General Steel (GSIH) 10-Q 2007 Q2 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 June 30, 2007

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

For the transition period from __________ to __________

GENERAL STEEL HOLDINGS, INC.

(Name of Issuer in Its Charter)

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

 Incorp Services Inc.

3155 East Patrick Lane

Suite 1, Las Vegas, Nevada, 89120

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 August 17, 2007 was 32,444,665.

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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2007 AND DECEMBER 31, 2006

ASSETS
	June 30,		December 31,
	2007		2006
	(Unaudited)
CURRENT ASSETS:
Cash	$	44,304,703	$	6,831,549
Restricted cash		13,545,793		4,231,523
Accounts receivable, net of allowance for doubtful accounts of $140,662 and $137,132 as of June 30, 2007 and December 31, 2006, respectively		20,703,437		17,095,718
Notes receivable		6,784,263		537,946
Other receivables		436,317		268,784
Other receivables - related parties		1,682,400		850,400
Inventories		66,075,563		12,489,290
Advances on inventory purchases		8,934,047		2,318,344
Advances on inventory purchases - related parties		25,754,327		-
Advance on equipment purchases		1,968,418		-
Prepaid expenses - current		47,340		46,152
Total current assets		190,236,608		44,669,706
PLANT AND EQUIPMENT, net		191,305,061		26,606,594
OTHER ASSETS:
Prepaid expenses - non current		873,052		740,868
Intangible assets - land use right, net of accumulated amortization		21,197,244		1,804,440
Total other assets		22,070,296		2,545,308
Total assets	$	403,611,965	$	73,821,608
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	19,788,769	$	3,001,775
Short term loans		113,834,289		30,284,686
Short term notes payable		43,421,300		8,153,520
Other payables		2,631,207		355,142
Other payable - related party		90,979,655		-
Accrued liabilities		9,350,456		1,064,012
Customer deposits		34,126,053		1,093,602
Customer deposits - related parties		7,347,109		-
Deposits due to sales representatives		1,743,690		2,051,200
Taxes payable		20,233,032		5,391,602
Investment payable		6,312,000		-
Shares subject to mandatory redemption		1,950,000		2,179,779
Total current liabilities		351,717,560		53,575,318
MINORITY INTEREST		28,313,565		6,185,797
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 and 0 shares issued and outstanding as of June 30, 2007 and December 31, 2006, respectively		3,093		-
Common Stock, $0.001 par value, 200,000,000 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 June 30, 2007 and December 31, 2006, respectively		31,445		31,250
Paid-in-capital		15,610,335		6,871,358
Retained earnings		5,154,150		4,974,187
Statutory reserves		1,107,010		1,107,010
Accumulated other comprehensive income		1,674,807		1,076,688
Total shareholders' equity		23,580,840		14,060,493
Total liabilities and shareholders' equity	$	403,611,965	$	73,821,608

The accompanying notes are an integral part of this statement.

2

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

	Three months ended				Six months ended
	June 30,				June 30,
	2007		2006		2007		2006
REVENUES	$	121,254,744	$	29,398,358	$	158,862,715	$	50,040,860
COST OF SALES		113,141,376		27,807,959		149,016,342		47,082,163
GROSS PROFIT		8,113,368		1,590,399		9,846,373		2,958,697
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		2,844,411		807,633		3,474,611		1,549,811
INCOME FROM OPERATIONS		5,268,957		782,766		6,371,762		1,408,886
OTHER EXPENSE, NET		1,241,143		587,552		1,461,818		747,693
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST		4,027,814		195,214		4,909,944		661,193
PROVISION FOR INCOME TAXES		1,206,613		-		1,333,882		-
NET INCOME BEFORE MINORITY INTEREST		2,821,201		195,214		3,576,062		661,193
LESS MINORITY INTEREST		927,902		108,616		1,207,896		322,190
NET INCOME		1,893,299		86,598		2,368,166		339,003
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments		374,568		61,231		598,119		182,636
COMPREHENSIVE INCOME	$	2,267,867	$	147,829	$	2,966,285	$	521,639
WEIGHTED AVERAGE NUMBER OF SHARES		31,444,665		31,250,000		31,444,665		31,250,000
EARNING PER SHARE, BASIC AND DILUTED	$	0.060	$	0.003	$	0.075	$	0.011

The accompanying notes are an integral part of this statement.

