General Steel (GSIH) 10-Q 2007 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2007

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

For the transition period from __________ to __________

GENERAL STEEL HOLDINGS, INC.

(Name of Issuer in Its Charter)

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

 Incorp Services Inc.

6075 S. Eastern Avenue

Suite 1, Las Vegas, Nevada, 89119-3146

Tel: (702) 866-2500

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

+ 86 (10) 58797346

(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

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

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

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

TABLE OF CONTENTS

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

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2007 AND DECEMBER 31, 2006

	March 31,		December 31,
	2007		2006
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	4,797,815	$	6,831,549
Restricted cash		4,274,434		4,231,523
Accounts receivable, net of allowance for doubtful accounts of $138,522
and $137,132 as of March 31, 2007 and December 31, 2006, respectively		11,348,292		17,095,718
Notes receivable		2,066,340		537,946
Other receivables		188,256		268,784
Other receivables - related parties		517,400		850,400
Inventories		14,382,854		12,489,290
Advances on inventory purchases		13,725,067		2,318,344
Prepaid expenses - current		46,620		46,152
Total current assets		51,347,078		44,669,706
PLANT AND EQUIPMENT, net		26,439,964		26,606,594
OTHER ASSETS:
Prepaid expenses - non current		872,009		740,868
Intangible assets - land use right, net of accumulated amortization		1,745,923		1,804,440
Total other assets		2,617,932		2,545,308
Total assets	$	80,404,974	$	73,821,608
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,991,010	$	3,001,775
Short term loans - bank		31,886,785		30,284,686
Short term notes payable		8,236,200		8,153,520
Other payables		81,198		355,142
Accrued liabilities		1,032,995		1,064,012
Customer deposits		2,742,278		1,093,602
Deposits due to sales representatives		1,658,895		2,051,200
Taxes payable		6,232,648		5,391,602
Shares subject to mandatory redemption		1,950,000		2,179,779
Total current liabilities		58,812,009		53,575,318
MINORITY INTEREST		6,465,791		6,185,797
SHAREHOLDERS' EQUITY:
Common Stock, $0.001 par value, 75,000,000 shares authorized, 32,444,665 and
32,426,665 shares issued and outstanding (including 1,000,000 and 1,176,665
redeemable shares) as of March 31, 2007 and December 31, 2006, respectively		31,445		31,250
Paid-in-capital		7,239,428		6,871,358
Retained earnings		5,449,052		4,974,187
Statutory reserves		1,107,010		1,107,010
Accumulated other comprehensive income		1,300,239		1,076,688
Total shareholders' equity		15,127,174		14,060,493
Total liabilities and shareholders' equity	$	80,404,974	$	73,821,608

The accompanying notes are an integral part of these statements.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

(Unaudited)

	2007		2006
REVENUES	$	37,607,971	$	20,642,503
COST OF SALES		35,874,966		19,371,587
GROSS PROFIT		1,733,005		1,270,916
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		630,200		644,795
INCOME FROM OPERATIONS		1,102,805		626,121
OTHER EXPENSE, NET		220,676		160,139
INCOME BEFORE PROVISION FOR INCOME TAXES		882,129		465,982
AND MINORITY INTEREST
PROVISION FOR INCOME TAXES		127,270		-
NET INCOME BEFORE MINORITY INTEREST		754,859		465,982
LESS MINORITY INTEREST		279,994		213,574
NET INCOME		474,865		252,408
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments		223,551		121,405
COMPREHENSIVE INCOME	$	698,416	$	373,813
WEIGHTED AVERAGE NUMBER OF SHARES		31,320,251		31,250,000
EARNING PER SHARE, BASIC AND DILUTED	$	0.015	$	0.008

The accompanying notes are an integral part of these statements.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

	Common Stock						Retained earnings					Accumulated other
					Paid-in		Statutory					comprehensive
	Shares		Par value		capeital		reserves		Unrestricted			income		Totals
BALANCE, January 1, 2006		31,250,000	$	31,250	$	6,871,358	$	840,753	$	4,207,236		$	399,188	$	12,349,785
Net income										252,408					252,408
Foreign currency translation adjustments													121,405		121,405
BALANCE, March 31, 2006, unaudited		31,250,000	$	31,250	$	6,871,358	$	840,753	$	4,459,644		$	520,593	$	12,723,598
Net income										780,800					780,800
Adjustment to statutory reserve								266,257		(266,257	)
Foreign currency translation adjustments													556,095		556,095
BALANCE, December 31, 2006		31,250,000	$	31,250	$	6,871,358	$	1,107,010	$	4,974,187		$	1,076,688	$	14,060,493
Net income										474,865					474,865
Common stock issued for conversion of
redeemable stock, $1.95/share		176,665		177		344,328									344,505
Common stock issued for service, $1.32/share		18,000		18		23,742									23,760
Foreign currency translation adjustments													223,551		223,551
BALANCE, March 31, 2007, unaudited		31,444,665	$	31,445	$	7,239,428	$	1,107,010	$	5,449,052		$	1,300,239	$	15,127,174

The accompanying notes are an integral part of these statements.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006

(Unaudited)

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	474,865		$	252,408
Adjustments to reconcile net income to cash
used in operating activities:
Minority interest		279,994			213,574
Depreciation		561,709			273,775
Amortization		76,524			73,718
Loss on disposal of equipment		-			27,845
Stock issued for services		23,760			-
Interest expense accrued on mandatory redeemable stock		114,726			114,724
(Increase) decrease in assets:
Accounts receivable		5,898,381			(1,577,243	)
Other receivables		82,939			61,389
Other receivables - related parties		333,000			-
Inventories		(1,760,231	)		(5,227,041	)
Advances on inventory purchases		(11,340,142	)		(3,598,499	)
Prepaid expenses - current		(123,161	)		(162,611	)
Increase (decrease) in liabilities:
Accounts payable		1,951,381			(60,529	)
Other payables		(275,480	)		90,567
Other payable - related party		-			(650,000	)
Accrued liabilities		(41,648	)		279,506
Customer deposits		1,631,391			1,282,375
Taxes payable		783,398			260,995
Net cash used in operating activities		(1,328,594	)		(8,345,047	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash		(2	)		(18,968	)
Notes receivable		(1,517,176	)		(989,269	)
Advances on equipment purchases		-			1,055,547
Deposits due to sales representatives		(411,542	)		310,700
Purchase of equipment		(126,928	)		(3,382,390	)
Net cash used in investing activities		(2,055,648	)		(3,024,380	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on short term loans - bank		8,785,581			7,220,668
Payments on short term loans - bank		(7,495,481	)		(2,361,320	)
Borrowings on short term notes payable		1,161,090			621,400
Payments on short term notes payable		(1,161,090	)		(621,400	)
Net cash provided by financing activities		1,290,100			4,859,348
EFFECTS OF EXCHANGE RATE CHANGE IN CASH		60,407			35,707
DECREASE IN CASH		(2,033,735	)		(6,474,372	)
CASH, beginning of period		6,831,550			8,648,373
CASH, end of period	$	4,797,815		$	2,174,001

