduced. We could cut strips from the coil
                to
                the exact size needed to feed through our hot rolling mill, thus
                only
                creating a small amount of scrap at the end of each coil. Previously,
                each
                6-meter slab had to be cut, generating scrap from each slab. Secondly,
                steel strip in coil form is thinner than steel in slab form. By starting
                with a thinner piece of steel, we need only put it through the rollers
                four times to get the desired thickness, rather than five times when
                using
                crude steel in slab form. This change decreased our processing time
                by
                20%.




-22-




***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31,
      2004***




Net
      sales
      for the year ended December 31, 2005 were $89.7 million compared to $87.8
      million in 2004, representing a 2% increase. Shipments for year ended December
      31, 2005 climbed 7% to 203,422 tons from 190,936 tons due to overall increase
      in
      productivity and market development. Average selling price per ton including
      sale of scrap for the years ended December 30, 2005 and 2004 has increased
      to
      $479 from $460. The price of our finished products climbed to its peak around
      $730 in April 2005 and slowly dropped throughout the rest of the year. The
      overall average selling price in 2005 was still higher than 2004 as a result
      of
      good market demand for our steel products. In summary, the main reasons for
      the
      increase in sales revenue are due to an increase in selling price and an
      increase in shipment volume of steel products.




Gross
      profit for the years ended December 31, 2005 was $8.6 million, an increase
      of
      38% or $2.4 million from $6.2 million for the same period last year. Gross
      profit margin increased to 9.6% from 7.1% for the years ended December 31,
      2005
      and 2004. This increase in gross profit margin is mainly due to the increase
      in
      both sales volume and selling price outpacing the increase in raw materials
      price. Since April 2005, the price of steel products has been decreasing
      globally due to the overall increase in steel supply. We have to adjust our
      products’ prices in order to stay competitive in this market. The management
      thinks that the pressure on the selling price will be mitigated in 2006 as
      a
      result of steel industry consolidation and overall increase in
      demand.





***Cost
      of sales***




***Fiscal
      year ended December 31, 2006 compare to Fiscal year ended December 31,
      2005***




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 $135.3 million in 2006, from $81.2 million
      in
      2005, a 67% increase. Cost of sales as a percentage of sales increased from
      90.4% in 2005 to 97% in 2006, a 6.6% increase. Average cost per ton was $396
      for
      2006 compared to $399 in 2005. This cost of sales per ton decrease can be traced
      to the cost savings achieved through our bulk purchasing of raw materials and
      overall down turn in pricing in the domestic steel market.




***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31,
      2004***





Overall
      cost of sales slightly decreased to $81.2 million for the years ended December
      31, 2005 from $81.6 million for 2004. Cost of sales as percentage of sales
      decreased from 92.9% to 90.4%. Average cost per ton was $399 and
      $427, ** respectively
      for the years ended December 31, 2005 and 2004. Even though the sales volume
      went up by 7% in 2005 compared to 2004, the decrease in cost of sales was due
      primarily to the cheaper raw material prices and increase in work efficiency
      for
      the years ended December 31, 2005 compared to 2004.




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





***Fiscal
      year ended December 31, 2006 compare to Fiscal year ended December 31,
      2005***





Selling,
      general and administrative expenses were $2.4 million for 2006, compared to
      $2.8
      million for the same period of 2005, a 12.9% decrease. A large component of
      the
      decrease was due to the reclassification of packaging expense back to cost
      of
      sales.





***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31,
      2004***





Selling,
      general and administrative expenses, such as executive compensation, office
      expenses, legal and accounting charges, travel charges, and various taxes were
      $2.8 million for the year ended December 31, 2005. It represented a 20% increase
      from $2.3 million for the year ended December 31, 2004. A large component of
      the
      increase came from the legal and accounting expenses and investor and public
      relations charges for the public listed company.


-23-




***Other
      income (expense)***




***Fiscal
      year ended December 31, 2006 compared to Fiscal year ended December 31,
      2005***





Interest
      expense was $2.07 million for the fiscal year ended December 31, 2006, a 20%
      increase compared to $1.72 million in 2005. This increase was because the
      outstanding bank loans increased to $30.3 million from $27.1 million as of
      December 31, 2006 and 2005, respectively. This increase in debt borrowing was
      mainly used for financing our bulk purchases of raw materials and our credit
      program to our main customers.





***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31,
      2004***





Other
      income (expense) for the year ended December 31, 2005 consisted mainly of
      finance charges and interest income. Interest expense was $1.7 million for
      the
      year ended December 31, 2005 representing a $0.3 million year-over-year
      increase. Outstanding bank loans increased to $27.1 million from $25.7 million
      as of December 31, 2005 and 2004, respectively. This increase in debt borrowing
      is mainly driven by management’s decision to increase the working capital for
      the current operation.




***Income
      taxes***





***Fiscal
      year ended December 31, 2006 compared to Fiscal year ended December 31,
      2005***





We
      did
      not carry on any business and did not maintain any branch office in the United
      States during the years ended December 31, 2006 and 2005. 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.




***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31
      2004***





We
      did
      not carry on any business and did not maintain a branch office in the United
      States during the years ended December 31, 2005 and 2004. Therefore, no
      provision for withholding or U.S. federal income taxes or tax benefits on the
      undistributed earnings and/or losses of the Company has been made.





Pursuant
      to the relevant laws and regulations in the People’s Republic of China,
      Daqiuzhuang Metal, as a 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 have been approved for
      this
      tax benefit and will be exempt from income tax for the years ended December
      31,
      2005 and 2006 and 50% income tax reduction for the years ended December 31,
      2007, 2008 and 2009.





We
      have
      been accruing the income tax every quarter as required by the local tax
      administrative agencies. Having obtained the approval notice from local tax
      administrative agency by the end of March 2006, we have decided to reverse
      the
      accruals for 2005 income taxes and add them back to the net income.




***Liquidity
      and capital resources***





Due
      to
      the strong market demand for our products, we increased production capacity
      by
      adding four new production lines. We plan to maintain a higher-than-average
      debt
      to equity ratio to better position itself in this fast growing market. The
      bank
      loans are considered short term for the purpose of the preparation of the
      financial statements because they are renewable with the banks every year.
      Due
      to the recent joint venture agreement with Baotou Iron and Steel (Group) Co.,
      Ltd., we are reserving cash for the first 30% of its capital contribution,
      approximately $3.7 million, which needs to be paid when the business license
      for
      the


-24-




joint
      venture is issued. Cash balance including restricted cash amounted to $11.1
      million and $11.4 million as of December 31, 2006 and 2005.





***Accounts
      Receivable***





Accounts
      receivable were $17.1 million as of December 31, 2006 compared to $993,417
      at
      December 31, 2005. This increase in accounts receivable is mainly due to a
      change in the company’s collection approach. Starting in the second quarter of
      2006, we have gone with a different collection methodology. We implemented
      a
      credit sales program for our main customers with whom we have a long-standing
      business relationship. We now have four new production lines in operation.
      The
      management is now taking measures to secure the existing customer base and
      attract new customers. One of the approaches is to extend credit sales to our
      major customers and distributors as incentives for buying our products.
      Extending credit to our major customers and distributors is also in line with
      a
      growing industrial trend in this competitive market.





We
      recognize the revenue when we ship out products and passed the titles of the
      products to our customers and distributors.  We have increased production
      capacity since April this year. To enhance sales, we extended 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 we adjust the allowance amount if needed. We believe
      the accounts receivable are collectible. Never-the-less, to be conservative
      and
      prudent in our management practice, as of December 31, 2006, we have decided
      to
      reserve $137,132 for bad debts based on our reasonable estimate.




***Operating
      activities***





***Fiscal
      year ended December 31, 2006 compared to Fiscal year ended December 31,
      2005***





Net
      cash
      used in operating activities for the fiscal year ended December 31, 2006 was
      $0.9 million compared to $10.0 ** million
      provided by operating activities in 2005. This change was mainly due to an
      increase in accounts receivable and offset by a decrease in advances on
      inventory purchases. Accounts receivable increased by $15.9 million compared
      to
      December 31, 2005. The increase is due to the credit sales we extended to our
      major customers and distributors as incentives starting from the second quarter
      of 2006. As the new production lines are now in full operation, approximately
      13,000 tons of additional products are now being produced monthly.




***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31,
      2004***





Net
      cash
      provided by operating activities for the years ended December 31, 2005 was
      $10.0
      million compared with $6.9 million used in operating activities for 2004. Our
      net income before minority interest was $4.1 million for the year ended December
      31, 2005, a $2.7 million or 198% increase compared with the previous year.
      More
      customer deposits, less inventory and less advances on inventory purchases
      became the major factors of this increase in cash generated by operating
      activities.





***Investing
      activities***





***Fiscal
      year ended December 31, 2006 compared to Fiscal year ended December 31,
      2005***





Net
      cash used in investing activities was $5.9 million for the fiscal year ended
      December 31, 2006 compared to $7.9 million used in investing activities in
      the
      previous year. The cash has been spent on the construction of the new plant.





***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31,
      2004***





Net
      cash
      used in investing activities was $7.9 million for the year ended December 31,
      2005 compared with $1.2 million used in investing activities for the year ended
      December 31, 2004. This change mainly resulted from
      the
      increase in notes receivable and equipment purchases. Our customers usually
      pay
      for our products with promissory notes issued by the banks that in turn can
      be
      used like cash by us to pay for our purchases. We were also building four more
      production lines next to the existing facility. This construction has been
      completed as of the statement date. We spent $4.2 million on construction in
      progress.




-25-


***Financing
      activities***





***Fiscal
      year ended December 31, 2006 compared to Fiscal year ended December 31,
      2005***





Net
      cash
      provided by financing activities was $4.7 million for the year ended December
      31, 2006 compared to $0.81 million provided by investing activities of the
      previous year. We signed a borrowing agreement with Shenzhen Development Bank
      to
      borrow $5,064,000 in the first quarter. The proceeds were mainly used to pay
      for
      inventory purchases and the construction of the new plant.




***Fiscal
      year ended December 31, 2005 compared to Fiscal year ended December 31,
      2004***




We
      issued
      1,176,665 shares of redeemable stock in a private placement round on September
      18, 2005. The stock was issued at $1.50 per share with put rights for us to
      purchase the shares back at $1.95, eighteen months after the closing date.
      Under
      this private offering, we raised total of $1,765,000 which will be used to
      pay
      for the special steel joint venture with Baotou Steel. This is the main reason
      attributable to the net cash provided by financing activities.





***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 our industrial water recycling system to reduce new water
      consumption and industrial water discharge.





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




As
      for
      the remodeling of gas furnace and desulphurization of discharged gas, the local
      government has not posted any control measures currently and we have no plans
      to
      proceed with this remodeling until such time regulations are mandated. We
      believe that future costs relating to environmental compliance will not have
      a
      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.




***Impact
      of inflation***




We
      are
      subject to commodity price risks arising from price fluctuations in the market
      prices of the raw materials. We have generally been able to pass on cost
      increases through price adjustments. However, the ability to pass on these
      increases depends on market conditions driven by the overall economic conditions
      in China. We manage our price risks through productivity improvements and
      cost-containment measures. We do not believe that inflation risk is material
      to
      our business or our financial position, results of operations or cash
      flows.




***Off-balance
      sheet arrangements***




There
      are
      currently no off-balance sheet arrangements.




**Subsequent
        Events Concerning Our Put Option which Expired on March 1, 2007**
 
 Pursuant
        to a put right granted to the investors in our private placement in
        September 2005, the investors had the right to request us to repurchase part
        or
        all of the 1,176,665 shares of our common stock on March 1, 2007 (the
“Repurchase Date”) at a per share price of $1.95 per share. If an investor
        elected to put the shares back to us on the Repurchase Date, the investor
        was
        required to notify us 60 days prior to the Repurchase Date. The aggregate
        number of shares held by investors elected not to put the shares back to us
        at a per share price of $1.95 is 176,665 shares.
 
 On
        March
        1, 2007, we received written notification from Matlin Patterson Global
        Opportunities Partners II L.P. and Matlin Patterson Global Opportunities
        Partners (Caymans) II L.P. asking us to extend the Repurchase Date until
        September 1, 2007, and to keep the redemption price unchanged at $1.95 per
        share. We agreed to this request and extended the Repurchase Date and kept
        the
        repurchase price as per their request. The aggregate number of shares held
        by
        Matlin Patterson Global Opportunities Partners II L.P. and Matlin Patterson
        Global Opportunities Partners (Caymans) II L.P. is 1,000,000
        shares.
  -26-


ITEM
        7A.
        Quantitative and Qualitative Disclosures About Market Risk.
 
 **Commodity
        Price Risk and Related Risks**
  In
        the
        normal course of its business, we are exposed to market risk or price
        fluctuations related to the purchase, production or sale of steel products
        over
        which we have little or no control. We do not use any derivative commodity
        instruments to manage the price risk. Our market risk strategy has generally
        been to obtain competitive prices for its products and allow operating results
        to reflect market price movements dictated by supply and demand. Based upon
        an
        assumed annual production capacity of 200,000 tons, a $1 change in the annual
        average price would change annual pre-tax profits by approximately
        $200,000.
  **Interest
        Rate Risk**
  At
        December 31, 2006, Our outstanding debts are short-term and bear interest
        at
        fixed interest rates and accordingly are not sensitive to changes in interest
        rates. We do not use swaps or other interest rate protection agreements to
        hedge
        this risk.
  **Foreign
        Currency Exchange Rate Risk**
  Our
        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 2006 average Renminbi exchange
        rate would result in a $227,218 charge to income.