3

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

																Accumulated
	Preferred stock				Common stock						Retained earnings					other
									Paid-in		Statutory					comprehensive
	Shares		Par value		Shares		Par value		capital		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														339,003					339,003
Foreign currency translation adjustments																	182,636		182,636
BALANCE, June 30, 2006, unaudited		-	$	-		31,250,000	$	31,250	$	6,871,358	$	840,753	$	4,546,239		$	581,824	$	12,871,424
Net income														694,205					694,205
Adjustment to statutory reserve												266,257		(266,257	)				-
Foreign currency translation adjustments																	494,864		494,864
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														2,368,166					2,368,166
Preferred stock issued for acquistion of minority interest , net of dividend distribution to Victory New		3,092,899		3,093						8,370,907				(2,188,203	)				6,185,797
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																	598,119		598,119
BALANCE, June 30, 2007, unaudited		3,092,899	$	3,093		31,444,665	$	31,445	$	15,610,335	$	1,107,010	$	5,154,150		$	1,674,807	$	23,580,840

The accompanying notes are an integral part of this statement.

4

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Unaudited)

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,368,166		$	339,003
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Minority interest		1,207,896			322,190
Depreciation		1,979,184			548,685
Amortization		194,830			147,839
Loss on disposal of equipment		118,528			28,859
Stock issued for services		23,760			-
Interest expense accrued on mandatory redeemable stock		114,726			229,452
(Increase) decrease in assets:
Accounts receivable		499,590			(3,236,194	)
Notes receivable		(212,753	)		(561,164	)
Notes receivable-related party		-			995,031
Other receivables		(152,646	)		18,777
Other receivables - related parties		(814,100	)		(970,000	)
Inventories		(843,369	)		(12,971,648	)
Advances on inventory purchases		248,632			3,939,998
Advances on inventory purchases - related parties		(25,403,755	)		-
Prepaid expenses - current		(111,573	)		(108,732	)
Increase (decrease) in liabilities:
Accounts payable		14,049,429			3,291,541
Other payables		808,677			242,167
Other payable - related party		(13,990,128	)		(980,000	)
Accrued liabilities		7,981,708			763,533
Customer deposits		771,354			674,434
Customer deposits -related parties		7,247,099			-
Taxes payable		14,610,931			910,544
Net cash provided by (used in) operating activities		10,696,186			(6,375,685	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from subsidiary		426,387			-
Increase in investment payable		6,226,080			-
Advances on equipment purchases		(1,941,624	)		1,058,435
Deposits due to sales representatives		(355,405	)		437,416
Cash proceeds from sale of equipment		39,442			-
Purchase of equipment		(1,350,225	)		(5,058,840	)
Net cash provided by (used in) investing activities		3,044,655			(3,562,989	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash		(5,188,741	)		256,248
Cash contribution received from minority shareholders		778,260			-
Borrowings from related parties		25,942,000			-
Borrowings on short term loans - bank		25,727,979			14,125,677
Payments on short term loans - bank		(30,165,358	)		(10,156,530	)
Borrowings on short term notes payable		13,437,956			10,542,852
Payments on short term notes payable		(8,249,556	)		(11,041,332	)
Net cash provided by financing activities		22,282,540			3,726,915
EFFECTS OF EXCHANGE RATE CHANGE IN CASH		1,449,773			69,449
INCREASE (DECREASE) IN CASH		37,473,154			(6,142,310	)
CASH, beginning of period		6,831,549			8,648,373
CASH, end of period	$	44,304,703		$	2,506,063

The accompanying notes are an integral part of this statement.

5

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Note 1 - Background

The Company (formerly known as American Construction Company) was established on August 5, 2002 for the purpose of commencing the business of general construction contracting. It was the Company's objective to provide to its customers timely and durable construction for their residential and commercial needs.

On October 14, 2004, American Construction Company and General Steel Investment Co., Ltd. (referred to as General Steel) and Northwest Steel Company, a Nevada corporation, entered into an Agreement and Plan of Merger (the "Agreement") pursuant to which American Construction Company acquired General Steel, and it’s 70% ownership in its subsidiary Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal) in exchange for shares of the Company’s common stock, of which 22,040,000 shares was a new issuance by the Company, and 7,960,000 shares are from certain shareholders of the Company, which in aggregate, constituted 96% of the total issued and outstanding shares of the Company.

Under the terms of the Agreement, General Steel will remain a 100% owned subsidiary of the Company. The transaction contemplated by the Agreement was intended to be a “tax-free" reorganization pursuant to the provisions of Section 351 and 368(a) (1) (A) of the Internal Revenue Code of 1986, as amended. The stockholders of General Steel, as of the closing date of the merger own approximately 96% of the Company's common stock outstanding as of October 15, 2004 (excluding any additional shares to be issued on outstanding options, warrants and other securities convertible into common stock).