The accompanying notes are an integral part of these statements.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Note 1– Background

The Company was established on August 5, 2002, and, through its subsidiary in China, engages in the manufacturing of hot rolled carbon and silicon steel sheets which are mainly used on tractors, agricultural vehicles and in other specialty markets. The Company sells its products through both retailers and wholesalers.

Note 2 – Summary of significant accounting policies

Basis of presentation

The consolidated financial statements of General Steel Holdings, Inc. reflect the activities of the following subsidiaries:

		Percentage
Subsidiary		Of  Ownership
General Steel Investment Co., Ltd.	British Virgin Islands		100.0	%
Tianjin Daqiuzhuang Metal Sheet Co., Ltd	P.R.C.		70.0	%

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include the accounts of General Steel Investment Co., Ltd and Tianjin Daqiuzhuang Metal Sheet Co., Ltd (collectively the "Company"). All material intercompany transactions and balances have been eliminated in the consolidation.

Revenue recognition

The Company recognizes revenue when the goods are delivered and title has passed. Sales revenue represents the invoiced value of goods, net of a value-added tax (VAT). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.

Foreign currency translation

The reporting currency of the Company is the US dollar. The Company uses their local currency, Renminbi (RMB), as their functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Translation adjustments amounted to $1,300,239 and $1,076,688 as of March 31, 2007 and December 31, 2006, respectively. Asset and liability amounts at March 31, 2007 and December 31, 2006 were translated at 7.72 RMB to $1.00 USD and 7.80 RMB to $1.00 USD, respectively. Equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months ended March 31, 2007 and 2006 were 7.75 RMB and 8.04 RMB, respectively. Cash flows are also translated at average translation rates for the period, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Plant and equipment, net

Plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets with 3% residual value. The depreciation expense for the three months ended March 31, 2007 and 2006 amounted to $561,709 and $273,775, respectively.

Estimated useful lives of the assets are as follows:

	Estimated
	Useful Life
Buildings		10-30 years
Machinery and equipment		8-15 years
Other equipment		5-8 years
Transportation equipment		5-15 years

Construction in progress represents the costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. No depreciation is provided for construction in progress until such time as the assets are completed and are placed into service.

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statements of operations. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Major additions and betterment to buildings and equipment are capitalized.

Long-term assets of the Company are reviewed annually or more often if circumstance dictate, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2007, the Company expects these assets to be fully recoverable.

Plant and equipment consist of the following at:

	March 31,		December 31,
	2007		2006
	(unaudited)
Buildings and improvements	$	9,433,564	$	9,338,865
Transportation equipment		1,054,691		1,019,698
Machinery		23,008,053		22,675,357
Total		33,496,308		33,033,920
Less Accumulated depreciations		7,056,344		6,427,326
Total	$	26,439,964	$	26,606,594

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Use of estimates

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

Cash and concentration of risk

Cash includes cash on hand and demand deposits in accounts maintained with stateowned banks within the People’s Republic of China and Hong Kong. Total cash (including restricted cash balances) in these banks at March 31, 2007 and December 31, 2006 amounted to $7,792,150 and $11,058,636, respectively of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.

Restricted cash

The Company through its bank agreements is required to keep certain amounts on deposit that are subject to withdrawal restrictions and these amounts are $4,274,434 and $4,231,523 as of March 31, 2007 and December 31, 2006, respectively.

Inventories

Inventories are stated at the lower of cost or market using weighted average method. Inventories consisted of the following:

	March 31,		December 31,
	2007		2006
	(unaudited)
Supplies	$	1,241,227	$	1,061,773
Raw materials		4,093,577		2,827,127
Finished goods		9,048,050		8,600,390
Totals	$	14,382,854	$	12,489,290

Inventories consist of supplies, raw materials and finished goods. Raw materials consist primarily of iron and steel used in production. The cost of finished goods includes direct costs of raw materials as well as direct labor used in production. Indirect production costs such as utilities and indirect labor related to production such as assembling, shipping and handling costs are also included in the cost of inventory. The Company reviews its inventory periodically for possible obsolete goods and to determine if any reserves are necessary for potential obsolescence. As of March 31, 2007 and December 31, 2006, the Company believes no reserves are necessary.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Financial instruments

Statement of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value of financial instruments held by the Company. SFAS 107 defines the fair value of financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing parties. The Company considers the carrying amount of cash, accounts receivable, otherreceivables, accounts payable, accrued liabilities and other payables to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.

Intangible assets

All land in the People’s Republic of China is owned by the government and cannot be sold to any individual or company. However, the government grants the user a “land use right” to use the land. Daqiuzhuang Metal acquired land use rights during the years ended 2000 and 2003 for a total amount of $2,870,902. The land use rights are for 50 years and expire in 2050 and 2053. However, Daqiuzhuang Metal's initial business license had ten-year term. Therefore management elected to amortize the land use rights over the ten-year business term. Daqiuzhuang Metal became a Sino Joint Venture in 2004 and obtained a new business license for twenty years; however, the Company decided to continue amortizing the land use rights over the original ten-year business term. As of March 31, 2007 and December 31, 2006, accumulated amortization amounted to $1,326,654 and $1,237,293, respectively.

Intangible assets of the Company are reviewed annually to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2007, the Company expects these assets to be fully recoverable.

Total amortization expense for the three months ended March 31, 2007 and 2006, amounted to $76,524 and $73,718, respectively.

Shares subject to mandatory redemption

The Company adopted Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. FAS 150 established classification and measurement standards for three types of freestanding financial instruments that have characteristics of both liabilities and equity. Instruments within the scope of FAS 150 must be classified as liabilities within the Company’s Consolidated Financial Statements and be reported at settlement date value.