-27-




ITEM
      8.
      Financial Statements and Supplementary Data.




The
        consolidated financial statements of General Steel Holdings, Inc., including
        consolidated balance sheets as of December 31, 2006 and 2005, and consolidated
        statements of income and other comprehensive income, consolidated statements
        of
        stockholders’ equity and consolidated statements of cash flows for the year
        ended December 31, 2006, 2005 and 2004 and notes to the consolidated financial
        statements, together with a report thereon of Moore Stephens Wurth Frazer
        and
        Torbet, LLP, dated March 10, 2007, are attached hereto as pages F-1 through
        F-24.


ITEM
      9.
      Changes in and Disagreements With Accountants on Accounting and Financial
      Disclosures.


Not
        applicable.
 
 ITEM
        9A.
        Controls and Procedures.
 
 Under
        the
        supervision and with the participation of our management, including the Chief
        Executive Officer and Chief Financial Officer, we have evaluated the
        effectiveness of our disclosure controls and procedures pursuant to Exchange
        Act
        Rule 13a-15(b) as of the end of the period covered by this report. Based
        on that
        evaluation, the Chief Executive Officer and Chief Financial Officer have
        concluded that these disclosure controls and procedures are effective. There
        were no changes in our internal control over financial reporting during the
        year
        ended December 31, 2006 that have materially affected, or are reasonably
        likely
        to materially affect, our internal control over financial
        reporting.


ITEM
      9B.
      Other Information.





Not
      applicable




PART
      III





ITEM
      10.
      Directors and Executive Officers and Corporate Governance.





The
      following table sets forth the names and ages of our current directors and
      executive officers, their principal offices and positions and the date each
      such
      person became our director or executive officer. Our executive officers are
      elected annually by the board of directors. Our directors serve one-year terms
      until their successors are elected. The executive officers serve terms of one
      year or until their death, resignation or removal by the board of directors.
      There are no family relationships between any of the directors and executive
      officers. In addition, there was no arrangement or understanding between any
      executive officer and any other person pursuant to which any person was selected
      as an executive officer.





The
      executive officers are all full time employees of General Steel Holdings,
      Inc.





The
      directors and executive officers of General Steel Holdings, Inc. are as
      follows:




Name
            
            Age
            
            Position
            
            Date
                of AppointmentYu,
                Zuo Sheng
            
            41
            
            Director
                /Chief Executive Officer, Chairman of the Board of
                Directors
            
            10/14/04Warner,
                Ross
            
            42
            
            Director
            
            8/24/05Wong,
                John
            
            39
            
            Independent
                Director
            
            8/24/05Tian,
                Lian Hui
            
            65
            
            Independent
                Director
            
            12/20/05


-28-




Chen,
                John
            
            34
            
            Director
                / Chief Financial Officer
            
            3/7/05Wang,
                Guo Dong
            
            65
            
            Independent
                Director
            
            3/7/05Zhao,
                Sheng Guo
            
            46
            
            Independent
                Director
            
            3/7/05Han,
                Wen Chun
            
            41
            
            Plant
                Controller
            
            10/14/04Liu,
                Yu Wen
            
            33
            
            Manager
                of Sales and Purchase Department
            
            10/14/04Yu,
                Zuo Yan
            
            39
            
            Manager
                of Production Department
            
            10/14/04Su,
                Xiao Gang
            
            41
            
            Manager
                of the Human Resources Department
            
            01/03/05




In
      2006,
      Zhao Sheng Guo became an independent director and Ross Warner became a director.





Our
      directors are generally elected until the next annual meeting of shareholders
      and until their successors are elected and qualified, or until their earlier
      resignation or removal. Each director’s term of office is one year.





SECTION
        16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
 Section
        16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
        requires our executive officers, directors and persons who own more than
        10% of
        our common stock to file initial reports of ownership on Form 3 and changes
        in
        ownership on Forms 4 or 5 with the SEC. Such executive officers, directors
        and
        over 10% stockholders are also required by SEC rules to furnish us with copies
        of all such forms they file.
 
 Based
        solely on our review of the copies of such forms we have received, or written
        representations from certain reporting persons, we believe that, during the
        year
        ended December 31, 2006, all executive officers, directors and over 10%
        stockholders filed on a timely basis all reports required to be filed by
        them
        under Section 16(a) with respect to our common stock.
 There
        were no material changes to the procedures in place for our shareholders
        to use
        to recommend nominees to our board of directors.





Audit
      Committee





Our
      Board
      has a separately-designated Audit Committee. Our Audit Committee consists of
      John Wong, Zhao, Sheng Guo and Tian, Lian Hui. Mr. John Wong is the chairman
      of
      the Audit Committee. In 2006, the audit committee met periodically and
      communicated frequently via email and telephone. The audit committee is
      scheduled to hold four meetings during fiscal year 2007 and will continue to
      communicate frequently via email and telephone





The
      primary responsibilities of the Audit Committee are to review the results of
      the
      annual audit and to discuss the financial statements, including the independent
      auditors' judgment about the quality of accounting principles, the
      reasonableness of significant judgments, the clarity of the disclosures in
      the
      financial statements. Additionally, the Audit Committee meets with our
      independent auditors to review the interim financial statements prior to the
      filing of our Quarterly Reports on Form 10-Q, recommends to the Board the
      independent auditors to be retained by us, oversees the independence of the
      independent auditors, evaluates the independent auditors' performance, receives
      and considers the independent auditors' comments as to controls, adequacy of
      staff and management performance and procedures in connection with audit and
      financial controls, including our system to monitor and manage business risks
      and legal and ethical compliance programs audit and non-audit services provided
      to us by our independent auditors, considers conflicts of interest involving
      executive officers or Board members. Our Board has determined that Mr. Wong
      is
      an "audit committee financial expert" as defined by the SEC, and that each
      member of the Audit Committee is independent.


-29-




None
      of
      the following ever occurred to any of our directors and officers.





(1)
      Any
      bankruptcy petition filed by or against any business of which such person was
      a
      general partner or executive officer either at the time of the bankruptcy or
      within two years prior to that time;




(2)
      Any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor offenses);




(3)
      Being
      subject to any order, judgment, or decree, not subsequently reversed, suspended
      or vacated, of any court of competent jurisdiction, permanently or temporarily
      enjoining, barring, suspending or otherwise limiting his involvement in any
      type
      of business, securities or banking activities; or




(4)
      Being
      found by a court of competent jurisdiction (in a civil action), the SEC or
      the
      Commodity Futures Trading Commission to have violated a federal or state
      securities or commodities law, and the judgment has not been reversed,
      suspended, or vacated.





Family
      relationships





Mr.
      Liu,
      Yu Wen is Mr. Yu, Zuo Sheng's brother in-law, Mr. Yu, Zuo Yan is Mr. Yu, Zuo
      Sheng's brother.





Biographical
      information





*Mr.
      Yu, Zuo Sheng, President, Chief Executive Officer and Chairman* ,
      joined
      us in August 2000 and became a Director in August 2000. From April 1986 to
      February 1992, he was President of Daqiuzhuang Metal Sheet Factory, Tianjin,
      China. From February 1992 to December 1999, he was General Manager of Sheng
      Da
      Industrial Company, Tianjin, China. From November 1999 to March 2001, he was
      President and Chairman of the Board of Directors of Sheng Da Machinery
      Manufactory, Tianjin, China. Since February 2001, he is President and Chairman
      of Board of Directors of Beijing Wendlar Investment Management Group, Beijing,
      China. Since March 2001, he is President and Chairman of Board of Directors
      of
      Baotou Sheng Da Steel Pipe Limited, Inner Mongolia, China and Chairman of Board
      of Directors of Sheng Da Steel and Iron Mill, Hebei province, China. Since
      April
      2001, he is President and Chairman of Sheng Da Industrial Park Real Estate
      Development Limited.




Mr.
      Yu
      graduated in 1985 from Sciences and Engineering Institute, Tianjin, China.
      In
      July 1994, he received Bachelor degree from Institute of Business Management
      for
      Officers. Mr. Yu received the title of “Senior Economist” from the Committee of
      Science and Technology of Tianjin City in 1994. In July 1997, he received a
      MBA
      degree from the Graduate School of Tianjin Party University. In April 2003,
      Mr.
      Yu, Zuo Sheng held a position as a member of China’s APEC (Asia Pacific Economic
      Co-operation) Development Council.




*Mr.
      John Chen, Director and Chief Financial Officer* .
      Mr.
      John Chen joined us in May 2004. He is the Chief Financial Officer and a
      Director. From August 1997 to July 2003 , he was senior accountant at Moore
      Stephens Wurth Frazer and Torbet, LLP, Los Angeles, California, USA. He
      graduated from Norman Bethune University of Medical Science, Changchun city,
      Jilin province, China in September 1992. He received his B.S. degree in
      accounting from California State Polytechnic University, Pomona, California,
      USA
      in July 1997. He received his California certified public accountant license
      in
      August 2002.




*Mr.
      Wang, Guo Dong, Director.* Mr. Wang
      joined us in May 2003. From January 1982 to May 2003, he was professor at
      Northeast University, Shenyang city, Liaoning province, China. From October
      1968
      to October 1978, he was the engineer of Anshan Iron and Steel Company, in Anshan
      city, Liaoning province, China. He received a Master’s Degree in Engineering
      from Beijing Iron and Steel Research Institute, Beijing, China, in September
      1982. He also received a Bachelor’s Degree in Engineering from Northeast
      University, Shenyang city, Liaoning province, China in September
      1966.  -30-


*Mr.
      Zhao, Sheng Guo, Director.* Mr. Zhao
      joined us in March 2003. He is a Director. From June 1995 to June 2003, he
      was
      the Chief Technical Officier of Beijing Capital Steel Plate Mill. From March
      1988 to June 1995, he was chief engineer of Beijing Capital Steel Plate Mill.
      From March 1983 to March 1988, he was engineer of Beijing Special Steel Metal
      Sheet Mill. He received MBA Degree from Northeast University, Shenyang city,
      Liaoning province, China, in August 2001. He graduated from Beijing Steel
      Institute in Beijing, China in 1982. He became an independent director for
      us in
      2006.




*Mr.
      Han, Wen Chun, Plant Controller.* Mr. Han
      joined us in October 2000. He is the plant controller. From June 1989 to October
      2000, he was the manager of Accounting Department of Sheng Da Industrial
      Company.




*Mr.
      Liu, Yu Wen, Manager of Sales and Purchase Department.* Mr. Liu
      joined us in August 2000. He is the head of the Sales and Purchasing Department.
      From October 1991 to August 2000, he was office manager of Daqiuzhuang Metal
      Sheet Company, Daqiuzhuang, Tianjin, China. In July 1991, he graduated from
      Jinghai Adult High School, Tianjin, China. He is brother in-law of Mr. Yu,
      Zuo
      Sheng.




*Mr.
      Yu, Zuo Yan, Manager of Production Department.* Mr. Yu
      joined us in May, 2000. He is the manager of the Production Department. From
      July 1989 to May 2000, he was manager of the steel pipe workshop of Daqiuzhuang
      Steel Pipe Company. From August 1986 to May 1989, he was the technician of
      Daqiuzhuang Steel Pipe Company. He graduated from Tianjin Polytechnic Institute
      in August 1986. He is brother of Mr. Yu, Zuo Sheng.




*Mr.
      John Wong, Director.* Mr. Wong
      was elected as the independent director in August 2005. From June 2003 to
      present, he is the managing partner of Vantage & Associates. From January
      2000 to March 2003, he was the director at Deloitte Touche Corporate Finance,
      Shanghai. From July 1998 to December 1999, he was director of Amrex Capitals.
      From July 1996 to June 1998, he worked as senior audit manager at Ernest &
Young, Hong Kong. Mr. Wong graduated from Melbourne University in 1989. He
      obtained Independent Directorship Certificate in 2002.




*Mr.
      Ross Warner, Director.* Mr.
      Warner was elected as the independent director in August 2005 and became a
      director in 2006. From July 2003 to 2006, he was the Chief of Operations at
      OCDF. From July 2002 to June 2003, he was the country manager for English First
      in charge of China and Vietnam. From April 2001 to July 2002, he was the
      non-technical training manager at TTI-China. From July 1998 to December 2000,
      he
      worked as the consultant at Info Technology Group, Inc.-Beijing Office. Mr.
      Ross
      Warner obtained the master degree from Thunderbird graduate school.




*Mr.
      Tian, Lian Hui, Director.* Mr. Tian
      was elected as the independent director in December 2005. He has held the
      position of Chairman of COCIM since 1995. COCIM is a software company which
      designs and implements Office Automation Software, such as ERP system for
      businesses. He has been the head of the Research Institute of Ministry of
      Electronic Industry. Mr. Tian has also led several national projects including
      the design of computer information system for Baoshan Steel. Mr. Tian, 64,
      graduated from Northeast University with a Masters Degree in Automation
      Control.