The accounting for these transactions is identical to that resulting from a reverse-acquisition, except that no goodwill or other intangible assets is recorded. Accordingly, the financial statements of General Steel Investment Co., Ltd. are the historical financial statements of the Company, formerly the operations of Daqiuzhuang Metal Sheet Co., Ltd.

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

Daqiuzhuang Metal principally engages in the manufacturing of hot rolled carbon and silicon steel sheets which are mainly used on tractors, agricultural vehicles and in other specialty markets. Daqiuzhuang Metal sells its products through both retailers and wholesalers. Daqiuzhuang Metal was established on August 18, 2000 in Jinghai county, Tianjin city, Hebei province, the People’s Republic of China (PRC). The Articles of Corporation provides for a 10 year operating term beginning on August 18, 2000 with registered capital of $ 9,583,200. The Company is a Chinese registered limited liability company with a legal structure similar to a limited liability company organized under state laws in the United States of America.

On May 18, 2007, General Steel entered into a Purchase Agreement with Victory New Holdings Limited (Victory New), a British Virgin Islands registered company under the control of the Company’s Chairman, CEO and majority shareholder Yu Zu Sheng (aka Henry Yu) to acquire Victory New’s 30% interest in Daqiuzhuang Metal.

6

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

General Steel agreed to issue Victory New an aggregate of 3,092,899 shares of the Company’s Series A Preferred Stock with a fair value of $8,374,000, which have a voting power of 30% of the combined voting power of the Company’s common and preferred stock for the entire life of the Company. As a result of the acquisition, the Company has increased its equity interest in Daqiuzhuang Metal from 70% to 100%, and Daqiuzhuang Metal will be a wholly owned subsidiary of the Company. See details in Note 19- Business Combinations.

On April 27, 2007, Daqiuzhuang Metal 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 Agreement has increased Daqiuzhuang Metal's ownership interest in the Joint Venture to 80%. The joint venture company’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture Company Limited, a limited liability company formed under the laws of the People's Republic of China (referred to as “Baotou Steel Pipe Joint Venture”). Baotou Steel Pipe Joint Venture obtained the license on May 25, 2007 and started its normal operation in July 2007. See more discussion in Note 19- Business combinations.

Baotou Steel Pipe Joint Venture is located at Kundulun District, Baotou City, Inner Mongolia, China. It produces and sells welded steel pipes and primarily serves customers in the oil, gas and petrochemical markets. The current designed production capacity is 100,000 tons of steel pipes and will be increased to 600,000 tons by 2009.

On May 18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co., Ltd., (referred to as “Yangpu Investment”) and injected registered capital totaling RMB100,000,000 or approximately US$13,030,000 into the investment. The total registered capital of Yangpu Investment is RMB 110,000,000 or approximately US$14,333,000, and Daqiuzhuang Metal has a 99.3% ownership interest in Yangpu Investment.

Qiu Steel Investment Co., Ltd. (referred to as “Qiu Steel Investment”) was founded on June 1, 2006. In June 2007, Yangpu Investment agreed to invest RMB148,000,000 or approximately US$19,284,400 through a capital injection and equity transfer with former shareholders. The total registered capital of Qiu Steel is RMB 150,000,000 or approximate US$ 19,545,000. As a result of the above mentioned equity transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel Investment. Qiu Steel Investment then becomes a subsidiary of Yangpu Investment and Daqiuzhuang Metal.

Yangpu Investment and Qiu Steel Investment are Chinese registered limited liability companies with a legal structure similar to a limited liability company organized under state laws in the United States of America. Those two companies were formed to acquire other businesses.

On June 15, 2007, General Steel Holdings Inc. and Shaanxi Long Men Iron and Steel (Group) Co., Ltd. (referred to as Long Men Group) signed an agreement to form Shaanxi Long Men Iron and Steel Co., Ltd. (referred to as Long Men Joint Venture). The parties agreed to make the effective date of the transaction June 1, 2007. General Steel Holdings Inc. contributed RMB300 million through its subsidiaries, Daqiuzhuang Metal and Qiu Steel Investment., to the Long Men Joint Venture. General Steel and Long Men Group will own 60% and 40% ownership interest in Long Men joint Venture, respectively. The Long Men Joint Venture obtained the business license on June 22, 2007. See more discussion in Note 19- Business combinations.