The Company issued redeemable stock in September 2005. The amount is presented as a liability on the balance sheet at the fair market value on the date of issuance plus accrued interest at the balance sheet date, see note 16.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Income taxes

The Company adopted Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes. There are no deferred tax amounts at March 31, 2007 and December 31, 2006.

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

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

The Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no affect on the Company’s financial statements.

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

Under the Income Tax Laws of Tianjin City of PRC, any enterprise located in Tianjin Costal Economic Development Zone is subject to income tax rate of 24%.

The Company’s subsidiary, Daqiuzhuang Metal, became a Chinese Sino-foreign joint venture at the time of the merger on October 14, 2004 and it became eligible to the tax benefit. The Company is exempt from income taxes for the years ended December 31, 2005 and 2006 and 50% income tax reduction of the special income tax rate of 24%, which is a rate of 12% for the years ended December 31, 2007, 2008 and 2009.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently applicable to both DES and FIEs. The two years tax exemption, three years 50% tax reduction tax holiday for production-oriented FIEs will be eliminated. The Company is currently evaluating the effect of the new EIT law will have on its financial position.

The provision for income taxes for the three months ended March 31 consisted of the following:

	2007		2006
	(unaudited)		(unaudited)
Provision for China Income Tax	$	115,700	$	-
Provision for China Local Tax		11,570		-
Total Provision for Income Taxes	$	127,270	$	-

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31:

	2007			2006
U.S. Statutory rates		34.0	%		34.0	%
Foreign income not recognized in USA		(34.0	)		(34.0	)
China income taxes		33.0			33.0
China income tax exemption		(21.0	)		(33.0	)
Total provision for income taxes		12.0	%		-	%

The estimated tax savings for the three months ended March 31, 2007 and 2006 amounted to $222,722 and $191,674, respectively. The net effect on earnings per share had the income tax been applied would decrease earnings per share from $0.015 to $0.008 and $0.011 to $0.005 for the three months ended March 31, 2007 and 2006, respectively.

Value Added Tax

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

VAT on sales and VAT on purchases amounted to $5,830,752 and $5,574,487 for the three months ended March 31, 2007 and $2,792,718 and $2,501,389 for the three months ended March 31, 2006, respectively. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not impacted by the income tax holiday.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Taxes payable consisted of the following:

	March 31,		December 31,
	2007		2006
	(unaudited)
VAT taxese payable	$	6,009,970	$	5,317,466
Income taxese payable		127,753		-
Misc taxes		94,925		74,136
Total	$	6,232,648	$	5,391,602

Recently issued accounting pronouncements

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

In June 2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (EITF No. 06-3). EITF No. 06-3 permits that such taxes may be presented on either a gross basis or a net basis as long as that presentation is used consistently. The adoption of EITF No. 06-3 on January 1, 2007 did not impact our consolidated financial statements. We present the taxes within the scope of EITF No. 06-3 on a net basis.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”). The Company adopted Interpretation No. 48 on January 1, 2007. See income taxes section above for details.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which addresses the measurement of fair value by companies when they are required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 provides a common definition of fair value to be used throughout GAAP which is intended to make the measurement of fair value more consistent and comparable and improve disclosures about those measures. SFAS No. 157 will be effective for an entity's financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect SFAS No. 157 will have on its consolidated financial position, liquidity, or results of operations.

- 12 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

In February 2007, the Financial Accounting Standards Board (‘‘FASB’’) issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 159, The Fair Value Option for Financial Assets and Financials Liabilities — Including an Amendment of FASB Statement No. 115. This standard permits measurement of certain financial assets and financial liabilities at fair value. If the fair value option is elected, the unrealized gains and losses are reported in earnings at each reporting date. Generally, the fair value option may be elected on an instrument-by-instrument basis, as long as it is applied to the instrument in its entirety. The fair value option election is irrevocable, unless a new election date occurs. SFAS No. 159 requires prospective application and also establishes certain additional presentation and disclosure requirements. The standard is effective as of the beginning of the fiscal year that begins after November 15, 2007. The Company is currently evaluating the provisions of SFAS No. 159 to determine the potential impact, if any, the adoption will have on the Company’s financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on net income or cash flows.

Note 3 - Earnings per share

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

Under SFAS 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", entities that have issued mandatory redeemable shares of common stock or entered into forward contracts that require physical settlement by repurchase of a fixed number of the issuer’s equity shares of common stock in exchange for cash shall exclude the common shares that are to be redeemed or repurchased in calculating basic and diluted earnings per share. Thus the 1,000,000 shares described in note 16 have been excluded from the earnings per share calculation.

The weighted average number of shares used to calculate EPS for the three months ended March 31, 2007 and 2006 totaled 31,320,251, and 31,250,000, respectively, and reflect only the shares outstanding for those periods.

Note 4 - Supplemental disclosure of cash flow information

Interest paid amounted to $523,307 and $499,877 for the three months ended March 31, 2007 and 2006, respectively.

No income tax payments were made during the three months ended March 31, 2007 and 2006.

- 13 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Note 5 - Accounts receivable and allowance for doubtful accounts

The Company conducts its business operations in the People’s Republic of China. Account receivables include trade accounts due from the customers. Management believes that the trade accounts are fully collectible as these amounts are being collected throughout the year. Also, management reviews its accounts receivable on a regular basis to determine if the bad debt allowance is adequate and adjusts the allowance when necessary. The allowance for doubtful accounts as of March 31, 2007 and December 31, 2006 amounted to $138,522 and $137,132, respectively.

Schedule of valuation and qualifying accounts:

	Balance at						Effect of
Allowance for doubtful	beginning of						exchange		Balance at
account	period		Additions		Deductions		rate		end of period
Three months ended March, 31, 2007	$	137,132	$	-	$	-	$	1,390	$	138,522
Year ended December 31, 2006	$	1,371	$	135,761	$	-	$	-	$	137,132

Note 6 - Notes receivable

Notes receivable represents trade accounts receivable due from various customers where the customers’ bank has guaranteed the payment of the receivable. This amount is non-interest bearing and is normally paid within three to six months. The Company has the ability to submit their request for payment to the customer’s bank earlier than the scheduled payment date. However, the Company will incur an interest charge and a processing fee when they submit the payment request early. The Company had $2,066,340 and $537,946 outstanding as of March 31, 2007 and December 31, 2006, respectively.