*Mr.
      Su, Xiao Gang, Manager of the Human Resources Department* .
      Mr. Su
      joined us in March 2005. He is the manager of the Human Resources Department.
      From July 2002 to March 2005, he was the deputy general manager of Beijing
      Wendlar Group. From July 1998 to June 2002, he was the general manager of
      Tianjin Shengda Packaging Co., Ltd. He graduated from Tianjin Institute of
      Economic Management in 1996.





INDEMNIFICATION





Our
      articles of incorporation limit the liability of directors to the maximum extent
      permitted by Nevada law. This limitation of liability is subject to exceptions
      including intentional misconduct, obtaining an improper personal benefit and
      abdication or reckless disregard of director duties. Our articles of
      incorporation and bylaws provide that we may indemnify our directors, officer,
      employees and other agents to the fullest extent permitted by law. Our bylaws
      also permit us to secure insurance on behalf of any


-31-




officer,
      director, employee or other agent for any liability arising out of his or her
      actions in such capacity, regardless of whether the bylaws would permit
      indemnification. We currently do not have such an insurance policy.





Code
      of
      Ethics and Business Conduct





Our
      Code
      of Ethics and Business Conduct is available on our website at the following
      address: http://www.gshi-steel.com/gshi-steel/codeofethics.pdf. Our Code of
      Ethics and Business Conduct provides information:





·
            To
                guide employees so that their business conduct is consistent with
                our
                ethical standards;


·
            To
                improve the understanding of our ethical standards among customers,
                suppliers and others outside the
                Company.





Our
      Code
      of Ethics and Business Conduct may also be obtained free of charge by contacting
      Ross Warner at ross@gshi-steel.com or by
      phone: 86-10-5879-7346





ITEM
      11.
      Executive Compensation.





**Compensation
      Discussion and Analysis**





**General
      Philosophy**


Our
      compensation philosophy is simple. At this point in our growth, we compensate
      our senior management, which is our CEO and CFO, and all mangers through salary
      only. We do not now provide a bonus program, equity compensation program,
      severance benefit program, retirement plan or change in control benefits
      program. Additionally, we do not have a compensation committee. Our compensation
      philosophy will likely change when we achieve Phase II of our strategic growth
      goals.





**Current
      Status**


No
      person
      in our company earns more than $100,000. Our CEO earns 600,000 RMB
      (approximately $75,342) and our CFO earns 180,000 RMB (approximately $22,603).
      We understand these amounts may be generally less than those paid to senior
      managers by other Chinese companies listed on US stock exchanges. In determining
      ranges for these salaries, we followed the principal that we are a developing
      company pursuing a goal to rapidly become a significantly larger company. As
      such, at this stage of development, we believe it is in our stockholders best
      interest to reinvest as much profit as possible back into the company. In this
      way we can reach our growth goal as quickly as possible.





The
      salary amounts for our CEO and the CFO are determined through individual
      negotiations: the CFO with the CEO, and the CEO with the Board of Directors.
      We
      have not used any industry benchmarking studies to determine these amounts.
      Their salaries are paid in full, in RMB, in monthly installments and receive
      the
      standard salary tax recording treatment. We believe the amounts of these
      salaries reward, to the best of our ability, our CEO and CFO for their yearly
      total contributions to the company.





The
      CEO
      reviews yearly the work performance of the CFO and lower level managers. In
      general, the CEO uses subjective criteria to evaluate the work performance.
      Our
      CEO has final decision authority on all salary amounts and adjustments, except
      his own, which the Board of Directors must approve.





The
      CFO’s
      salary increased 33% from 2005 to 2006. This increase is attributable to the
      following:


a)
            A
                low starting salary the first year that was agreed to as trial period,


b)
            A
                cost of living allowance increase reflecting the extremely fast increase
                in housing costs in Beijing where our CFO lives.





Desiring
      to reinvest as much profit as possible back into the company, our CEO has not
      taken a pay increase since 2003.


-32-




John
      Wong
      is an independent director on our board of directors and also serves as the
      chairman of the remuneration committee for a Singapore stock exchange listed
      company, CDW Holdings, Ltd. No other member of our board of directors serves
      on
      the compensation committee or similar body of a listed company.





The
      competition for senior management among Chinese companies listed on a US stock
      exchange is fierce. We compete against companies that are much larger and have
      greater financial resources with which to attract and retain managers. We do
      not
      try to compete for senior management with other companies on the basis
      compensation. Instead, we seek to attract and retain qualified candidates who
      embrace our vision, see the long-term potential for the company and are
      motivated by being pioneers in the field of State Owned Enterprise (SOE)
      privatization.





We
      spend
      a great deal of effort and time communicating our vision to anyone considering
      working for us. It is vitally important that everyone working for us be
      committed to our vision and understands our philosophy to grow the company.
      Our
      CEO plays an integral role in instilling this vision on an on-going basis with
      all our staff. Our work culture is very much like that of an entrepreneurial
      company characterized by high trust, high loyalty and a high personal sacrifice
      to current financial reward ratio.





We
      have
      been successful in recruiting and retaining senior management using our
      compensation philosophy. Since 2004 when the company became listed on the Nasdaq
      OTCBB, we have not had any staff resignations among our senior management team.
      We view this as a validation that we have followed the correct compensation
      philosophy for this stage in our company’s development.





**Executive
      Compensation**





The
      following table sets forth certain information concerning the compensation
      paid
      to our chief executive officer and our other most highly compensated executive
      officers:




**SUMMARY
                COMPENSATION TABLE****Name
                and principal position**
              **(a)**
            
            **Year**
              **(b)**
            
            **Salary**
              **($)**
              **(c)**
            
            **Bonus**
              **($)**
              **(d)**
            
            **Stock**
              **award(s)**
              **($)**
              **(e)**
            
            **Options/**
              **SARs**
              **(#)**
              **(f)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
              **(g)**
            
            **Changes
                in Pension Value and Non-qualified Deferred Compensation
                Earnings**
              **($)**
              **(h)**
            
            **All
                other compensation**
              **($)**
              **(i)**Yu,
                Zuo Sheng
              Chief
                ExecutiveOfficer
            
            2006
            
            RMB
                600,000
              (approximatelyUSD
                75,342)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2005
            
            RMB
                600,000
              (approximatelyUSD
                73,320)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A




-33-




**SUMMARY
                COMPENSATION TABLE****Name
                and principal position**
              **(a)**
            
            **Year**
              **(b)**
            
            **Salary**
              **($)**
              **(c)**
            
            **Bonus**
              **($)**
              **(d)**
            
            **Stock**
              **award(s)**
              **($)**
              **(e)**
            
            **Options/**
              **SARs**
              **(#)**
              **(f)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
              **(g)**
            
            **Changes
                in Pension Value and Non-qualified Deferred Compensation
                Earnings**
              **($)**
              **(h)**
            
            **All
                other compensation**
              **($)**
              **(i)**2004
            
            RMB
                600,000
              (approximatelyUSD
                72,600)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2003
            
            RMB
                600,000
              (approximatelyUSD
                72,600)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/AJohn
                Chen
              Chief
                Financial Officer
            
            2006
            
            RMB
                180,000
              (approximatelyUSD22,603)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2005
            
            RMB
                120,000
              (approximatelyUSD
                14,664)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2004
            
            RMB
                70,000
              (approximatelyUSD
                8,470)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2003
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/AHan,
                Wen Chun
              Plant
                Controller
            
            2006
            
            RMB
                96,000
              (approximatelyUSD
                12,055)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2005
            
            RMB
                96,000
              (approximatelyUSD
                11,731)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2004
            
            RMB
                45,600
              (approximatelyUSD
                5,518)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2003
            
            RMB
                45,600
              (approximatelyUSD
                5,518)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/ASu,
                Xiao Gang
              Manager
                ofHumanResources
            
            2006
            
            RMB
                96,000
              (approximatelyUSD
                12,055)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2005
            
            RMB
                96,000
              (approximatelyUSD
                11,731)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2004
            
            RMB
                45,600
              (approximatelyUSD
                5,518)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A




-34-




**SUMMARY
                COMPENSATION TABLE****Name
                and principal position**
              **(a)**
            
            **Year**
              **(b)**
            
            **Salary**
              **($)**
              **(c)**
            
            **Bonus**
              **($)**
              **(d)**
            
            **Stock**
              **award(s)**
              **($)**
              **(e)**
            
            **Options/**
              **SARs**
              **(#)**
              **(f)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
              **(g)**
            
            ****
              **Changes
                in Pension Value and Non-qualified Deferred Compensation
                Earnings**
              **($)**
              **(h)**
            
            **All
                other compensation**
              **($)**
              **(i)**2003
            
            RMB
                45,600
              (approximatelyUSD
                5,518)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/ALiu,
                Yu Wen
              Manager
                of SalesDepartment
            
            2006
            
            RMB
                96,000
              (approximatelyUSD
                12,055)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2005
            
            RMB
                96,000
              (approximatelyUSD
                11,731)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2004
            
            RMB
                45,600
              (approximatelyUSD
                5,518)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A2003
            
            RMB
                45,600
              (approximatelyUSD
                5,518)
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A
            
            N/A




The
      board
      of directors has reviewed the Compensation Discussion and Analysis and based
      this review recommends that it be included in the 2006 10K.





Respectfully
      submitted


YU,
      Zuo
      Sheng, Chairman of the Board


John
      Chen


WANG,
      Guo
      Dong


ZHAO,
      Sheng Guo


John
      Wong


Ross
      Warner


TIAN,
      Lian Hui








None
      of
      our directors has received any compensation for their services rendered as
      directors to our company during fiscal year 2006.





ITEM
      12. SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS





The
      following table sets forth certain information regarding beneficial ownership
      of
      common stock as of March 30, 2007, by:




·
            Each
                person known to us to own beneficially more than 5%, in the aggregate,
                of
                the outstanding shares of our common
                stock;




·
            Each
                of our directors;




·
            Each
                of our Chairman and Chief Executive Officer and our other four most
                highly
                compensated executive officers; and




-35-




·
            All
                of our executive officers and directors as a
                group.




The
      number of shares beneficially owned and the percent of shares outstanding are
      based on 32,444,665 shares outstanding as of March 30, 2007. Beneficial
      ownership is determined in accordance with the rules of the SEC and generally
      includes voting or investment power with respect to securities.





We
      know
      of no arrangements that may result in a change of control of our
      company.




**Name
                and address**
            
            **Principal
                Position Held**
            
            **Shares**
              **Owned(1)**
            
            **Percentage****Matlin
                Patterson Global**
              **Opportunities
                Partners II L.P.(2)**
              520
                Madison Avenue, New York,
              NY
                10022-4213
            
            
            Not
                applicable
            
            
            2,209,083
            
            
            6.81
            %**Yu,
                Zuo Sheng**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            President
                and Chief Executive Officer and Chairman
            
            
            23,929,500
            
            
            73.7
            %**Chen,
                John**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Director
                and Chief Financial Officer
            
            
            150,000
            
            
            ***Zhao,
                Sheng Guo**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Director
            
            
            50,000
            
            
            ***Warner,
                Ross**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Director
            
            
            10,000
            
            
            ***Wong,
                John**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Director
            
            
            10,000
            
            
            ***Tian,
                Lian Hui**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Director
            
            
            0
            
            
            *




-36-




**Wang,
                Guo Dong**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Director
            
            
            0
            
            
            ***Han,
                Wen Chun**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Plant
                Controller
            
            
            150,000
            
            
            ***Su,
                Xiao Gang**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Manager
                of Human Resources
            
            
            80,000
            
            
            ***Liu,
                Yu Wen**
              C/o
                General Steel Holdings, Inc.
              Kuntai
                International Mansion Building, Suite 2315
              Yi
                No. 12 Chaoyangmenwai Avenue
              Chaoyang
                District, Beijing 100020
            
            
            Manager
                of Sales Department
            
            
            100,000
            
            
            *Directors
                & Executive Officers as Group
            
            
            
            
            
            26,668,583
            
            
            82.2
            %





(1)
        Beneficial ownership is determined in accordance with Rule 13d-3 under
      the Exchange Act securities and includes securities that are convertible into
      common stock at the owner’s option within 60 days.




(2)
        The
        information is based solely on a Schedule 13G filed with the Securities and
        Exchange Commission by the beneficial owner on September 30, 2005.


*
      indicates percentages that are below 1%.





ITEM
      13.
      Certain Relationships and Related Transactions.





***Certain
      Relationships and Related Transactions.***





We
      have a
      cash advance to Golden Glister Holdings Limited. Golden Glister Holdings Limited
      is incorporated in Hong Kong and our CEO and Chairman, Yu Zuo Sheng, is the
      majority shareholder. The amount was advanced to Golden Glister Holdings for
      business operations. Golden Glister Holdings Limited has agreed to pay back
      the
      amount on a short-term basis. We had a receivable from Golden Glister Holdings
      Limited for $850,400 at December 31, 2006 and a payable to Golden Glister
      Holdings Limited for $980,000 at December 31, 2005. These receivable and payable
      are short term and non-interest bearing. We have received payment from Golden
      Glister for the receivable amount in January 2007.





Starting
      from January 1, 2006, we subleased a portion of our land use rights to Tianjin
      Jing Qiu Steel Company, a related party under common control. The total rent
      income of 2006 was $1,439,121.





We
      have
      four directors that are independent under the independence standards of S-K
      Item
      407(a)(1). They are: John Wong, Wang Guo Dong, Tian Lian Hui and Zhao Sheng
      Guo.