7

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Long Men Joint Venture is located in Hancheng city, Shaanxi province. Long Men Joint Venture is the largest integrated steel producer in Shaanxi Province, China that uses iron ore and coke as primary raw materials for steel production. Long Men Joint Venture produces pig iron, crude steel, reinforced bars and high-speed wires. Long Men Joint Venture has annual crude steel production capability of 2.5 million tons. Long Men Joint Venture is also engaged in several other business activities, most of which are related to steel manufacturing. These include the production of coke and the production of iron ore pellets from taconite, transportation services and real estate and hotel operations. These operations are all located in Shaanxi Province, China and primarily serve regional customers in the construction industry.

The following table reflects the Company’s current organization structure:

8

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

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 directly and indirectly owned subsidiaries:

Subsidiary		Percentage Of Ownership
General Steel Investment Co., Ltd.	British Virgin Islands	100.0%
Victory New Holding, Ltd.	British Virgin Islands	100.0%
Tianjin Daqiuzhuang Metal Sheet Co., Ltd	P.R.C.	100.0%
Baotou steel Pipe Joint Venture	P.R.C.	80.0%
Yangpu Shengtong Investment Co., Ltd.	P.R.C.	99.3%
Tianjing Qiu Steel Investment Co., Ltd.	P.R.C.	98.0%
Shaanxi Long Men Joint Venture	P.R.C.	60.0%

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 all directly and indirectly owned subsidiaries listed above. All material intercompany transactions and balances have been eliminated in the consolidation. The long Men Joint Venture obtained the business license on June 22, 2007 and its financial data from June 1 to June 30, 2007 is included in the Company’s consolidated financial statements. Baotou Steel Pipe Joint Venture did not have any material operating activities, therefore, the operating results were not included in the Company’s consolidated financial statements for the six months ended 6/30/2007.

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 $1,674,807 and $1,076,688 as of June 30, 2007 and December 31, 2006, respectively. Asset and liability amounts at June 30, 2007 and December 31, 2006 were translated at 7.60 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 six months ended June 30, 2007 and 2006 were 7.71 RMB and 8.03 RMB, and for the three months ended June 30, 2007 and 2006 were 7.67 RMB and 8.00 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.

9

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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%-5% residual value. Depreciation expense for the six months ended June 30, 2007 and 2006 amounted to $1,979,184 and $548,685, respectively. Depreciation expense for the three months ended June 30, 2007 and 2006 amount to $1,417,475 and $274,910, respectively.

Estimated useful lives of the assets are as follows:

	Estimated Useful Life
Buildings	10-40 years
Machinery and equipment	8-30 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. Maintenance, repairs and minor renewals are charged directly to expense as incurred. Major additions and betterment to buildings and equipment are capitalized.

Interest incurred during construction is capitalized into construction in progress. All other interest is expensed as incurred. For the six months ended June 30, 2007 and 2006, interest incurred by the Company was $2,340,139 and $993,519, respectively, and capitalized interest for the same period was immaterial.

Plant and equipment consist of the following at:

	June 30,		December 31,
	2007		2006
	(unaudited)
Buildings and improvements	$	57,457,149	$	9,338,865
Machinery		117,516,705		22,675,357
Transportation equipment		3,934,857		1,019,698
Other equipment		985,647		-
Construction in process		19,973,013		-
Totals		199,867,371		33,033,920
Less accumulated depreciation		8,562,310		6,427,326
Totals	$	191,305,061	$	26,606,594

Long-term assets of the Company are reviewed annually or more often if circumstances 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.

10

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of June 30, 2007, the Company expects these assets to be fully recoverable.

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 June 30, 2007 and December 31, 2006 amounted to $43,463,308 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 $13,545,793 and $4,231,523 as of June 30, 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:

	June 30,		December 31,
	2007		2006
	(unaudited)
Supplies	$	1,388,358	$	1,061,773
Raw materials		35,564,123		2,827,127
Work in process		391,431		-
Finished goods		28,731,651		8,600,390
Totals	$	66,075,563	$	12,489,290

Raw materials consist primarily of iron ore and coke at Long Men Joint Venture and steel strip at Daqiuzhuang Metal. Work in process primarily consists of pig iron and other semi-finished products. 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.

11

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

The Company reviews its inventory periodically for possible obsolete goods and to determine if any reserves are necessary for potential obsolescence. As of June 30, 2007 and December 31, 2006, the Company believes no reserves are necessary.

Financial instruments

Statement of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value of financial instruments held by the Company. SFAS 107 defines the fair value of financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing parties. The Company considers the carrying amount of cash, accounts receivable, 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.

Long Men Group contributed land use rights for a total amount of $19,543,875 to the Long Men Joint venture. The land use rights are for 50 years and expire in 2048 to 2052.