Note 7 - Prepaid expenses

Prepaid expenses at March 31, 2007 and December 31, 2006 consisted of the followings:

	March 31, 2007				December 31, 2006
	(unaudited)
	Current		Long-term		Current		Long-term
Rent	$	46,620	$	356,663	$	46,152	$	225,523
Land use right		-		515,346		-		515,345
Total	$	46,620	$	872,009	$	46,152	$	740,868

The Company’s prepaid expenses are prepaid rent for dormitory for its employees and land use rights in order to expand its manufacturing capabilities. As of March 31, 2007 and December 31, 2006, prepaid rent for dormitory amounted to $403,283 and $271,675, respectively, and prepaid rent for land use right amounted to $515,346 and $515,345, respectively. See note 21 for more details

- 14 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Note 8 - Advances on inventory purchases

Advances on inventory purchases are monies deposited or advanced to outside vendors or related parties on future inventory purchases. Due to the high shortage of steel in China, most of the Company’s vendors require a certain amount of money to be deposited with them as a guarantee that the Company will receive their purchases on a timely basis.

This amount is refundable and bears no interest. The Company has a legal binding contract with their vendors for the guarantee deposit, which is to be returned to the Company at the end of the contract. The inventory is normally delivered within one month after the monies has been advanced. The total outstanding amount was $13,725,067 and $2,318,344 as of March 31, 2007 and December 31, 2006, respectively.

Note 9 - Related party transactions

The Company has a cash advance to Golden Glister Holdings Limited. Golden Glister Holdings Limited is incorporated in the territory of the British Virgin Islands which our president Yu Zuo Sheng is the majority shareholder. The amount was advanced to Golden Glister Holdings Limited for business operations. Golden Glister Holdings Limited has agreed to pay back the amount on a short term basis. The Company had a receivable from Golden Glister for $517,400 at March 31, 2007 and a receivable from Golden Glister for $850,400 at December 31, 2006. The receivable is short term and non interest bearing.

The Company subleased a portion of its land use rights to Tianjin Jing Qiu Steel Market Company, a related party under common control. The CEO, Yu Zuo Zheng, is the chairman of the largest shareholder of Jing Qiu Steel Market Company. The total rental income for three months ended March 31, 2007 and 2006 was $387,030 and $0, respectively.

The Company’s short term loan of $6,475,000 from Shenzhen Development Bank is personally guaranteed by Yu Zuo Sheng, CEO and majority holder of the Company.

- 15 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Note 10 - Debt

Short term loans - bank

Short term loans - bank represent amounts due to various banks which are normally due within one year. These loans can be renewed with the banks. The Company had a total of $31,886,785 and $30,284,686 short term bank loans with various banks as of March 31, 2007 and December 31, 2006, respectively, and consisted of the following:

	March 31,		December 31,
	2007		2006
	(unaudited)
Loan from China Bank, JingHai Branch, due
October 2007. Monthly interest only payment at
6.732% per annum, secured by equipment
and property	$	1,165,500	$	1,153,800
Loans from Agriculture Bank, DaQuiZhuang Branch, due
various dates from April to March 2008.
Monthly interest only payments ranging from
6.696% to 7.65% per annum, guaranteed by an
unrelated third party and secured by property and
equipment		9,722,860		9,625,256
Loan from Construction Bank of China, JinHai Branch, due
varies dates in Auguest 2007. Monthly interest only
payment at 8.323% per annum, secured by properties.		1,573,425		1,557,630
Loans from ShangHai PuFa Bank, due various dates from
July 2007 to March 2008. Monthly interest only
payments ranging from 6.435% to 6.732% per annum,
guaranteed by an unrelated third party		5,180,000		5,128,000
Loan from China Merchants Bank, due various dates from
June 2007 to September 2007. Quarterly interest only
payments, annual interest rate of 6.1425%,
guaranteed by an unrelated third parties.		7,770,000		7,692,000
Loan from ChenZhen Development Bank, due various
dates in March 2008. Month interest only
payment at 6.426% to 6.710% per annum, secured by
inventory and guaranteed by CEO of the Company.		6,475,000		5,128,000
Total	$	31,886,785	$	30,284,686

Short term notes payable

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

- 16 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

The Company has the following short term notes payable outstanding as of March 31, 2007 and December 31, 2006:

	March 31,		December 31,
	2007		2006
	(unaudited)
China Bank, Jing Hai Branch, various amounts, due
April 2007, restricted cash required of 50%
of loan amount, guaranteed by the Company	$	1,502,200	$	1,487,120
Agricultural Bank of China, various amounts, due dates
ranging between April and September 2007,
restricted cash required of 50% of loan amount,
guaranteed by the Company and an unrelated third party		1,554,000		1,538,400
ShangHai PuFa Bank, due various dates from April to May 2007,
restricted cash required of 50% of loan balance,
guaranteed by an unrelated third party		5,180,000		5,128,000
Totals	$	8,236,200	$	8,153,520

Total interest expense for the three months ended March 31, 2007 and 2006 on all debt amounted to $623,632 and $499,877, respectively.

Note 11 - Customer deposits

Customer deposits represent amounts advanced by customers on product orders. The product normally is shipped within six months after receipt of the advance payment and the related sale is recognized in accordance with the Company’s revenue recognition policy. As of March 31, 2007 and December 31, 2006, customer deposits amounted to $2,742,278 and $1,093,602, respectively.

Note 12 - Deposits due to sales representatives

The Company has entered into agreements with various entities to act as the Company’s exclusive sales agent in a specified area. These exclusive sales agents must meet certain criteria and are required to deposit a certain amount of money with the Company. In return the sales agents receive exclusive sales rights to a specified area and discounted prices on products they order. These deposits bear no interest and are required to be returned to the sales agent once the agreement has been terminated. The Company had $1,658,895 and $2,051,200 in deposits due to sales representatives outstanding as of March 31, 2007 and December 31, 2006, respectively.

Note 13 - Major customers and suppliers

The Company has five major customers which represent approximately 26% and 62% of the Company’s total sales for the three months ended March 31, 2007 and 2006, respectively. Five customers accounted for 6% of total accounts receivable as of March 31, 2007.