-37-





ITEM
      14.
      Principal Accounting Fees and Services.





The
      Board
      has reappointed Moore Stephens Wurth Frazer and Torbet, LLP as the Company's
      independent auditors for the year ended December 31, 2007.





Public
      Accountants' Fees




2006
            
            2005Audit
                fees
            
            $
            180,000
            
            $
            180,000Audit
                related fees
            
            $
            -
            
            $
            -Tax
                fees
            
            $
            7,000
            
            $
            7,000All
                other fees
            
            $
            -
            
            $
            -





Audit
      fees were for professional services rendered by Moore Stephens Wurth Frazer
      and
      Torbet, LLP during 2006 and 2005 years for the audit of our annual financial
      statements and the review of our financial statements included in our quarterly
      reports form 10-Q and services that are normally provided by Moore Stephens
      Wurth Frazer and Torbet, LLP in the connection with the statutory and regulatory
      filings. Tax fees involved the preparation of our consolidated tax
      returns.




PART
      IV




ITEM
      15.
      Exhibits, Financial Statement Schedules.




**EXHIBIT
                NO.**
            
            **DESCRIPTION**1.1
            
            Baotou
                Steel - GSHI Special Steel Joint Venture Agreement dated as of September
                28, 2005 by and between Baotou Iron & Steel (Group) Co., Ltd., General
                Steel Investment Co., Ltd. and Daqiuzhuang Metal Sheet Co., Ltd.
                (Incorporated by reference to the current report on Form 8-K, filed
                with
                the Commission on October 31, 2005)2.1
            
            Agreement
                and Plan of Merger dated as of October 14, 2004 by and
                among American Construction Company, General Steel Investment Co.,
                Ltd. and Northwest Steel Company, a Nevada corporation (Incorporated
                by
                reference to the current report on Form 8-K/A, filed with the Commission
                on October 19, 2004)3.1
            
            Articles
                of Incorporation of General Steel Holdings, Inc. (Incorporated by
                reference to the registration statement on Form SB-2, filed with
                the
                Commission on June 6, 2003)4.1
            
            Subscription
                Agreement (Incorporated by reference to the registration statement
                on Form
                SB-2/A, filed with the Commission on September 12,
                2003)10.1
            
            Form
                of Subscription Agreement (Incorporated by reference to the registration
                statement on Form S-1, filed with the Commission on June 23,
                2006)10.2
            
            Form
                of Registration Rights Agreement (Incorporated by reference to the
                registration statement on Form S-1, filed with the Commission on
                June 23,
                2006)10.3
            
            Form
                of Warrant (Incorporated by reference to the registration statement
                on
                Form S-1, filed with the Commission on June 23, 2006)10.4
            
            Form
                of Lock Box Agreement (Incorporated by reference to the registration
                statement on Form S-1, filed with the Commission on June 23,
                2006)10.5
            
            English
                translation of the loan between Tianjin Daqiuzhuang Metal Sheet Co.,
                Ltd.
                to and Yang Pu Automotive Investment Limited (Incorporated by reference
                to
                the registration statement on Form S-1, filed with the Commission
                on June
                23, 2006)10.6
            
            Loan
                Documentation by and between Tianjin Daqiuzhuang Metal Sheet Co.,
                Ltd. and
                the Agricultural Bank of China (Incorporated by reference to the
                registration statement on Form S-1, filed with the Commission on
                June 23,
                2006)21.1
            
            List
                of Subsidiaries of the Registrant.*31.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act.*31.2
            
            Certification
                of Principal Financial and Accounting Officer Pursuant to Section
                302 of
                the Sarbanes-Oxley Act.*32.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act.*32.2
            
            Certification
                of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act.*


*
        filed
        herewith.
  -38-


**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 To
          the
          Board of Directors and Stockholders of
 General
          Steel Holdings Inc.
 
 We
          have
          audited the accompanying consolidated balance sheets of General Steel Holdings
          Inc. and subsidiaries as of December 31, 2006 and 2005, and the related
          consolidated statements of income and other comprehensive income, shareholders’
equity, and cash flows for each year in the three-year period ended December
          31,
          2006. These financial statements are the responsibility of the company’s
          management. Our responsibility is to express an opinion on these consolidated
          financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. The company is not required
          to
          have, nor were we engaged to perform, an audit of its internal control
          over
          financial reporting. Our audit included consideration of internal control
          over
          financial reporting as a basis for designing audit procedures that are
          appropriate in the circumstances, but not for the purpose of expressing
          an
          opinion on the effectiveness of the company’s internal control over financial
          reporting. Accordingly, we express no such opinion. An audit also includes
          examining, on a test basis, evidence supporting the amounts and disclosures
          in
          the consolidated financial statements, assessing the accounting principles
          used
          and significant estimates made by management, as well as evaluating the
          overall
          financial statement presentation. We believe that our audits provide a
          reasonable basis for our opinion.
 
 In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of General Steel Holdings
          Inc.
          and subsidiaries as of December 31, 2006 and 2005, and the results of their
          operations and their cash flows for each of the years in the three-year
          period
          ended December 31, 2006 in conformity with accounting principles generally
          accepted in the United States of America.
 /s/
                    Moore Stephens Wurth Frazer and Torbet, LLPWalnut,
                    CaliforniaMarch
                  10, 2007
  F-1
  GENERAL
                      STEEL HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED
                      BALANCE SHEETSAS
                      OF DECEMBER 31, 2006 AND 2005ASSETS2006
                  
                  2005RestatedCURRENT
                      ASSETS:Cash
                  
                  $
                  6,831,549
                  
                  $
                  8,648,373Restricted
                      cash
                  
                  
                  4,231,523
                  
                  
                  2,735,583Accounts
                      receivable, net of allowance for doubtful accounts of
                      $137,132and
                      $1,371 as of December 31, 2006 and December 31, 2005,
                      respectively
                  
                  
                  17,095,718
                  
                  
                  993,417Notes
                      receivable
                  
                  
                  537,946
                  
                  
                  4,960Note
                      receivable - related party
                  
                  
                  -
                  
                  
                  2,976,000Other
                      receivables
                  
                  
                  268,784
                  
                  
                  109,769Other
                      receivables - related parties
                  
                  
                  850,400
                  
                  
                  -Inventories
                  
                  
                  12,489,290
                  
                  
                  10,730,941Advances
                      on inventory purchases
                  
                  
                  2,318,344
                  
                  
                  10,716,293Short-term
                      investment
                  
                  
                  -
                  
                  
                  37,200Prepaid
                      expenses - current
                  
                  
                  66,837
                  
                  
                  64,647Total
                      current assets
                  
                  
                  44,690,391
                  
                  
                  37,017,183PLANT
                      AND EQUIPMENT, net
                  
                  
                  26,606,594
                  
                  
                  18,213,872OTHER
                      ASSETS:Advances
                      on equipment purchases
                  
                  
                  -
                  
                  
                  1,053,169Prepaid
                      expenses - non current
                  
                  
                  720,183
                  
                  
                  669,460Intangible
                      assets - land use right, net of accumulated amortization
                  
                  
                  1,804,440
                  
                  
                  2,039,532Total
                      other assets
                  
                  
                  2,524,623
                  
                  
                  3,762,161Total
                      assets
                  
                  $
                  73,821,608
                  
                  $
                  58,993,216LIABILITIES
                      AND SHAREHOLDERS' EQUITYCURRENT
                      LIABILITIES:Accounts
                      payable
                  
                  $
                  3,001,775
                  
                  $
                  823,760Short
                      term loans - bank
                  
                  
                  30,284,686
                  
                  
                  27,118,800Short
                      term notes payable
                  
                  
                  8,153,520
                  
                  
                  5,406,400Other
                      payables
                  
                  
                  355,142
                  
                  
                  69,667Other
                      payable - related party
                  
                  
                  -
                  
                  
                  980,000Accrued
                      liabilities
                  
                  
                  1,064,012
                  
                  
                  916,957Customer
                      deposits
                  
                  
                  1,093,602
                  
                  
                  1,276,536Deposits
                      due to sales representatives
                  
                  
                  2,051,200
                  
                  
                  1,261,080Taxes
                      payable
                  
                  
                  5,391,602
                  
                  
                  1,682,330Total
                      current liabilities
                  
                  
                  51,395,539
                  
                  
                  39,535,530SHARES
                      SUBJECT TO MANDATORY REDEMPTION
                  
                  
                  2,179,779
                  
                  
                  1,720,875Total
                      liabilities
                  
                  
                  53,575,318
                  
                  
                  41,256,405MINORITY
                      INTEREST
                  
                  
                  6,185,797
                  
                  
                  5,387,026SHAREHOLDERS'
                      EQUITY:Common
                      Stock, $0.001 par value, 75,000,000 shares authorized,32,426,665
                      shares issued and outstanding (including 1,176,665 redeemable
                      shares)
                  
                  
                  31,250
                  
                  
                  31,250Paid-in-capital
                  
                  
                  6,871,358
                  
                  
                  6,871,358Retained
                      earnings
                  
                  
                  4,974,187
                  
                  
                  4,207,236Statutory
                      reserves
                  
                  
                  1,107,010
                  
                  
                  840,753Accumulated
                      other comprehensive income
                  
                  
                  1,076,688
                  
                  
                  399,188Total
                      shareholders' equity
                  
                  
                  14,060,493
                  
                  
                  12,349,785Total
                      liabilities and shareholders' equity
                  
                  $
                  73,821,608
                  
                  $
                  58,993,216
 See
            report of independent registered public accounting firm.
 The
            accompanying notes are an integral part of these
            consolidated financial statements.
 F-2
  GENERAL
                      STEEL HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED
                      STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                      THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 20042006
                  
                  2005
                  
                  2004RestatedREVENUES
                  
                  $
                  139,494,624
                  
                  $
                  89,739,899
                  
                  $
                  87,831,919COST
                      OF SALES
                  
                  
                  135,324,190
                  
                  
                  81,165,850
                  
                  
                  81,613,187GROSS
                      PROFIT
                  
                  
                  4,170,434
                  
                  
                  8,574,049
                  
                  
                  6,218,732SELLING,
                      GENERAL AND ADMINISTRATIVE EXPENSES
                  
                  
                  2,421,285
                  
                  
                  2,781,070
                  
                  
                  2,316,699INCOME
                      FROM OPERATIONS
                  
                  
                  1,749,149
                  
                  
                  5,792,979
                  
                  
                  3,902,033OTHER
                      INCOME (EXPENSE), NET
                  
                  
                  82,830
                  
                  
                  (1,680,842
                  )
                  
                  (1,616,377
                  )INCOME
                      BEFORE PROVISION FOR INCOME TAXES
                  
                  
                  1,831,979
                  
                  
                  4,112,137
                  
                  
                  2,285,656AND
                      MINORITY INTERESTPROVISION
                      FOR INCOME TAXES
                  
                  
                  -
                  
                  
                  -
                  
                  
                  906,277NET
                      INCOME BEFORE MINORITY INTEREST
                  
                  
                  1,831,979
                  
                  
                  4,112,137
                  
                  
                  1,379,379LESS
                      MINORITY INTEREST
                  
                  
                  798,771
                  
                  
                  1,371,918
                  
                  
                  464,381NET
                      INCOME
                  
                  
                  1,033,208
                  
                  
                  2,740,219
                  
                  
                  914,998FOREIGN
                      CURRENCY TRANSLATION GAIN
                  
                  
                  677,500
                  
                  
                  399,188
                  
                  
                  -COMPREHENSIVE
                      INCOME
                  
                  $
                  1,710,708
                  
                  $
                  3,139,407
                  
                  $
                  914,998WEIGHTED
                      AVERAGE NUMBER OF SHARES
                  
                  
                  31,250,000
                  
                  
                  31,250,000
                  
                  
                  30,259,644EARNING
                      PER SHARE, BASIC AND DILUTED
                  
                  $
                  0.03
                  
                  $
                  0.09
                  
                  $
                  0.03
 See
              report of independent registered public accounting firm.
 The
              accompanying notes are an integral part of these
              consolidated financial statements.
 F-3
  GENERAL
                      STEEL HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED
                      STATEMENTS OF SHAREHOLDERS' EQUITYFOR
                      THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004Common
                      Stock
                  
                  
                  
                  Retained
                      Earnings
                  
                  
                  
                  Accumulated
                      otherNumber
                  
                  Par
                  
                  Paid-in
                  
                  Statutory
                  
                  
                  
                  Subscriptions
                  
                  comprehensiveof
                      shares
                  
                  Value
                  
                  capital
                  
                  reserves
                  
                  Unrestricted
                  
                  receivable
                  
                  income
                  
                  TotalsBALANCE,
                      January 1, 2004
                  
                  
                  30,000,000
                  
                  $
                  30,000
                  
                  $
                  6,872,433
                  
                  $
                  -
                  
                  $
                  1,392,772
                  
                  $
                  (10,000
                  )
                  $
                  -
                  
                  $
                  8,285,205Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  914,998
                  
                  
                  
                  
                  
                  
                  
                  
                  914,998Adjustment
                      to statutory reserve
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  154,794
                  
                  
                  (154,794
                  )
                  
                  
                  
                  
                  
                  
                  
                  -Cash
                      for subscriptions receivable
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,000
                  
                  
                  
                  
                  