All land use right at Daqiuzhuang Metal and Long Men Joint Venture are listed as follows:

	June 30,		December 31,
	2007		2006
	(unaudited)
Land use right	$	22,663,905	$	3,041,733
Accumulated Amortization		1,466,661		1,237,293
Totals	$	21,197,244	$	1,804,440

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 June 30, 2007, the Company expects these assets to be fully recoverable.

12

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Total amortization expense for the six months ended June 30, 2007 and 2006, amounted to $194,830 and $147,839, respectively. The amortization expense for the three months ended June 30, 2007 and 2006 amounted to $118,306 and $74,121, 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.

Share-based compensation

The Company records stock-based compensation pursuant to Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," ("FAS123R"), which established standards for the accounting for transactions in which an entity exchange its equity instruments for goods or services. This statement requires companies to measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period of services rendered.

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 June 30, 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.

13

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

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.

The Company’s other subsidiary, Long Men Joint Venture, is located in the mid-west region of China. It qualifies for the Go-West tax rebate of 15% tax rate promulgated by the government. The Company is currently applying for this special tax treatment. Until the application is approved, a 33% income tax rate will apply at Long Men Joint Venture.

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 six months ended June 30 consisted of the following:

	2007		2006
	(unaudited)		(unaudited)
Provision for China Income Tax	$	1,212,620	$	-
Provision for China Local Tax		121,262		-
Total Provision for Income Taxes	$	1,333,882	$	-

14

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

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

	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		(6.0	)		(33.0	)
Total provision for income taxes		27.0	%		-	%

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 $31,034,128 and $17,890,459 for the six months ended June 30, 2007 and $8,506,946 and $7,161,423 for the six months ended June 30, 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.

Taxes payable consisted of the following:

	June 30,		December 31,
	2007		2006
	(unaudited)
VAT taxes payable	$	18,748,819	$	5,317,466
Income taxes payable		1,352,290		-
Misc taxes		131,923		74,136
Totals	$	20,233,032	$	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.

15

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

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.

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.

In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for use in Future Research and Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable advance payments for goods or services that used or rendered for research and development activities should be expensed when the advance payment is made or when the research and development activity has been performed. Management is currently evaluating the effect of this pronouncement on 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.

16

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

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.

As described in Note 19, the Company issued Victory New an aggregate of 3,092,899 shares of the Company’s Series A Preferred Stock to purchase 30% of minority ownership of Daqiuzhuang Metal. The preferred stock has par value of $0.001 and could not be converted to common stock. Thus, the 3,092,899 shares of Series A Preferred Stock have been excluded from the earning per share calculation. In addition, since no common stock equivalents existed at June 30, 2007 and June 30, 2006, the basic EPS equals the diluted EPS.

The weighted average number of shares used to calculate EPS for the six months ended June 30, 2007 and 2006 totaled 31,444,665, and 31,250,000, respectively, and reflect only the shares outstanding for those periods. The basic and diluted earnings per share for the six months ended June 30, 2007 and 2006 were $0.075 and $0.011, respectively, and for the three months ended June 30, 2007 and 2006 were $0.06 and $0.003, respectively.

Note 4 - Supplemental disclosure of cash flow information

Interest paid amounted to $ 2,026,318 and $993,519 for the six months ended June 30, 2007 and 2006, respectively.

No income tax payments were made during the six months ended June 30, 2007 and 2006.

On February 12, 2007, the Company issued 18,000 shares of common stock for investor relations services rendered amounted to $23,760.

In May 2007, the Company issued 3,092,899 shares of preferred stock with fair value of $8,374,000 to the former shareholders of Victory New Holdings Inc. to purchase 30% the minority ownership of Daqiuzhuang Metal.

17

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Note 5 - Accounts receivable and allowance for doubtful accounts

The Company conducts its business operations in the People’s Republic of China. Accounts receivable 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 June 30, 2007 and December 31, 2006 amounted to $140,662 and $137,132, respectively.

Allowance for doubtful account	Beginning balance		Additions		Deductions		Exchange rate effect		Ending balance
Six months ended June, 30, 2007	$	137,132	$	-	$	-	$	3,530	$	140,662
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 $6,784,263 and $537,946 outstanding as of June 30, 2007 and December 31, 2006, respectively.

Note 7 - Prepaid expenses

Prepaid expenses at June 30, 2007 and December 31, 2006 consisted of the followings:

	June 30, 2007				December 31, 2006
	(unaudited)
	Current		Long-term		Current		Long-term
Rent	$	47,340	$	355,050	$	46,152	$	225,523
Land use right		-		518,002		-		515,345
Total	$	47,340	$	873,052	$	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 June 30, 2007 and December 31, 2006, prepaid rent for dormitory amounted to $402,390 and $271,675, respectively, and prepaid rent for land use right amounted to $518,002 and $515,345, respectively. See note 20 for more details.