- 17 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

For the three months ended March 31, 2007 and 2006, the Company purchases approximately 93% and 97%, respectively, of their raw materials from four major suppliers. There is no accounts payable due to these vendors at March 31, 2007.

Note 14 - Minority interest

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

Note 15 - Other expenses and income, net

Other income and expense for the three months ended March 31 consist of the following:

	2007			2006
	(Unaudited)			(Unaudited)
Finance/interest expense	$	(640,857	)	$	(546,218	)
Interest income		31,654			60,033
Other nonoperating income		388,527			354,844
Other nonoperating expense		-			(28,798	)
Total other expense	$	(220,676	)	$	(160,139	)

For three months ended March 31, 2007, other nonoperating income includes rental income totaling $387,030, which represents land use right subleased to a related party for one year as discussed in note 9.

During 2005, the Company has received an approval from the PRC local government for a two year income tax exemption and a three year 50% reduction in income tax rates. The local Chinese tax authority waived the previously accrued income tax accumulated prior to January 1, 2005 in the amount of $253,250 which was recorded as other nonoperating income during the three months ended March 31, 2006

Note 16 - Private offering of redeemable stock

On September 18, 2005, the Company entered into a subscription agreement with certain investors to sell a total of 1,176,665 shares of common stock at $1.50 per share for gross proceeds of $1,765,000, commissions totaled $158,849, leaving net proceeds of $1,606,151. In addition, two warrants are attached to each share of common stock and each warrant gives the warrant holder the right to purchase an additional share of common stock or a total of 2,353,330 of common stock in the future. The warrants can be exercised on the second anniversary date at $2.50 per share and on the third anniversary date at $5.00 per share. The number of shares attached to the warrants will be adjusted due to dividends and changes in the capital stock structure changes. At the option of the investors, the Company may be required to repurchase the 1,176,665 shares of common stock 18 months after the closing date at a per share price of $1.95.

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

- 18 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

In accordance with SFAS 150, the Company recorded this stock issuance as a liability in the financial statements due to the mandatory redemption provision. The shares are recorded at fair value on the date of issuance, which is the net cash proceeds, plus any accrued interest up to March 31, 2007. The difference between the net proceeds, $1,606,151, and the redemption amount, $2,294,497, which is $688,346, was accrued and amortized as interest expense over an 18 month period, beginning in October 2005 and ending in March 2007.

On March 1, 2007, the redemption option on all 1,176,665 redeemable shares expired. However, holders of 1,000,000 shares requested, and the Company agreed, to extend the redemption option for another six months through September 1, 2007; the repurchase price stayed at $1.95, representing total liabilities of $1,950,000. The other 176,665 shares, representing $351,122, were reclassified from liabilities to equity. The rollforward of these shares is shown below.

	Number of			Redemption
	shares			value
Redeemable shares issued:
Matlin Patterson Global Opportunities Partners II L.P.		736,361		$	1,435,904
Matlin Patterson Global Opportunities Partners (Caymans) II L.P.		263,639			514,096
Zayd International Limited		70,000			136,500
Yuji Komiya		33,333			64,999
John Yoo		33,333			64,999
Yun Qian Xie		20,000			39,000
Jun Ren		13,333			26,000
Robertson Investments Limited		6,666			12,999
		1,176,665			2,294,497
Shares reclassified to equity on March 1, 2007:
Zayd International Limited		(70,000	)		(136,500	)
Yuji Komiya		(33,333	)		(64,999	)
John Yoo		(33,333	)		(64,999	)
Yun Qian Xie		(20,000	)		(39,000	)
Jun Ren		(13,333	)		(26,000	)
Robertson Investments Limited		(6,666	)		(12,999	)
Balance, March 31, 2007		1,000,000		$	1,950,000

- 19 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Note 17 - Shareholders’ equity

On February 12, 2007, the Company issued to Aurelius Consulting Group, Inc., (known to us as RedChip Companies, Inc.) 18,000 shares of common stock as a portion of their compensation for investor relations services rendered of $23,760.

On March 1, 2007, as discussed in Note 16, 176,665 shares of redeemable stock were reclassified from liabilities to common stock upon expiration of the redemption feature.

Note 18 - Retirement plan

Regulations in the People’s Republic of China require the Company to contribute to a defined contribution retirement plan for all employees. All Joint Venture employees are entitled to a retirement pension amount calculated based upon their salary at their date of retirement and their length of service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to the retired staff. It was the first year the Company was required to make contributions to the state retirement plan. The Company is required to contribute 20% of the employees’ monthly salary. Employees are required to contribute 7% of their salary to the plan. Total pension expense incurred by the Company amounted to $60,704 and $61,661 for the three months ended March 31, 2007 and 2006, respectively.

Note 19 - Statutory reserves

The laws and regulations of the People’s Republic of China require that before an enterprise distributes profits to its partners, it must first satisfy all tax liabilities, provide for losses in previous years, and make allocations, in proportions determined at the discretion of the board of directors, after the statutory reserve. The statutory reserves include surplus reserve fund and the enterprise fund and these statutory reserves represent restricted retained earnings.

Surplus reserve fund

The Company is required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.

The transfer to this reserve must be made before distribution of any dividend to shareholders. For the three months ended March 31, 2007 and 2006, the Company did not transfer any fund to this reserve. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Enterprise fund

The enterprise fund may be used to acquire plant and equipment or to increase the working capital to expend on production and operation of the business. No minimum contribution is required and the company has not contributed to this fund.

- 20 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

Note 20 - Joint venture agreement with Baotou Steel

On September 28, 2005, General Steel Investment Co., Ltd., a wholly owned subsidiary of General Steel Holdings, Inc., entered into a certain Baotou-GSHI Special Steel Joint Venture Agreement (the "Agreement") with Daqiuzhuang Metal Sheet Co., Ltd., and Baotou Iron and Steel (Group) Co., Ltd., a limited liability company formed under the laws of the People's Republic of China (the "Baotou Steel"). The name of the joint venture will be Baotou Steel-General Steel Special Steel Joint Venture Company Limited.

The Joint Venture Company will be located at Kundulun District, Baotou City, Inner Mongolia, China. The stated purposes of the Joint Venture Company are, among others, to produce and sell special steel and to improve the product quality and the production capacity and competitiveness by adopting advanced technology in the production of steel products. The Joint Venture Company shall have a capacity of producing 600,000 metric tons of specialty steel products a year.