                  10,000Stock
                      issued for services
                  
                  
                  35,000
                  
                  
                  35
                  
                  
                  140
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  175Reverse
                      acquisition
                  
                  
                  1,215,000
                  
                  
                  1,215
                  
                  
                  (1,215
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -BALANCE,
                      December 31, 2004 (restated)
                  
                  
                  31,250,000
                  
                  $
                  31,250
                  
                  $
                  6,871,358
                  
                  $
                  154,794
                  
                  $
                  2,152,976
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  9,210,378Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,740,219
                  
                  
                  
                  
                  
                  
                  
                  
                  2,740,219Adjustment
                      to statutory reserve
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  685,959
                  
                  
                  (685,959
                  )
                  
                  
                  
                  
                  
                  
                  
                  -Foreign
                      currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  399,188
                  
                  
                  399,188BALANCE,
                      December 31, 2005 (restated)
                  
                  
                  31,250,000
                  
                  $
                  31,250
                  
                  $
                  6,871,358
                  
                  $
                  840,753
                  
                  $
                  4,207,236
                  
                  $
                  -
                  
                  $
                  399,188
                  
                  $
                  12,349,785Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,033,208
                  
                  
                  
                  
                  
                  
                  
                  
                  1,033,208Adjustment
                      to statutory reserve
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  266,257
                  
                  
                  (266,257
                  )
                  
                  
                  
                  
                  
                  
                  
                  -Foreign
                      currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  677,500
                  
                  
                  677,500BALANCE,
                      December 31, 2006
                  
                  
                  31,250,000
                  
                  $
                  31,250
                  
                  $
                  6,871,358
                  
                  $
                  1,107,010
                  
                  $
                  4,974,187
                  
                  $
                  -
                  
                  $
                  1,076,688
                  
                  $
                  14,060,493
 See
            report of independent registered public accounting firm.
 The
            accompanying notes are an integral part of these
            consolidated financial statements.
 F-4
  GENERAL
                      STEEL HOLDINGS INC. AND SUBSIDIARIESCONSOLIDATED
                      STATEMENTS OF CASH FLOWSFOR
                      THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 20042006
                  
                  2005
                  
                  2004(Restated)
                  
                  (Restated)CASH
                      FLOWS FROM OPERATING ACTIVITIES:Net
                      income
                  
                  $
                  1,033,208
                  
                  $
                  2,740,219
                  
                  $
                  914,998Adjustments
                      to reconcile net income to cashprovided
                      by (used in) operating activities:Minority
                      Interest
                  
                  
                  798,771
                  
                  
                  1,371,918
                  
                  
                  464,380Depreciation
                  
                  
                  1,619,267
                  
                  
                  1,053,976
                  
                  
                  968,332Amortization
                  
                  
                  297,933
                  
                  
                  289,938
                  
                  
                  287,090Loss
                      on disposal of equipment
                  
                  
                  28,137
                  
                  
                  25,992
                  
                  
                  22,947Stock
                      issued for services
                  
                  
                  -
                  
                  
                  -
                  
                  
                  175Interest
                      expense accrued on mandatory redeemable stock
                  
                  
                  458,904
                  
                  
                  114,724
                  
                  
                  -Allowance
                      for bad debt
                  
                  
                  132,895
                  
                  
                  -
                  
                  
                  328(Increase)
                      decrease in assets:Accounts
                      receivable
                  
                  
                  (15,871,902
                  )
                  
                  (451,095
                  )
                  
                  (68,085
                  )Notes
                      receivable
                  
                  
                  (521,888
                  )
                  
                  373,785
                  
                  
                  813,899Other
                      receivables
                  
                  
                  (152,111
                  )
                  
                  108,860
                  
                  
                  113,366Other
                      receivables - related parties
                  
                  
                  (850,400
                  )
                  
                  -
                  
                  
                  459,800Inventories
                  
                  
                  (1,366,266
                  )
                  
                  2,378,597
                  
                  
                  (8,024,646
                  )Advances
                      on inventory purchases - related parties
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,021,824Advances
                      on inventory purchases
                  
                  
                  8,581,191
                  
                  
                  3,042,837
                  
                  
                  (5,638,504
                  )Prepaid
                      expense - current
                  
                  
                  -
                  
                  
                  (63,709
                  )
                  
                  -Prepaid
                      expense - non current
                  
                  
                  44,559
                  
                  
                  (659,742
                  )
                  
                  -Increase
                      (decrease) in liabilities:Accounts
                      payable
                  
                  
                  2,106,005
                  
                  
                  523,624
                  
                  
                  (1,085,136
                  )Other
                      payables
                  
                  
                  135,275
                  
                  
                  (364,090
                  )
                  
                  191,802Other
                      payable - related party
                  
                  
                  (980,000
                  )
                  
                  (10,000
                  )
                  
                  1,011,012Accrued
                      liabilities
                  
                  
                  259,000
                  
                  
                  506,214
                  
                  
                  332,876Customer
                      deposits
                  
                  
                  (221,532
                  )
                  
                  (771,235
                  )
                  
                  1,095,153Taxes
                      payable
                  
                  
                  3,577,364
                  
                  
                  (240,347
                  )
                  
                  223,773Net
                      cash (used in) provided by operating activities
                  
                  
                  (891,590
                  )
                  
                  9,970,466
                  
                  
                  (6,894,616
                  )CASH
                      FLOWS FROM INVESTING ACTIVITIES:Restriced
                      cash
                  
                  
                  (1,374,495
                  )
                  
                  861,897
                  
                  
                  (1,501,110
                  )Notes
                      receivable - related party
                  
                  
                  3,013,680
                  
                  
                  (2,932,800
                  )
                  
                  -Proceeds
                      from short term investment
                  
                  
                  37,671
                  
                  
                  -
                  
                  
                  (24,200
                  )Deposits
                      due to sales representatives
                  
                  
                  732,073
                  
                  
                  (1,222
                  )
                  
                  369,050Advance
                      on equipment purchases
                  
                  
                  1,066,504
                  
                  
                  (1,037,881
                  )
                  
                  -Additions
                      to prepaid land use rights
                  
                  
                  (72,031
                  )
                  
                  -
                  
                  
                  -Additions
                      to equipment
                  
                  
                  (2,401,860
                  )
                  
                  (627,941
                  )
                  
                  (253,426
                  )Additions
                      to construction in progress
                  
                  
                  (6,865,560
                  )
                  
                  (4,169,895
                  )
                  
                  -Cash
                      proceeds from sale of equipment
                  
                  
                  -
                  
                  
                  8,552
                  
                  
                  226,158Net
                      cash used in investing activities
                  
                  
                  (5,864,018
                  )
                  
                  (7,899,290
                  )
                  
                  (1,183,528
                  )CASH
                      FLOWS FINANCING ACTIVITIES:Borrowings
                      on short term loans - bank
                  
                  
                  29,663,401
                  
                  
                  31,967,520
                  
                  
                  28,072,000Payments
                      on short term loans - bank
                  
                  
                  (27,462,159
                  )
                  
                  (31,246,540
                  )
                  
                  (16,129,300
                  )Borrowings
                      on short term notes payable
                  
                  
                  7,986,252
                  
                  
                  11,266,840
                  
                  
                  25,071,200Payments
                      on short term notes payable
                  
                  
                  (5,474,852
                  )
                  
                  (12,782,120
                  )
                  
                  (25,004,650
                  )Cash
                      received on stock issuance
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000Cash
                      received on issuance of mandatory redeemable stock
                  
                  
                  -
                  
                  
                  1,606,151
                  
                  
                  -Net
                      cash provided by financing activities
                  
                  
                  4,712,642
                  
                  
                  811,851
                  
                  
                  12,019,250EFFECTS
                      OF EXCHANGE RATE CHANGE IN CASH
                  
                  
                  226,142
                  
                  
                  217,536
                  
                  
                  -(DECREASE)
                      INCREASE IN CASH
                  
                  
                  (1,816,824
                  )
                  
                  3,100,563
                  
                  
                  3,941,106CASH,
                      beginning of year
                  
                  
                  8,648,373
                  
                  
                  5,547,810
                  
                  
                  1,606,704CASH,
                      end of year
                  
                  $
                  6,831,549
                  
                  $
                  8,648,373
                  
                  $
                  5,547,810
 See
              report of independent registered public accounting firm.
 The
              accompanying notes are an integral part of these
              consolidated financial statements.
 F-5
 
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
            31, 2006
 **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.
 
 On
          October 14, 2004, American Construction Company, General Steel Investment
          Co.,
          Ltd. (General Steel) and Northwest Steel Company, a Nevada corporation,
          entered
          into an Agreement and Plan of Merger (the "Agreement") pursuant to which
          American Construction Company acquired General Steel, and it’s 70% ownership in
          its subsidiary Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal) in
          exchange
          for shares of the Company’s common stock, of which 22,040,000 shares was a new
          issuance by the Company, and 7,960,000 shares are from certain shareholders
          of
          the Company, which in aggregate, constituted 96% of the total issued and
          outstanding shares of the Company.
 
 Under
          the
          terms of the Agreement, General Steel will remain a 100% owned subsidiary
          of the
          Company. The transaction contemplated by the Agreement was intended to
          be a
“tax-free" reorganization pursuant to the provisions of Section 351 and
          368(a)
          (1) (A) of the Internal Revenue Code of 1986, as amended. The stockholders
          of
          General Steel, as of the closing date of the merger own approximately 96%
          of the
          Company's common stock outstanding as of October 15, 2004 (excluding any
          additional shares to be issued on outstanding options, warrants and other
          securities convertible into common stock).
 
 The
          accounting for these transactions is identical to that resulting from a
          reverse-acquisition, except that no goodwill or other intangible assets
          is
          recorded. Accordingly, the financial statements of General Steel Investment
          Co.,
          Ltd. are the historical financial statements of the Company, formerly the
          operations of Daqiuzhuang Metal Sheet Co., Ltd.
 
 Based
          on
          the Company's Plan of Merger with General Steel Investment Co., Ltd., the
          Board
          of Directors determined to change the Registrant's fiscal year end from
          January
          31 to December 31.
 
 Daqiuzhuang
          Metal Sheet Co., Ltd. (referred to as Daqiuzhuang Metal) was established
          on
          August 18, 2000 in Jinghai county, Tianjin city, Hebei province, the People’s
          Republic of China (PRC). The Articles of Corporation provides for a 10
          year
          operating term beginning on August 18, 2000 with registered capital of
          $
          9,583,200.
 
 The
          Company is a Chinese registered limited liability company with a legal
          structure
          similar to a limited liability company organized under state laws in the
          United
          States of America. There is no discriminatory provision for the minority
          shareholders and the 30% shareholders will receive their distribution of
          retained earnings according to their ownership percentage in Daqiuzhuang
          Metal.
 
 **Note
          2 - Restatement of financial statements**
 
 The
          Company restated its consolidated financial statements for 2005 and 2004
          for
          corrections in accounting which included:
 See
          report of independent registered public accounting firm.
 F-6
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
  
 1.
                Restating
                    the carrying amount of redeemable stock issued in 2005 and amortizing
                    the
                    difference between redemption amount and fair value as interest
                    expense
                    over the 18 months period from issuance date using an implied
                    interest
                    rate in accordance with SFAS 150. The amount originally recorded
                    as
                    liability was discounted at an average market rate with the difference
                    between the discounted amount and the cash received being treated
                    as
                    reduction in paid-in-capital and the difference between discounted
                    amount
                    and redemption value to be amortized over the 18 months from
                    issuance. In
                    addition, certain disclosures in notes 3 and 18 to the consolidated
                    financial statements were restated to reflect the correction.
                    The effects
                    of this restatement are as follows:
  Consolidated
                      balance sheetsDecember
                      31,
                  
                  
                  
                  December
                      31,2005
                  
                  
                  
                  2005PreviouslyReported
                  
                  Adjustments
                  
                  RestatedShares
                      subject to mandatory redemption
                  
                  $
                  2,115,906
                  
                  $
                  (395,031
                  )
                  $
                  1,720,875Paid-in
                      capital
                  
                  $
                  6,395,617
                  
                  $
                  475,741
                  
                  $
                  6,871,358Retained
                      Earnings
                  
                  $
                  4,287,946
                  
                  $
                  (80,710
                  )
                  $
                  4,207,236Consolidated
                      statements of income and other comprehensive incomeOther
                      (expenses) income, net
                  
                  $
                  (1,600,132
                  )
                  $
                  (80,710
                  )
                  $
                  (1,680,842
                  )Net
                      income
                  
                  $
                  2,820,929
                  
                  $
                  (80,710
                  )
                  $
                  2,740,219Comprehensive
                      income
                  
                  $
                  3,220,117
                  
                  $
                  (80,710
                  )
                  $
                  3,139,407Consolidated
                      statements of cash flowsInterest
                      expense accrued onmandatory
                      redeemable stock
                  
                  $
                  34,014
                  
                  $
                  80,710
                  
                  $
                  114,724
 2.
                Reclassifying
                    Advances on equipment purchases to Other Assets - non-current
                    from current
                    assets on the 2005 balance sheet
  3.
                Reclassifying
                    certain amounts on the statements of cash flows for 2005 and
                    2004 as
                    follows:
 
 a.
                Reclassified
                    accrued interest expense accrued on mandatory redeemable stock
                    from
                    financing activities to operating
                    activities
 b.
                Reclassified
                    notes receivable from investing activities to operating activities
                    since
                    it is related to inventory sales
 c.
                Separated
                    restricted cash from cash and classified restricted cash in investing
                    activities
 d.
                Reclassified
                    deposits due to sales representatives and advances on equipment
                    purchases
                    from operating activities to investing
                    activities
   See
            report of independent registered public accounting firm.
 F-7
  GENERAL
          STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 4.
                Restating
                    borrowings and payments on short term loan - bank and short term
                    notes
                    payable on a gross basis vs. net basis as previously
                    reported
 
 **Note
          3 - Summary of significant accounting policies**
 
 Basis
          of presentation
 The
          consolidated financial statements of General Steel Holdings, Inc. reflect
          the
          activities of the following subsidiaries:
 Subsidiary
                  
                  Pecentage
                      Of
                      OwnershipGeneral
                      Steel Investment Co., Ltd.
                  British
                      Virgin Islands
                  
                  100.0%Tianjin
                      Daqiuzhuang Metal Sheet Co., Ltd.
                  P.R.C.
                  