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 $8,934,047 and $2,318,344 as of June 30, 2007 and December 31, 2006, respectively.

18

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

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 the Company’s Chairman and CEO and majority shareholder, Yu Zuo Sheng (aka Henry Yu) 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 $367,400 at June 30, 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 Company’s Chairman, CEO and majority shareholder Yu Zuo Zheng (aka Henry Yu), is the chairman of the largest shareholder of Jing Qiu Steel Market Company. The total rental income for six months ended June 30, 2007 and 2006 was $778,260 and $0, respectively. Total rental income for three months ended June 30, 2007 and 2006 amounted $391,230 and $0, respectively.

The Company’s short term loan of $6,575,000 from Shenzhen Development Bank is personally guaranteed by the Company’s Chairman, CEO, and majority shareholder Yu Zuo Sheng (aka Henry Yu).

The Company acquired 30% minority ownership of Daqiuzhuang from Victory New which was legally owned by Mr. Yu Zuo Sheng’s mother and under Mr. Yu’s control. See details of acquisition of minority interest in Note 19.

The Long Men Joint Venture didn’t obtain the VAT invoices from the local tax bureau until late July 2007. Before obtaining VAT invoices, all the sales and purchases made by the joint venture were carried out through the Company’s joint venture partner, Long Men Group, and all the sales proceeds and purchase payments were recorded as receivables from / payables to Long Men Group. The total receivable from Long Men Group is $107,123,503 and the total payable to Long Men Group is $171,114,932. The net amount is $63,991,429.

The following charts summarize the related party transactions as of June 30, 2007:

Other receivables-related parties

Subsidiary		Amount	Due from	Term	Manner of settle
Tianjin Qiu Steel Investment	$	591,750	Yang Pu Capital Automobile	Short	To be paid in cash
Tianjin Qiu Steel Investment		723,250	Beijing Wendlar	Short	To be paid in cash
General Steel Investment		367,400	Golden Glister Holdings	Short	To be paid in cash
Total	$	1,682,400

19

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Advances on inventory purchases-related parties

Subsidiary		Amount	Due from	Term	Manner of settle
Long Men Joint Venture	$	12,887,000	Tianjin Hengying	Short	Deliver of goods
Long Men Joint Venture		12,867,327	Tianjin Dazhan	Short	Deliver of goods
Total	$	25,754,327

Other payable-related party

Subsidiary		Amount	Due to	Term	Manner of settle
Yangpu Shengtong		19,725	Beijing Wendlar	Short	to be paid in cash
Daqiuzhuang Metal		18,278,500	Tianjin Dazhan	Annual interest rate of 6.5%	to be paid in cash
Daqiuzhuang Metal		8,021,500	Tianjin Hengying	Annual interest rate of 6.5%	to be paid in cash
Long Men Joint Venture		63,761,021	Long Men Group	Short	to be paid in cash
Long Men Joint Venture		392,934	Hua Long Supplies	Short	to be paid in cash
Long Men Joint Venture		382,602	Long Men Enviornmental Protection	Short	to be paid in cash
Long Men Joint Venture		123,373	Long Men Service Co.,	Short	to be paid in cash
Total	$	90,979,655

Customer deposit - related party

Subsidiary		Amount	Due to	Term	Manner of settle
Long Men Joint Venture	$	7,347,109	Shannxi Swallow Coking Co., a shareholder of Long Men Group	Short	Deliver of goods

Investment payable

In June 2007, Yangpu Investment and the former shareholders of Qiu Steel Investment entered into an agreement. Pursuant to this agreement, Yangpu Investment will have 98.7% of total equity of Qiu Steel Investment by injecting RMB148,000,000 or approximately US$19,462,000. As of June 30, 2007, Yangpu Investment had unpaid payables amounted to RMB48,000,000 or approximately $6,312,000.