The registered capital of the joint venture will be approximately $24,000,000. The products of the joint venture will be sold in the Chinese market and abroad. The ownership will be comprised of the following:

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

Baotou Steel will contribute land, existing equipment and materials at an estimated value of approximately $12,000,000 which will be contributed to the joint venture at the date of the approval of Joint Venture or issuance of the business license. The value of the assets to be contributed by Baotou Steel will be stated at fair market value. General Steel Investment Co., Ltd. will contribute approximately $7,500,000 of cash and Daqiuzhuang Metal will contribute approximately $5,000,000 cash. These contributions will be required to be made on the following payment schedule 30% of their capital contribution within 30 days of the date of approval of the Joint Venture; 30% of their capital contribution within 3 months of the date of approval of the Joint Venture; and 40% of their capital contribution within 6 months of the date of approval of the Joint Venture. The Company will use the consolidation method to account for the joint venture.

These contributed assets will be used to commence a new operation. The joint venture will purchase a 100-tonne electric furnace and a refiner furnace to produce high quality specialty steel using advanced technology. This type of specialty steel has not been previously produced by Baotou Steel. This advanced technology has not been previously utilized by Baotou Steel. This new joint venture will aim to enter into a new market segment of high-end specialty steel.

Upon the commencement of the joint venture, the rights of the minority shareholders of Daqiuzhuang Metal Sheet Co. Ltd. will be limited to receiving a distribution of profits from the joint venture; the minority shareholders will not have any voting rights.

- 21 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

As of March 31, 2007, the Company has not received the approval of the Baotou Steel Joint Venture and it is still under government review and maybe subject to further industry sector review by the relevant authorities in China in view of the sensitive nature of the steel industry. The management at this point is uncertain if and when the government approval will be granted. Currently none of the operations of Baotou Steel is consolidated into the Company’s financial statements as there is no ownership or control relationship between the Company and Baotou Steel at this time.

On April 27, 2007, the Company had an amendment to the agreement with Baotou Steel, changing some of the terms stated above, see note 22.

Note 21 - Commitment and contingencies

Daqiuzhuang Metal provides dormitory for its employees under a rental contract. The rent for ten years starting in January 2006. Daqiuzhuang Metal is required to prepay the entire ten years’ rent, which is a total of $466,200. As of March 31, 2007, the unpaid portion of the prepaid rent is $16,298. Daqiuzhuang Metal will pay the remaining portion of the rent during the year of 2007. Total rental expense of the dormitory for the three months ended March 31, 2007 and 2006 amounted to $11,611 and $11,185.

Daqiuzhuang Metal has rented additional land for fifty years starting September 2005. The agreement was for Daqiuzhuang Metal to pay the first three years’ rent payments upon signing the agreement. The other forty years’ rent payment will be paid in full three years after the agreement date. Total amount of the rent over the 50 years period is approximately $1, 044,728 (or 8,067,400 RMB). During the period, the lessor has to assist Daqiuzhuang Metal in obtaining land use right. Upon obtaining land use right, Daqiuzhuang Metal will pay the remaining balance before September 2008 as stated in the agreement. At March 31, 2007, total future minimum lease payments for the unpaid portion under an operating lease were as follows:

For the year ended December 31,	Amount
2007	$	-
2008		424,909
Thereafter	$	-

Total rental expense of the land use right for the three months ended March 31, 2007 and 2006 amounted to $5,204 and $5,013.

Note 22 - Subsequent event

On April 27, 2007, Daqiuzhuang Metal, a 70% owned subsidiary of the Company, and Baotou Iron and Steel Group Co., Ltd. (“Baotou Steel”) entered into an Amended and Restated Joint Venture Agreement (the “Agreement”), amending the Joint Venture Agreement entered into on September 28, 2005 (“Original Joint Venture Agreement”). The Amended and Restated Joint Venture Agreement increased Daqiuzhuang Metal's ownership interest in the Joint Venture from 20% to 80%.

- 22 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007

(UNAUDITED)

The Agreement states that the initial capital of the Joint Venture Company will be approximately US$6,400,000, and the registered capital will be approximately US$6,400,000.

The Agreement sets outs the initial contributions of each party to the Agreement to the Joint Venture Company. Baotou Steel will contribute RMB 10,000,000, or approximately US$1,270,000 and Daqiuzhuang Metal will contribute RMB 40,000,000, or approximately US$5,130,000.

The purpose of the amendment is for the convenience of obtaining the business license. The following items highlight the significance of the amendment from the previous agreement:

1.   Change in total registered capital from approximately US$24,000,000 to US$6,400,000.

2.   Change in the nature of ownership from a Sino-Foreign Joint Venture Enterprise to a solely Domestic Joint Venture Enterprise, which will be 80% owned by Daqiuzhuang Metals and 20% by Baotou Steel.

- 23 -

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

Forward-Looking Statements:

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

Overview

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

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

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

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Joint Venture

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

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

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

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

Operating Results

Sales Revenue and Gross Profit

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

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

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

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

Cost of sales

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

Selling, General and Administrative Expenses

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

Net income

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

Other income (expense)

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

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Income taxes

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

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

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

Accounts Receivable

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

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

Advances on inventory purchases

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

Liquidity and capital resources

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

Operating activities

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

Investing activities

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

Financing activities

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

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Compliance with environmental laws and regulations

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

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

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

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

Off-balance sheet arrangements

There are currently no off-balance sheet arrangements.

New Accounting Standards 

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Commodity Price Risk and Related Risks

In the normal course of its business, General Steel is exposed to market risk or price fluctuations related to the purchase, production or sale of steel products over which we have little or no control. General Steel does not use any derivative commodity instruments to manage the price risk. General Steel’s market risk strategy has generally been to obtain competitive prices for its products and allow operating results to reflect market price movements dictated by supply and demand. Based upon an assumed annual production capacity of 400,000 tons, a $1 change in the annual average price would change annual pre-tax profits by approximately $400,000.

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Interest Rate Risk

The Company is subject to interest rate risk since its outstanding debts are short-term and bear interest at variable interest rates. The future interest expense would fluctuate in case of any change in the borrowing rates. We do not use swaps or other interest rate protection agreements to hedge this risk. We believe our exposure to interest rate risk is not material.