                  70.0%
 The
          accompanying financial statements have been prepared in accordance with
          accounting principles generally accepted in the United States of America.
          The
          accompanying consolidated financial statements include the accounts of
          General
          Steel Investment Co., Ltd and Tianjin Daqiuzhuang Metal Sheet Co., Ltd
          (collectively the "Company"). All material intercompany transactions and
          balances have been eliminated in the consolidation.
 
 Revenue
          recognition
 
 The
          Company recognizes revenue when the goods are delivered and title has passed.
          Sales revenue represents the invoiced value of goods, net of a value-added
          tax
          (VAT). All of the Company’s products that are sold in the PRC are subject to a
          Chinese value-added tax at a rate of 17% of the gross sales price. This
          VAT may
          be offset by VAT paid by the Company on raw materials and other materials
          included in the cost of producing their finished product.
 
 Foreign
          currency translation
 
 The
          reporting currency of the Company is the US dollar. The Company uses their
          local
          currency, Renminbi (RMB), as their functional currency. Results of operations
          and cash flow are translated at average exchange rates during the period,
          and
          assets and liabilities are translated at the unified exchange rate as quoted
          by
          the People’s Bank of China at the end of the period.
 
 Translation
          adjustments resulting from this process are included in accumulated other
          comprehensive income in the statement of shareholders’ equity. Transaction gains
          and losses that arise from exchange rate fluctuations on transactions
          denominated in a currency other than the functional currency are included
          in the
          results of operations as incurred.
 
 Translation
          adjustments resulting from this process are included in accumulated other
          comprehensive income in the consolidated statement of shareholders' equity
          and
          amounted to $677,500, $399,188 and $0 as of December 31, 2006, 2005 and
          2004,
          respectively. The balance sheet amounts with the exception of equity at
          December
          31, 2006 and 2005 were translated at 7.80 RMB to $1.00 USD and 8.06 RMB,
          respectively.
  See
          report of independent registered public accounting firm.
 F-8
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 The
          equity accounts were stated at their historical rate. The average translation
          rates applied to income statement accounts for the years ended December
          31,
          2006, 2005 and 2004 were 7.96 RMB, 8.18 RMB and 8.26 RMB,
          respectively.
 
 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 years ended
          December 31, 2006, 2005 and 2004 amounted to $1,619,267, $1,053,976 and
          $968,332, 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
                  
                  10-15
                      years
  Construction
          in progress represents the costs incurred in connection with the construction
          of
          buildings or new additions to the Company’s plant facilities. No depreciation is
          provided for construction in progress until such time as the assets are
          completed and are placed into service.
 
 The
          cost
          and related accumulated depreciation of assets sold or otherwise retired
          are
          eliminated from the accounts and any gain or loss is included in the statements
          of operations. Maintenance, repairs and minor renewals are charged directly
          to
          expenses as incurred. Major additions and betterment to buildings and equipment
          are capitalized.
 
 Long-term
          assets of the Company are reviewed annually as to whether their carrying
          value
          has become impaired. The Company considers assets to be impaired if the
          carrying
          value exceeds the future projected cash flows from related operations.
          The
          Company also re-evaluates the periods of amortization to determine whether
          subsequent events and circumstances warrant revised estimates of useful
          lives.
          As of December 31, 2006, the Company expects these assets to be fully
          recoverable.
 
 Plant
          and
          equipment consist of the following at December 31:
  2006
                  
                  2005RestatedBuildings
                      and improvements
                  
                  $
                  9,338,865
                  
                  $
                  5,391,378Transportation
                      equipment
                  
                  
                  1,019,698
                  
                  
                  485,699Machinery
                  
                  
                  22,675,357
                  
                  
                  12,752,995Construction
                      in progress
                  
                  
                  -
                  
                  
                  4,231,318Totals
                  
                  
                  33,033,920
                  
                  
                  22,861,390Less
                      accumulated depreciation
                  
                  
                  6,427,326
                  
                  
                  4,647,518Totals
                  
                  $
                  26,606,594
                  
                  $
                  18,213,872
   See
            report of independent registered public accounting firm.
 F-9
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 Use
          of
          estimates
 
 The
          preparation of financial statements in conformity with generally accepted
          accounting principles of the United States of America requires management
          to
          make estimates and assumptions that affect the amounts reported in the
          combined
          financial statements and accompanying notes. Management believes that the
          estimates utilized in preparing its financial statements are reasonable
          and
          prudent. Actual results could differ from these estimates.
 
 Cash
          and concentration of risk
 
 Cash
          includes cash on hand and demand deposits in accounts maintained with
          state **** owned
          banks within the People’s Republic of China and Hong Kong. Total cash (including
          restricted cash balances) in these banks at December 31, 2006 and 2005,
          amounted
          to $11,058,636 and $11,446,120, respectively of which no deposits are covered
          by
          insurance. The Company has not experienced any losses in such accounts
          and
          believes it is not exposed to any risks on its cash in bank
          accounts.
 
 Restricted
          Cash
 
 The
          Company through its bank agreements is required to keep certain amounts
          on
          deposit that are subject to withdrawal restrictions and these amounts are
          $4,231,523 and $2,735,583 as of December 31, 2006 and 2005,
          respectively.
 
 Inventories
 
 Inventories
          are stated at the lower of cost or market using weighted average method.
          Inventories consisted of the followings at December 31,
  2006
                  
                  2005RestatedSupplies
                  
                  $
                  1,061,773
                  
                  $
                  1,524,332Raw
                      materials
                  
                  
                  2,827,127
                  
                  
                  1,195,022Finished
                      goods
                  
                  
                  8,600,390
                  
                  
                  8,011,587Totals
                  
                  $
                  12,489,290
                  
                  $
                  10,730,941
  Inventories
          consist of supplies, raw materials and finished goods. Raw materials consist
          primarily of iron and steel used in production. The cost of finished goods
          included direct costs of raw materials as well as direct labor used in
          production. Indirect production costs such as utilities and indirect labor
          related to production such as assembling, shipping and handling costs are
          also
          included in the cost of inventory. No work in process inventory existed
          at
          December 31, 2006 and 2005, as all inventory in process was completed and
          transferred to finished goods prior to the physical inventory count. The
          Company
          reviews its inventory annually for possible obsolete goods or to determine
          if
          any reserves are necessary for potential obsolescence. As of December 31,
          2006
          and 2005, the Company has determined that no reserves are
          necessary.
  See
            report of independent registered public accounting firm.
 F-10
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 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” (the 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 right is for 50 years. However, Daqiuzhuang Metal's initial
          business license had ten-year term. The management elected to amortize
          the land
          use rights over the ten-year business term. Daqiuzhuang Metal became a
          Sino
          Joint Venture in 2004 as discussed in note 1 and obtained a new business
          license
          for twenty years; however, the Company decided to continue amortizing the
          land
          use rights over the original ten-year business term.
 
 As
          of
          December 31, 2006 and 2005, accumulated
          amortization amounted to $1,237,293 and $902,550, respectively. The
          costs
          of these rights are being amortized over
          ten
          years using
          the straight-line method. Total amortization expense for the years ended
          December 31, 2006, 2005 and 2004, amounted to $297,933, $289,938 and $287,090,
          respectively.
 
 Intangible
          assets of the Company are reviewed annually as to whether their carrying
          value
          has become impaired. The Company considers assets to be impaired if the
          carrying
          value exceeds the future projected cash flows from related operations.
          The
          Company also re-evaluates the periods of amortization to determine whether
          subsequent events and circumstances warrant revised estimates of useful
          lives.
          As of December 31, 2006, the Company expects these assets to be fully
          recoverable.
 
 Shares
          subject to mandatory redemption
 
 The
          Company has adopted Statement of Financial Accounting Standards No. 150, “Accounting
          for Certain Financial Instruments with Characteristics of both Liabilities
          and
          Equity”. FAS 150 established classification and measurement standards for three
          types of freestanding financial instruments that have characteristics of
          both
          liabilities and equity. Instruments within the scope of FAS 150 must be
          classified as liabilities within the Company’s Consolidated Financial Statements
          and be reported at settlement date value. The provisions of FAS 150 are
          effective for (1) instruments entered into or modified after May 31, 2003,
          and
          (2) pre-existing instruments as of July 1, 2003. In November 2003, through
          the
          issuance of FSP 150-3, the FASB indefinitely deferred the effective date
          of
          certain provisions of FAS 150, including mandatory redeemable instruments
          as
          they relate to minority interests in consolidated finite-lived
          entities.
   See
          report of independent registered public accounting firm.
 F-11
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
  
 The
          Company issued new redeemable stock in September, 2005. The amount is presented
          as a liability on balance sheet at the fair market value on the date of
          issuance
          plus accrued interest at the balance sheet date, see note 20.
 
 Income
          taxes
 
 The
          Company has adopted Statement of Financial Accounting Standards No. 109,
          “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of
          deferred income tax liabilities and assets for the expected future tax
          consequences of temporary differences between income tax basis and financial
          reporting basis of assets and liabilities. Provision for income taxes consist
          of
          taxes currently due plus deferred taxes. There are no deferred tax amounts
          at
          December 31, 2006 and 2005.
 
 The
          charge for taxation is based on the results for the year as adjusted for items,
          which are non-assessable or disallowed. It is calculated using tax rates
          that
          have been enacted or substantively enacted by the balance sheet
          date.
 
 Deferred
          tax is accounted for using the balance sheet liability method in respect
          of
          temporary differences arising from differences between the carrying amount
          of
          assets and liabilities in the financial statements and the corresponding
          tax
          basis used in the computation of assessable tax profit.
 
 In
          principle, deferred tax liabilities are recognized for all taxable temporary
          differences, and deferred tax assets are recognized to the extent that
          it is
          probably that taxable profit will be available against which deductible
          temporary differences can be utilized.
 
 Deferred
          tax is calculated at the tax rates that are expected to apply to the period
          when
          the asset is realized or the liability is settled. Deferred tax is charged
          or
          credited in the income statement, except when it related to items credited
          or
          charged directly to equity, in which case the deferred tax is also dealt
          with in
          equity.
 
 Deferred
          tax assets and liabilities are offset when they relate to income taxes
          levied by
          the same taxation authority and the Company intends to settle its current
          tax
          assets and liabilities on a net basis.
 
 Under
          the
          Income Tax Laws of PRC, the Company is generally subject to an income tax
          at an
          effective rate of 33% (30% state income taxes plus 3% local income taxes)
          on
          income reported in the statutory financial statements after appropriate
          tax
          adjustments, unless the enterprise is located in a specially designated
          region
          where it allows foreign enterprises a two-year income tax exemption and
          a 50%
          income tax reduction for the following three years.
 
 T he
          Company’s subsidiary, Daqiuzhuang Metal Sheet Co., Ltd., became a Chinese
          Sino-foreign joint venture at the time of the merger on October 14, 2004
          and it
          became eligible to receive tax benefit. The
          Company is exempt from income taxes for the years ended December 31 ô 2005
          and
          2006 and 50% income tax reduction for the years ended December 31, 2007,
          2008
          and 2009.
   See
          report of independent registered public accounting firm.
 F-12
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 The
          provision for income taxes for the period ended December 31 consisted of
          the
          following:
  2006
                  
                  2005
                  
                  2004RestatedProvision
                      for China Income Tax
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  823,888Provision
                      for China Local Tax
                  
                  
                  -
                  
                  
                  -
                  
                  
                  82,389Total
                      provision for income taxes
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  906,277
  The
          following table reconciles the U.S. statutory rates to the Company’s effective
          tax rate for the years ended December 31:
  2006
                  
                  2005
                  
                  2004RestatedU.S.
                      Statutory rates
                  
                  
                  34.0
                  %
                  
                  34.0
                  %
                  
                  34.0
                  %Foreign
                      income not recognized in USA
                  
                  
                  (34.0
                  )
                  
                  (34.0
                  )
                  
                  (34.0
                  )China
                      income taxes
                  
                  
                  -
                  
                  
                  -
                  
                  
                  33.0Total
                      provision for income taxes
                  
                  
                  -
                  %
                  
                  -
                  %
                  
                  33.0
                  %
  The
          estimated tax savings for the years ended December 31, 2006 and 2005 amounted
          to
          $604,553 and $1,056,377, respectively. The net effect on earnings per share
          had
          the income tax been applied would decrease earnings per share from $0.033
          to
          $0.027 and $0.09 to 0.06 for the years ended December 31, 2006 and 2005,
          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.
 