20

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Note 10 - Debt

Short term loans

Short term loans represent amounts due to various banks, other companies and individuals, which are normally due within one year. These loans can be renewed with the banks The Company had a total of $113,834,289 and $30,284,686 short term loans as of June 30, 2007 and December 31, 2006, respectively, and consisted of the following:

DAQIUZHUANG METAL
	June 30,		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	$	1,183,500	$	1,153,800
Loans from Agriculture Bank, DaQuiZhuang Branch, duevarious dates from October to April 2008.Monthly interest only payments ranging from7.344% to 7.668% per annum, guaranteed by anunrelated third party and secured by property andequipment		9,873,020		9,625,256
Loan from Construction Bank of China, JinHai Branch, duevaries dates in Auguest 2007. Monthly interest only payment at 8.323% per annum, secured by properties.		1,597,725		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		5,260,000		5,128,000
Loan from China Merchants Bank, due November 2007. Quarterly interest only payments at floating interest rate,105% of People's Bank base rate, guaranteed by an unrelated third parties.		7,890,000		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.		6,575,000		5,128,000
Total	$	32,379,245	$	30,284,686

21

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

 

LONG MEN JOINT VENTURE
	June 30,		December 31,
	2007		2006
	(unaudited)
Loans from Construction Bank, HanCheng Branch, due various dates from September to June 2008. Monthly interest only payments ranging from 6.44% to 6.73% per annum, guaranteed by equipment	$	10,518,685	$	-
Loans from Agriculture Bank, HanCheng Branch, due various dates from September to March 2008. Monthly interest only payments ranging from 6.73% to 8.30% per annum, guaranteed by equipment		8,416,000		-
Loan from China Bank, HanCheng Branch,due various dates from May 2008 to July 2008. Quarterly interest payments ranging from 6.16% to 6.71% per annum, guaranteed by an unrelated third parties.		9,205,000		-
Loan from Credit Cooperatives ,due various dates from September to March 2008. Quarterly interest payments ranging from 11.02% to 11.52% per annum, guaranteed by third parties.		2,753,610		-
Loan from HuaXia Bank, due October 2007. Monthly interest only payments, annual interest rate of 7.33%, guaranteed by equipment.		2,630,000		-
Loan from communication Bank, due July 2007. Quarterly interest only payments, annual interest rate of 7.34%, guaranteed by equipment.		3,287,500		-
Loan from China Merchants Bank, due July 2007. Monthly interest only payments, annual interest rate of 8.20%, guaranteed by property.		2,630,000		-
Loan from China Minsheng subsidiary Bank, due Septmeber 2007. Quarterly interest only payments, annual interest rate of 6.237%, guaranteed by equipment and unrelated third parties.		6,575,000		-
Loan from China Everbright Bank, due November 2007. Monthly interest only payments, annual interest rate of 6.12%, guaranteed by an unrelated third parties.		2,630,000		-
Loan from various companies and individuals, due within one year Non-secured, annual interest rates ranging from 8% to 12%.		32,809,249		-
Totals -Long Men Joint Venture	$	81,455,044	$	-
Grand totals	$	113,834,289	$	30,284,686

22

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Short term notes payable

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

The Company has the following short term notes payable outstanding as of June 30, 2007 and December 31, 2006:  

DAQIUZHUANG METAL
	June 30,		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	$	1,525,400	$	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		1,578,000		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		5,260,000		5,128,000
ShangHai PuFa Bank, due date from May to November 2007, restricted cash required of 100% of loan balance,guaranteed by an unrelated third party		5,260,000		-
Totals -Daqiuzhuang Metal	$	13,623,400	$	8,153,520

23

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

 

LONG MEN JOINT VENTURE
	June 30,		December 31,
	2007		2006
	(unaudited)
Construction Bank of China, Han Cheng Branch, due date ranging between January to July 2007, restricted cash required of 50% of loan amount already paid by Long Men Steel Group, guaranteed by Long Men Steel Group.	$	1,643,750	$	-
China Merchants Bank , various amounts, due dates ranging between January to August 2007, restricted cash required of 50% of loan amount, paid by Long Men Steel Group, guaranteed by Long Men Steel Group.		6,575,000		-
China Everbright Bank of China, due date ranging between January to August 2007, restricted cash required of 30% of loan amount,paid by Long Men Steel Group, guaranteed by Long Men Steel Group.		5,260,000		-
Hua Xia Bank, due date ranging between April and October 2007,restricted cash required of 50% of loan amount, paid by Long Men Steel Group, guaranteed by Long Men Steel Group.		2,630,000		-
ShangHai Pudong Development Bank, various amounts, due dates ranging between April to November 2007, restricted cash required of 60% of loan amount, paid by Long Men Steel Group,guaranteed by Long Men Steel Group.		4,997,000		-
ShangHai PuFa Bank, due various dates from April to September 2007, restricted cash required of 50% of loan balance, guaranteed by Long Men Steel Group.		6,575,000		-
China Everbright Bank, due dates ranging between April and October 2007, restricted cash required of 50% of loan amount, paid by Long Men Steel Group, guaranteed by Long Men Steel Group.		2,117,150		-
Totals	$	29,797,900	$	-
Grand totals	$	43,421,300	$	8,153,520

24

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Total interest expense for the six months ended June 30, 2007 and 2006 on all debt amounted to $2,340,139 and $993,519, respectively. Total interest expense for the three months ended June 30, 2007 and 2006 amounted to $1,716,507 and $493,642, 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 June 30, 2007 and December 31, 2006, customer deposits including related parties amounts amounted to $41,473,163 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 $1,743,690 and $2,051,200 in deposits due to sales representatives outstanding as of June 30, 2007 and December 31, 2006, respectively.