Foreign Currency Exchange Rate Risk

General Steel’s operating unit, Daqiuzhuang Metal, is located in China. The operation purchase, produce and sell all of the steel products domestically. It is subject to the foreign currency exchange rate risk due to the effects of fluctuations in the Chinese Renminbi on revenues and operating cost and existing assets or liabilities. General Steel has not generally used derivative instruments to manage this risk. A 10 percent decrease in the average Renminbi exchange rate would result in a $93,331 charge to income for the three months ended March 31, 2006.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, General Steel’s management carried out an evaluation, with the participation of General Steel’s principal executive officer and principal financial officer, of the effectiveness of General Steel’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934). Based upon that evaluation, General Steel’s principal executive officer and principal financial officer concluded that General Steel’s disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in General Steel’s internal controls over financial reporting that occurred during General Steel’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, General Steel’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

Criteria for our customers include:

· Quality;

· Price/cost competitiveness;

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· System and product performance;

· Reliability and timeliness of delivery;

· New product and technology development capability;

· Excellence and flexibility in operations;

· Degree of global and local presence;

· Effectiveness of customer service; and

· Overall management capability.

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

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

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

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

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

· Manage our expanding operations and service offerings, including the integration of any future acquisitions;

· Maintain adequate control of our expenses;

· Anticipate and adapt to changing conditions in the agricultural equipment markets in which we operate as well as the impact of any changes in government regulation; and

· Anticipate mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

Our business, business prospects and results of operations will be affected if we are not successful in addressing any or all of these risks and difficulties.

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Our inability to fund our capital expenditure requirements may adversely affect our growth and profitability.

Our continued growth is dependent upon our ability to raise additional capital from outside sources. We believe that in order to grow our company further, we intend to seize opportunities in Chinese SOEs’ privatization and set up strategic joint ventures with these SOEs. That will require us to obtain additional financing through capital markets. In the future we may be unable to obtain the necessary financing on a timely basis and on favorable terms, and our failure to do so may weaken our financial position, reduce our competitiveness, limit our growth and reduce our profitability. Our ability to obtain acceptable financing at any given time may depend on a number of factors, including:

· Our financial condition and results of operations,

· The condition of the PRC economy and the agricultural equipment industry in the PRC, and

· Conditions in relevant financial markets in the U.S., the PRC and elsewhere in the world.

We may not be able to effectively control and manage our growth.

If our business and markets grow and develop, it will be necessary for us to finance and manage such an expansion in an orderly fashion. This growth will lead to an increase in the responsibilities of existing personnel, the hiring of additional personnel and expansion of our scope of operations. It is possible that we may not be able to obtain the required financing under terms that are acceptable to us or hire additional personnel to meet the needs of our expansion.

Our business, revenues and profitability are dependent on a limited number of large customers.

Our revenue is dependent, in large part, on significant contracts with a limited number of large customers. For the first quarter of 2007, approximately 26% of our sales were to five customers. We believe that revenue derived from our current and future large customers will continue to represent a significant portion of our total revenue. Our inability to continue to secure and maintain a sufficient number of large contracts or the loss of, or significant reduction in purchases by, one or more of our major customers would have the effect of reducing our revenues and profitability.

Moreover, our success will depend in part upon our ability to obtain orders from new customers, as well as the financial condition and success of our customers and general economic conditions in China.

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

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

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

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

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

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

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

We depend on acquiring companies to fulfill our growth plan

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

We depend on bank financing for our working capital needs.

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

We rely on Yu, Zuo Sheng for important business leadership

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

Risks Related to Operating Our Business in China

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

The economy of China is at a transition from a planned economy to a market oriented economy subject to five-year and annual plans adopted by the government that set down national economic development goals. Policies of the Chinese government can have significant effects on the economic conditions of China. The Chinese government has confirmed that economic development will follow a model of market economy under socialism. Under this direction, we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in China will follow market forces. While we believe that this trend will continue, there can be no assurance that such will be the case. A change in policies by the Chinese government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof; confiscatory taxation; restrictions on currency conversion, imports or sources of supplies; or the expropriation or nationalization of private enterprises. Although the Chinese government has been pursuing economic reform policies for approximately two decades, the Chinese government may significantly alter such policies, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting China’s political, economic and social life.

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The PRC laws and regulations governing our current business operations and contractual arrangements are uncertain, and if we are found to be in violation, we could be subject to sanctions. In addition, any changes in such PRC laws and regulations may have a material and adverse effect on our business.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. Our subsidiaries and we are considered foreign persons or foreign funded enterprises under PRC laws, and as a result, we are required to comply with PRC laws and regulations. These laws and regulations are relatively new and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, the PRC authorities retain broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business licenses and requiring actions necessary for compliance. In particular, licenses, permits and beneficial treatments issued or granted to us by relevant governmental bodies may be revoked at a later time under contrary findings of higher regulatory bodies. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. Such restructuring may not be effective or result in similar or other difficulties. We may be subject to sanctions, including fines, and could be required to restructure our operations. As a result of these substantial uncertainties, there is a risk that we may be found in violation of any current or future PRC laws or regulations.

A slowdown or other adverse developments in the PRC economy may materially and adversely affect our customers, demand for our services and our business.

All of our operations are conducted in the PRC and all of our revenues are generated from sales to businesses operating in the PRC. Although the PRC economy has grown significantly in recent years, such growth may not continue. We do not know how sensitive we are to a slowdown in economic growth or other adverse changes in the PRC economy which may affect demand for agricultural equipment. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for our products and in turn reduce our results of operations and our productivity.

In China, farmers are key consumers for agricultural vehicles. The consumption is closely related to the economic developments in different regions and areas. With the continuous development of rural economy in central and western China, there is increasing demand for agricultural vehicles. In addition, the implementation of the “Go West” strategy and China’s entry into the World Trade Organization have prodded the government to increase investment in the agricultural sector in central and western China. China’s western areas will become a high growth market for agricultural vehicles. However the new government policies may as well bring competition to this market. More steel companies may turn their focus to the agricultural sector which will increase the supply of steel products used for agricultural vehicles. This new competition may force us to lower our product price or reduce the production volume.

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Inflation in China could negatively affect our profitability and growth.