 Taxes
          payable consisted of the following:
  2006
                  
                  2005RestatedVAT
                      taxes payable
                  
                  $
                  5,317,466
                  
                  $
                  1,290,982Income
                      taxes payable
                  
                  
                  -
                  
                  
                  385,510Misc
                      taxes
                  
                  
                  74,136
                  
                  
                  5,838Total
                  
                  $
                  5,391,602
                  
                  $
                  1,682,330
  See
            report of independent registered public accounting firm.
 F-13
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 Recently
          issued accounting pronouncements
 
 In
          February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
          Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting
          for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS
          No. 140, “Accounting for Transfers and Servicing of Financial Assets and
          Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to
          simplify the accounting for certain hybrid instruments by permitting fair
          value
          remeasurement for any hybrid financial instrument that contains an embedded
          derivative, as well as, clarifies that beneficial interests in securitized
          financial assets are subject to FAS 133. In addition, FAS 155 eliminates
          a
          restriction on the passive derivative instruments that a qualifying
          special-purpose entity may hold under FAS 140. FAS 155 is effective for
          all
          financial instruments acquired, issued or subject to a new basis occurring
          after
          the beginning of an entity’s first fiscal year that begins after
          September 15, 2006. The adoption of SFAS No. 155 is not expected to have a
          material effect on the Company’s financial position or results of
          operations.
 
 In
          March
          2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
          Assets” (“FAS 156”), which amends SFAS No. 140. FAS 156 specifically
          provides guidance addressing the recognition and measurement of separately
          recognized servicing assets and liabilities, common with mortgage securitization
          activities, and provides an approach to simplify efforts to obtain hedge
          accounting treatment. FAS 156 is effective for all separately recognized
          servicing assets and liabilities acquired or issued after the beginning
          of an
          entity’s fiscal year that begins after September 15, 2006, with early
          adoption being permitted. The adoption of SFAS No. 156 is not expected
          to have a
          material effect on the Company’s financial position or results of
          operations.
 
 In
          July
          2006, the FASB issued FASB Interpretation No. 48, “Accounting for
          Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
          recognized in a company’s financial statements in accordance with FAS 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
          measurement attribute for the financial statement recognition and measurement
          of
          a tax position taken or expected to be taken in a tax return. FIN 48 also
          provides guidance on derecognition, classification, interest and penalties,
          accounting in interim periods, disclosure and transition. The requirements
          of
          FIN 48 are effective for our fiscal year beginning January 1, 2007. The
          adoption of this interpretation is not expected to have a material effect
          on the
          Company’s financial position or results of operations.
 
 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.
   See
          report of independent registered public accounting firm.
 F-14
  In
          September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
          Defined
          Benefit Pension and Other Postretirement Plans−−an amendment of FASB Statements
          No. 87, 88, 106, and 132(R)". One objective of this standard is to make
          it
          easier for investors, employees, retirees and other parties to understand and
          assess an employer's financial position and its ability to fulfill the
          obligations under its benefit plans. SFAS No. 158 requires employers to
          fully
          recognize in their financial statements the obligations associated with
          single−employer defined benefit pension plans, retiree healthcare plans, and
          other postretirement plans. SFAS No. 158 requires an employer to fully
          recognize
          in its statement of financial position the overfunded or under funded status
          of
          a defined benefit postretirement plan (other than a multiemployer plan)
          as an
          asset or liability and to recognize changes in that funded status in the
          year in
          which the changes occur through comprehensive income. This Statement also
          requires an employer to measure the funded status of a plan as of the date
          of
          its year-end statement of financial position, with limited exceptions.
          SFAS No.
          158 requires an entity to recognize as a component of other comprehensive
          income, net of tax, the gains or losses and prior service costs or credits
          that
          arise during the period but are not recognized as components of net periodic
          benefit cost pursuant to SFAS No. 87. This Statement requires an entity
          to
          disclose in the notes to financial statements additional information about
          certain effects on net periodic benefit cost for the next fiscal year that
          arise
          from delayed recognition of the gains or losses, prior service costs or
          credits,
          and transition asset or obligation. Management does not currently believe
          adoption will have a material impact on the Company's financial position
          or
          results of operations.
 
 Reclassifications
 
 Certain
          prior year amounts have been reclassified to conform to the current
          year presentation. These reclassifications have no effect on net income or
          cash flows.
 
 **Note
          5 - Earnings Per Share**
 
 The
          Company reports earnings per share in accordance with the provisions of
          SFAS No.
          128, "Earnings Per Share." SFAS No. 128 requires presentation of basic
          and
          diluted earnings per share in conjunction with the disclosure of the methodology
          used in computing such earnings per share. Basic earnings per share is
          computed
          by dividing income available to common stockholders by the weighted average
          common shares outstanding during the period. Diluted earnings per share
          takes
          into account the potential dilution that could occur if securities or other
          contracts to issue common stock were exercised and converted into common
          stock.
 
 Under
          SFAS 150 " Accounting
          for Certain Financial Instruments with Characteristics of both Liabilities
          and
          Equity", entities
          that have issued mandatory redeemable shares of common stock or entered
          into
          forward contracts that require physical settlement by repurchase of a fixed
          number of the issuer’s equity shares of common stock in exchange for cash shall
          exclude the common shares that are to be redeemed or repurchased in calculating
          basic and diluted earnings per share. Thus the 1,176,665 shares described
          in
          note 18 have been excluded from the earnings per share
          calculation.
   See
          report of independent registered public accounting firm.
 F-15
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 The
          weighted average number of shares used to calculate EPS for the years ended
          December 31, 2006 (31,250,000), 2005 (31,250,000) and 2004 (30,259,644)
          reflect
          only the shares outstanding for those periods.
 **Note
          6 - Supplemental disclosure of cash flow information**
 
 Interest
          paid amounted to $2,065,237, $1,785,558 and $1,463,385 for the years ended
          December 31, 2006, 2005 and 2004, respectively.
 
 Income
          tax payments amounted to $0, $490,431 and $489,800 for the
          years ended December 31, 2006, 2005 and 2004, respectively.
 
 **Note
          7 - Accounts receivable and allowance for doubtful
          accounts**
 
 The
          Company conducts its business operations in the People’s Republic of China.
          Account receivables include trade accounts due from the customers. Management
          believes that the trade accounts are fully collectible as these amounts
          are
          being collected throughout the year. Also, management reviews its accounts
          receivable on a regular basis to determine if the bad debt allowance is
          adequate
          and adjusts the allowance when necessary. The allowance for doubtful accounts
          as
          of December 31, 2006 and December 31, 2005 amounted to $137,132 and $1,371,
          respectively.
 
 Schedule
          of valuation and qualifying accounts:
  Allowance
                      for doubtful account
                  
                  Balance
                      at
                    beginning
                      of year
                  
                  Additions
                  
                  Deductions
                  
                  Balance
                      at end
                    of
                      yearYear
                      end December 31,2006
                  
                  $
                  1,371
                  
                  $
                  135,761
                  
                  $
                  -
                  
                  $
                  137,132Year
                      end December 31,2005
                  
                  $
                  1,371
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  1,371Year
                      end December 31,2004
                  
                  $
                  1,043
                  
                  $
                  328
                  
                  $
                  -
                  
                  $
                  1,371
  **Note
          8 - 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 $537,946 and $4,960 outstanding as of December 31, 2006
          and
          2005, respectively.
  **Note
          9 - Prepaid Expenses**
  Prepaid
          expenses at December 31, 2006 and 2005 consisted of the followings:
 2006
                
                2005RestatedCurrent
                
                Long-term
                
                Current
                
                Long-termRent
                
                $
                46,152
                
                $
                225,523
                
                $
                44,640
                
                $
                262,136Land
                    Use Right
                
                
                20,685
                
                
                494,660
                
                
                20,007
                
                
                407,324Total
                
                $
                66,837
                
                $
                720,183
                
                $
                64,647
                
                $
                669,460
 See
            report of independent registered public accounting firm.
 F-16
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 The
          Company rented a dormitory for its employees during 2006. The rent is for
          ten
          years starting on January 1, 2006 at $11,301 per quarter or $45,205 per
          year.
          The Company's prepayment at December 31, 2006 amounted to $271,675.
 
 The
          Company also entered into another rental agreement on July 21, 2005 to
          rent the
          land use right for its manufacture expansion. The total amount of the rental
          is
          RMB 8,067,400 for a period of 50 years starting on September 1, 2005. The
          Company’s prepayment at December 31, 2006 and 2005 amounted to
          $515,345  and
          $427,331, respectively.
 
 **Note
          10 - Advances on inventory purchases**
 
 Advances
          on inventory purchases are monies deposited or advanced to outside vendors
          or
          related parties on future inventory purchases. Due to the high shortage
          of steel
          in China, most of the Company’s vendors require a certain amount of money to be
          deposited with them as a guarantee that the Company will receive their
          purchases
          on a timely basis.
 
 This
          amount is refundable and bears no interest. The Company has a legal binding
          contract with their vendors for the guarantee deposit, which is to be returned
          to the Company at the end of the contract. The inventory is normally delivered
          within one month after the monies has been advanced. The total outstanding
          amount was $2,318,344 and $10,716,293 as of December 31, 2006 and 2005,
          respectively.
 
 **Note
          11 - 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 $850,400 at
          December
          31, 2006 and a payable to Golden Glister for $980,000 at December 31, 2005.
          The
          receivable and payable are short term and non interest bearing. The Company
          has
          received payment from Golden Glister for the receivable amount in January
          2007.
 
 Starting
          from January 1, 2006 , the
          Company subleased a portion of its land use rights to Tianjin Jing Qiu
          Steel
          Company, a related party under common control. The total rent income for
          2006
          was $1,439,121.
 
 The
          Company’s short term loan of $5,128,000 from Shenzhen Development Bank is
          personally guaranteed by Yu Zuo Sheng, CEO and majority holder of the
          Company.
   See
          report of independent registered public accounting firm.
 F-17
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 **Note
          12 - Short term loans - bank**
 
 Short
          term loans - bank represent amounts due to various banks which are due
          on demand
          or normally within one year. These loans can be renewed with the banks.
          The
          Company had a total of $30 , 284 , 686
          and
          $27,118,800 short term bank loans with various banks as of December 31,
          2006 and
          2005, respectively and consisted of the following:
 2006
                
                2005RestatedLoan
                    from China Bank, JingHai Branch, dueOctober
                    2007. Monthly interest only payment at6.732%
                    per annum, secured by equipmentand
                    property
                
                $
                1,153,800
                
                $
                1,116,000Loans
                    from Agriculture Bank, DaQiuZhuang Branch, duevarious
                    dates from March to October 2007.Monthly
                    interest only payments ranging fromfrom
                    6.696% to 7.344% per annum, guaranteed by anunrelated
                    third party and secured by property andequipment
                
                
                9,625,256
                
                
                10,068,800Loan
                    from Construction Bank of China, JinHai Branch, dueAugust
                    20, 2007. Monthly interest only payment at8.323%
                    per annum, secured by properties.
                
                
                1,557,630
                
                
                1,004,400Loans
                    from ShangHai PuFa Bank, due various dates fromMarch
                    to November 2007. Monthly interest onlypayments
                    ranging from 6.138% to 6.732% per annum,guaranteed
                    by an unrelated third party
                
                
                5,128,000
                
                
                6,200,000Loans
                    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.
                
                
                7,692,000
                
                
                8,060,000Loan
                    from Construction Bank of China, due August 14, 2007.Monthly
                    interest only payment at 8.323% per annum,guaranteed
                    by an unrelated third party
                
                
                -
                
                
                669,600Loan
                    from ShenZhen Development Bank, due variousdates
                    from February to March 2007.Monthly interest onlypayment
                    at 5.856% to 5.859% per annum, secured byinventory
                    and guranteed by CEO of the Company
                
                
                5,128,000
                
                
                -Totals
                
                $
                30,284,686
                
                $
                27,118,800
   See
          report of independent registered public accounting firm.
 F-18
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 **Note
          13 - Short term notes payable**
 
 Short-term
          notes payable are lines of credit extended by the banks. When purchasing
          raw
          materials, the Company often issues a short term note payable to the vendor.
          This short term note payable is guaranteed by the bank for its complete
          face
          value. The banks
          usually require the Company to deposit a certain amount of cash at the
          bank as a
          guarantee deposit which is classified on the balance sheet as restricted
          cash.
  The
          Company has the following short term notes payable outstanding as of December
          31:
  2006
                  
                  2005RestatedChina
                      Bank, Jing Hai Branch, various amounts, dueMarch
                      2007, restricted cash required of 50% of loanamount,
                      guaranteed by the Company
                  
                  $
                  1,487,120
                  
                  $
                  1,438,400Agricultural
                      Bank of China, various amounts, due datesranging
                      between March and April 2007,restricted
                      cash required of 50% to 60% of loan amount,guaranteed
                      by the Company and an unrelatedthird
                      party
                  
                  
                  1,538,400
                  
                  
                  1,488,000ShangHai
                      PuFa Bank, due various dates from April to May 2007,restricted
                      cash required of 50% of loan balance,guaranteed
                      by an unrelated third partyTotals
                  
                  
                  5,128,000
                  
                  
                  2,480,000$
                  8,153,520
                  
                  $
                  5,406,400
 Total
          interest expense for the years ended December 31, 2006, 2005 and 2004 on
          all
          debt amounted to $2,065,237, $1,719,351 and $1,463,385, respectively.
          Capitalized interest amounted to $186,432 and $57,844 for the years ended
          December 31,2006 and 2005, respectively.
 
 **Note
          14 - Customer deposits**
 
 Customer
          deposits represent amounts advanced by customers on product orders. The
          product
          normally is shipped within six months after receipt of the advance payment
          and
          the related sale is recognized in accordance with the Company’s revenue
          recognition policy. As of December 31, 2006 and 2005, customer deposits
          amounted
          to $1,093,602 and $1,276,536, respectively.
 
 **Note
          15 - Deposits due to sales representatives**
 
 The
          Company has entered into agreements with various entities to act as the
          Company’s exclusive sales agent in a specified area. These exclusive sales
          agents must meet certain criteria and are required to deposit a certain
          amount
          of money with the Company. In return the sales agents receive exclusive
          sales
          rights to a specified area and discounted prices on products they order.
          These
          deposits bear no interest and are required to be returned to the sales
          agent
          once the agreement has been terminated. The Company had $2,051,200 and
          $1,261,080 in deposits due to sales representatives outstanding as of December
          31, 2006 and 2005, respectively.
   See
            report of independent registered public accounting firm.
 F-19
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 **Note
          16 - Major customers and suppliers**
 
 The
          Company has 5 major customers which represent approximately 30% and 37%
          of the
          Company’s total sales for the years ended December 31, 2006 and 2005
          respectively. Five Customers accounted for 62% and 51% of total accounts receivable as of
          December
          31, 2006 and 2005, respectively.
 
 For
          the
          years ended December 31, 2006 and 2005, the Company purchases approximately
          82%
          and 85%, respectively, of their raw materials from four major suppliers.
          There
          are no accounts payable due to these vendors at December 31, 2006 and
          2005.
 
 **Note
          17 - Minority interest**
 
 Minority
          interest represents the outside shareholders’ 30% interest in Tianjin
          Daqiuzhuang Metal Sheet Co., Ltd.
 
 **Note
          18 - Other expenses and income, net**
 
 Other
          income and expense for the years ended December 31 consist of the
          following:
  2006
                  
                  2005
                  
                  2004(Restated)Finance/interest
                      expense
                  
                  $
                  (2,345,031
                  )
                  $
                  (1,905,104
                  )
                  $
                  (1,572,189
                  )Interest
                      income
                  
                  
                  182,780
                  
                  
                  230,103
                  
                  
                  -Other
                      nonoperating income
                  
                  
                  2,348,526
                  
                  
                  12,494
                  
                  
                  137,169Other
                      nonoperating expense
                  
                  
                  (103,445
                  )
                  
                  (18,335
                  )
                  
                  (181,357
                  )Total
                      other expense
                  
                  $
                  82,830
                  
                  $
                  (1,680,842
                  )
                  $
                  (1,616,377
                  )
 Rental
          income totaling $1,439,121 for 2006 represents land use right subleased
          to a
          related party for one year as discussed in note 11.
 
 **Note
          19 - Private offering of redeemable stock**
 
 The
          Company has offered an aggregate of 3,333,333 shares of Common Stock par
          value
          $0.001 in a private placement to investors at a purchase price of $1.50
          per
          share. On September 18, 2005, the Company entered into a subscription agreement
          with certain investors to sell a total of 1,176,665 shares of common stock
          at
          $1.50 per share. In addition, two warrants are attached to each share of
          common
          stock and each warrant gives the warrant holder the right to purchase an
          additional share of common stock or a total of 2,353,330 of common stock
          in the
          future. The warrants can be exercised on the second anniversary date at
          $2.50
          per share and on the third anniversary date at $5.00 per share. The number
          of
          shares attached to the warrants will be adjusted due to dividends and changes
          in
          the capital stock structure changes. At the option of the investors the
          Company
          maybe required to repurchase the 1,176,665 shares of common stock 18 months
          after the closing date at a per share price of $1.95.
 
 Under
          this private offering, the Company raised a total of $1,765,000 and received
          net
          proceeds of $1,606,151 net of $158,849 of commissions paid.
   See
          report of independent registered public accounting firm.
 F-20
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
  
 In
          accordance with Accounting Principles Board Opinion No. 14, the Company
          determined the fair value of the detachable warrants issued with redeemable
          stock using the Black-Scholes option pricing model under the following
          assumptions: risk free interest rate of 3.85%, dividend yield of 0% and
          volatility of 11%. The estimated value of the warrants is zero .
 
 In
          accordance with SFAS 150, the Company has recorded this stock issuance
          as a
          liability in the financial statements due to the mandatory redemption provision.
          The shares are recorded at fair market value on the date of issuance, which
          is
          the net cash proceeds, plus any accrued interest up to December 31, 2005.
          The
          difference between the net proceeds, $1,606,151, and the redemption amount,
          $2,294,497, which is $688,346, will be accrued and amortized as interest
          expense
          over an 18 month period beginning in October 2005 and ending in March 2007.
          The
          following table reconciles the December 31, 2005 carrying amount as
          follows:
 Fair
                      market value on the date of issuance:
                  
                  $
                  1,606,151Interest
                      amortizedas
                      of December 31, 2005 (Restated)
                  
                  
                  114,724Balace
                      at December 31, 2005 (Restated)
                  
                  
                  1,720,875Interest
                      amortizedduring
                      2006
                  
                  
                  458,904Balace
                      at December 31, 2006
                  
                  $
                  2,179,779
 As
          of
          December 31, 2006 and 2005, $114,718 and $573,622 are the remaining amount
          left
          to be accrued and amortized through March 2007.
 
 **Note
          21 - Retirement plan**
 
 Regulations
          in the People’s Republic of China require the Company to contribute to a defined
          contribution retirement plan for all employees. All Joint Venture employees
          are
          entitled to a retirement pension amount calculated based upon their salary
          at
          their date of retirement and their length of service in accordance with
          a
          government managed pension plan. The PRC government is responsible for
          the
          pension liability to the retired staff.
 
 The
          Company became a foreign joint venture entity in the year of 2004. For
          the year
          ended December 31, 2005, it was the first year the Company was required
          to make
          contributions to the state retirement plan at 20% of the employees’ monthly
          salary. Employees are required to contribute 7% of their salary to the
          plan.
          Total pension expense incurred by the Company amounted to $ 346,385 ,
          $236,730 and $0 for the years ended December 31, 2006, 2005 and 2004,
          respectively.
  **Note
          22- Statutory reserves**
 
 The
          laws
          and regulations of the People’s Republic of China require that before a
          Sino-foreign cooperative joint venture 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.
  See
          report of independent registered public accounting firm.
 F-21
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 The
          statutory reserves include surplus reserve fund, common welfare fund, and
          the
          enterprise fund. Daqiuzhuang Metal, the Company's operating subsidiary
          in China,
          did not become a Sino Joint Venture until 2004; therefore, no reserve was
          made
          in 2003.
 
 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 years ended December 31, 2006 and 2005, the Company
          transferred $266,257 and $685,959, representing 10% of the year’s net income
          determined in accordance with PRC accounting rules and regulations, 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.
 
 **Note
          23 - 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 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
                  %
   See
            report of independent registered public accounting firm.
 F-22
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
  Baotou
              Steel shall contribute land, existing
              equipment and materials at an estimated value of approximately $12,000,000
              which
              will be contributed to the joint venture at the date
              of
              the approval of Joint Venture or issuance of the business license.
              The value of
              the assets to be contributed by Baotou Steel will be stated at fair
              market
              value. General Steel Investment Co., Ltd. will contribute approximately
              $7,500,000 of cash and Daqiuzhuang Metal will contribute approximately
              $5,000,000 cash. These contributions will be required to be made on
              the
              following payment schedule 30% of their capital contribution within
              30 days of
              the date of approval of the Joint Venture; 30% of their capital contribution
              within 3 months of the date of approval of the Joint Venture; and 40%
              of their
              capital contribution within 6 months of the date of approval of the
              Joint
              Venture. The Company will use the consolidation method to account for
              the joint
              venture.
 
 These
          contributed assets will be used to commence a new operation. The joint
          venture
          will purchase a 100-tonne electric furnace and a refiner furnace to produce
          high
          quality specialty steel using advanced technology. This type of specialty
          steel
          has not been previously produced by Baotou Steel. This advanced technology
          has
          not been previously utilized by Baotou Steel. This new joint venture will
          aim to
          enter into a new market segment of high-end specialty steel.
 
 Upon
          the
          commencement of the joint venture, the rights of the minority shareholders
          of
          Daqiuzhuang Metal Sheet Co. Ltd. will be limited to receiving a distribution
          of
          profits from the joint venture; the minority shareholders will not have
          any
          voting rights.
 
 As
          of
          December 31, 2006, the Company has not received the approval of the Baotou
          Steel
          Joint Venture and it is still under government review and maybe subject
          to
          further industry sector review by the relevant authorities in China in
          view of
          the sensitive nature of the steel industry. The management at this point
          is
          uncertain if and when the government approval will be granted. Currently
          none of
          the operations of Baotou Steel is consolidated into the Company’s financial
          statements as there is no ownership or control relationship between the
          Company
          and Baotou Steel at this time.
  **Note
          24 -** **Subsequent
          events**
 
 Issuance
          of shares to Aurelius Consulting Group, Inc.
 
 On
          February 12, 2007, the Company issued to Aurelius Consulting Group, Inc.,
          (known
          to us as RedChip Companies, Inc.) 18,000 shares of restricted Reg. F.D.
          (Rule
          144) stock as a portion of their compensation for investor relations services
          rendered.
 
 Investors
          Electing Not to Exercise Put Option
 
 Pursuant
          to a put right granted to the investors in the September 2005 private placement,
          described in the “About Our Recent Private Placement” section of this report,
          the investors had the right to request us to repurchase part or all of
          the
          1,176,665 shares of our common stock on March 1, 2007 (the “Repurchase Date”) at
          a per share price of $1.95 per share. If an investor elected to put the
          shares
          back to us on the Repurchase Date, the investor was required to notify
          us 60
          days prior to the Repurchase Date. This date was January 1, 2007. The following
          investors elected not to put the shares back to us at a per share price
          of
          $1.95.
   See
          report of independent registered public accounting firm.
 F-23
  GENERAL
            STEEL HOLDINGS, INC. AND SUBSIDIARIES
 NOTES
              TO
              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
              31, 2006
 Number
                    of SharesName
                    of Investors
                
                PossessedYuji
                    Komiya
                
                
                33,333John
                    Yoo
                
                
                33,333Zayd
                    International Limited
                
                
                70,000Robertson
                    Investments Limited
                
                
                6,666Jun
                    Ren
                
                
                13,333Yun
                    Qian Xie
                
                
                20,000Total
                    number of shares not demanded to be redeemed
                
                
                176,665
  Investors
          Electing to Extend Put Option to US
 
 Pursuant
          to a put right granted to the investors in the September 2005 private placement,
          described in the “About Our Recent Private Placement” section of this report, On
          March 1, 2007, we received written notification from Matlin Patterson Global
          Opportunities Partners II L.P. (3) and Matlin Patterson Global Opportunities
          Partners (Caymans) II L.P. (3) asking us to extend the Date of Repurchase
          from
          March 1, 2007, until September 1, 2007, and to keep the redemption price
          unchanged at $1.95 per share. We agreed to this request and extended the
          Date of
          Repurchase and repurchase price as per their request. The number of shares
          held
          by Matlin Patterson Global Opportunities Partners II L.P. (3) and Matlin
          Patterson Global Opportunities Partners (Caymans) II L.P. (3) is listed
          below
  Number
                      of SharesName
                      of Investors
                  
                  PossessedMatlin
                      Patterson Global Opportunities Partners II L.P.
                  
                  
                  736,361Matlin
                      Patterson Global Opportunities Partners (Caymans) II L.P.
                  
                  
                  263,639Total
                      number of shares extended
                  
                  
                  1,000,000
   See
              report of independent registered public accounting
              firm.
 F-24




SIGNATURES





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





GENERAL
      STEEL HOLDINGS, INC.




By: 
      /s/ Zuo Sheng Yu


Name: 
      YU Zuo Sheng


Title: 
      Chief Executive Officer and Chairman


Date: 
      April 2, 2007






Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in
      the
      capacities and on the dates indicated.





SIGNATURE
            
            TITLE
            
            DATE/s/
                Zuo Sheng Yu
            
            President
                and Chief Executive Officer
            
            April
                2, 2007YU
                Zuo Sheng/s/
                Chen John
            
            Director
                and Chief Financial Officer
            
            April
                2, 2007CHEN
                John/s/
                Zhao Sheng Guo
            
            Director
            
            April
                2, 2007ZHAO
                Sheng Guo/s/
                Tian Lian Hui
            
            Director
            
            April
                2, 2007TIAN
                Lian Hui/s/
                Warner Ross
            
            Director
            
            April
                2, 2007WARNER,
                Ross/s/
                Wong John
            
            Director
            
            April
                2, 2007WONG,
                John/s/
                Wang Guo Dong
            
            Director
            
            April
                2, 2007WANG,
                Guo Dong




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