While the Chinese economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability. In order to control inflation in the past, the Chinese government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. Such an austerity policy can lead to a slowing of economic growth. In October 2004, the People’s Bank of China, China’s central bank, raised interest rates for the first time in nearly a decade and indicated in a statement that the measure was prompted by inflationary concerns in the Chinese economy. Repeated increases in interest rates by the central bank will likely slow economic activity in China which could, in turn, materially increase our costs and also reduce demand for our products.

If relations between the United States and China worsen, our stock price may decrease and we may experience difficulties accessing the U.S. capital markets.

At various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the United States and China could impact the market price of our common stock and our ability to access US capital markets.

The Chinese Government could change its policies toward private enterprises, which could result in the total loss of our investments in China.

Our business is subject to political and economic uncertainties in China and may be adversely affected by its political, economic and social developments. Over the past several years, the Chinese Government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese Government may not continue to pursue these policies or may alter them to our detriment from time to time. Conducting our business might become more difficult or costly due to changes in policies, laws and regulations, or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to stockholders, devaluations of currency or the nationalization or other expropriation of private enterprises. In addition, nationalization or expropriation could result in the total loss of our investments in China.

Our business, results of operations and overall profitability are linked to the economic, political and social conditions in China.

All of our business, assets and operations are located in China. The economy of China differs from the economies of most developed countries in many respects, including government involvement, level of development, growth rate, control of foreign exchange, and allocation of resources. The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although the Chinese Government has implemented measures recently emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese Government. In addition, the Chinese Government continues to play a significant role in regulating industry by imposing industrial policies. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Therefore, the Chinese Government’s involvement in the economy may affect our business operations, results of operations and our financial condition.

Governmental control of currency conversion may cause the value of your investment in our common stock to decrease.

The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. We receive substantially all of our revenues in Renminbi, which is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise satisfy foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.

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The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due.

The fluctuation of the Renminbi may cause the value of your investment in our common stock to decrease.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. As we rely entirely on revenues earned in the PRC, our cash flows, revenues and financial condition will be affected by any significant revaluation of the Renminbi. For example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into Renminbi for our operations, if the Renminbi appreciates against the U.S. dollar, the Renminbi equivalent of the US dollar we convert would be reduced. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be reduced. To date, however, we have not engaged in transactions of either type. In addition, the depreciation of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these assets.

Since 1994 the PRC has pegged the value of the Renminbi to the U.S. dollar. We do not believe that this policy has affected our business. However, there have been indications that the PRC government may be reconsidering its monetary policy in light of the overall devaluation of the U.S. dollar against the Euro and other currencies during the last two years. In July 2005, the PRC government revalued the Renminbi by 2.1% against the U.S. dollar, moving from Renminbi 8.28 to Renminbi 8.11 per dollar. Because of the pegging of the Renminbi to the U.S. dollar is loosened, we anticipate that the value of the Renminbi will appreciate against the dollar with the consequences discussed above.

We are subject to environmental and safety regulations, which may increase our compliance costs and reduce our overall profitability.

We are subject to the requirements of environmental and occupational safety and health laws and regulations in China. We may incur substantial costs or liabilities in connection with these requirements. Additionally, these regulations may become stricter, which will increase our costs of compliance in a manner that could reduce our overall profitability. The capital requirements and other expenditures that may be necessary to comply with environmental requirements could increase and become a significant expense linked to the conduct of our business.

Because the Chinese legal system is not fully developed, our legal protections may be limited.

The PRC legal system is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited value as precedents. Since 1979, the PRC legislative bodies have promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, the PRC has not developed a fully integrated legal system and the array of new laws and regulations may not be sufficient to cover all aspects of economic activities in the PRC. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, published government policies and internal rules may have retroactive effects and, in some cases, the policies and rules are not published at all. As a result, we may be unaware of our violation of these policies and rules until some time later. The laws of the PRC govern our contractual arrangements with our affiliated entities. The enforcement of these contracts and the interpretation of the laws governing these relationships are subject to uncertainty. For the above reasons, legal compliance in China may be more difficult or expensive.

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Risks Related to Our Common Stock

Our officers, directors and affiliates control us through their positions and stock ownership and their interests may differ from other stockholders.

Our officers, directors and affiliates beneficially own approximately 96% of our common stock. Mr. Yu, Zuo Sheng our major shareholder, beneficially owns approximately 76.5% of our common stock. Mr. Yu can effectively control us and his interests may differ from other stockholders.

Because our principal assets are located outside of the United States and all of our directors and officers reside outside of the United States, it may be difficult for you to enforce your rights based on U.S. federal securities laws against us and our officers and directors in the U.S. or enforce U.S. court judgments against us or them in the PRC.

All our directors reside outside of the United States. In addition, Daqiuzhuang, our operating subsidiary, is located in China and substantially all of its assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. federal securities laws against us in the courts of either the U.S. and the PRC and, even if civil judgments are obtained in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties under the U.S. federal securities laws or otherwise.

We have never paid cash dividends and are not likely to do so in the foreseeable future.

We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.

There is only a limited trading market for our common stock.

Our common stock is now listed on the over-the-counter Bulletin Board. There is currently limited trading market for our common stock and we do not know if any trading market will ever develop. You may be unable to sell your shares due to the absence of a trading market.

In addition, broker-dealers who recommend our common stock to people who are not established customers or qualifying investors must follow special sales procedures, including getting the purchaser’s written consent prior to the sale. We are currently subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934. During the period(s) that our stock trades below $5.00 per share, as it currently does, trading in our common stock is subject to the requirements of the “penny stock” rules. These rules require additional disclosure by broker dealers in connection with any trades generally involving any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such rules require the delivery, before any “penny stock” transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must determine the suitability of the penny stock for the purchaser and receive the purchaser’s written consent to the transaction before sale. The additional burdens imposed upon broker dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock affected. As a consequence, the market liquidity of General Steel’s common stock could be severely limited by these regulatory requirements.

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Our common stock is subject to price volatility unrelated to our operations.

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other steel makers, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us.

In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None for the period covered by this report.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None for the period covered by this report.

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

None for the period covered by this report.

ITEM 5. OTHER INFORMATION

None for the period covered by this report.

ITEM 6. EXHIBITS

(a) Exhibits

31.1 Certification of Chief Executive Officer;

31.2 Certification of Chief Financial Officer;

32.1 Certification of Chief Executive Officer;

32.2 Certification of Chief Financial Officer.

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SIGNATURES

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

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

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