Note 13 - Major customers and suppliers

Daqiuzhuang Metal has five major customers which represent approximately 21% and 35% of the Company’s total sales for the six months ended June 30, 2007 and 2006, respectively. Five customers accounted for 6% of total accounts receivable as of June 30, 2007.

Long Men Joint Venture has five major customers which represent approximately 93% of the Joint Venture’s total sales for the six months ended June 30, 2007.

For the six months ended June 30, 2007 and 2006, Daqiuzhuang Metal purchase approximately 88% and 97%, respectively, of their raw materials from five major suppliers.

For the six months ended June 30, 2007, Long Men Joint Venture Company purchases approximately 64% of their raw materials from five major suppliers.

25

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)
 

Note 14 - Other expenses and income, net

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

	June 30, 2007						June 30, 2006
	Three months			Six months			Three months			Six months
	Ended			Ended			Ended			Ended
Finance /Interest expense	$	1,756,993		$	2,397,850		$	676,753		$	1,222,971
Interest income		(57,810	)		(89,465	)		(73,677	)		(133,710	)
Other nonoperation income		(590,850	)		(979,377	)		(38,029	)		(392,873	)
Other nonoperating expense		132,810			132,810			22,507			51,305
	$	1,241,143		$	1,461,818		$	587,554		$	747,693

For six months and three months ended June 30, 2007, other nonoperating income includes rental income totaling $778,260 and $391,230, respectively, which represents land use right subleased to a related party for one year as discussed in note 9.

During 2005, Daqiuzhuang Metal 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 included as other nonoperating income during the six months ended June 30, 2006.

Note 15 - 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 was zero.

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.

26

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

 

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 shares			Redemption 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 June 30, 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, June 30, 2007		1,000,000		$	1,950,000

As of August 9, 2007, we received notification from MatlinPatterson stating that they won’t exercise the put option on this stock and therefore this stock will be reclassified into the equity section in the third quarter of 2007.

Note 16 - 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. The stock was valued at the market price at the date of the agreement..

On March 1, 2007, as discussed in Note 15, 176,665 shares of redeemable stock were reclassified from liabilities to common stock upon expiration of the redemption feature.

27

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)
   

Note 17 - 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 $266,509 and$157,178 for the six months ended June 30, 2007 and 2006, respectively. Total pension expense incurred amounted to $205,805 And $95,517 for the three months ended June 30, 2007 and 2006, respectively.

Note 18 - 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 six months ended June 30, 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.

Note 19 - Business combinations

Acquisitions of 30% Minority Interest of Daqiuzhuang Metal

As previously described in Note 1, on May 18, 2007, General Steel entered into a Purchase Agreement with Victory New Holdings to acquire the remaining 30% interest in Daqiuzhuang Metal. General Steel agreed to issue Victory New an aggregate of 3,092,899 shares of the Company’s Series A Preferred Stock which have a voting power of 30% of the combined voting power of the Company’s common and preferred stocks for the entire life of the Company. As a result of the acquisition, the Company has increased its equity interest in Daqiuzhuang Metal from 70% to 100%.

28

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Victory New Holdings is a newly formed entity under the control of the Company’s Chairman, CEO and majority shareholder Yu Zuo Sheng (aka Henry Yu). Victory New was legally owned by Mrs. Yang, Baoyin, Mr. Yu’s mother. Therefore, General Steel and Victory New were under common control. According to FASB Statement No. 141, "Business Combinations", acquisition of minority interest from entities under common control should be accounted for using the purchase method. The Company engaged a third party to determine the fair value of 3,092,899 shares of the Company’s Series A Preferred Stock, which was $8,374,000. The premium over book value of $2,188,203 was accounted for as dividend distribution to Victory New.

The Company is in the process of obtaining a fairness opinion on these related party transactions.

Joint venture agreement with Baotou Steel

As Mentioned in Note 1, on April 27, 2007, Daqiuzhuang Metal, a wholly 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 “Amended agreement”), amending the Joint Venture Agreement entered into on September 28, 2005 (“Original Joint Venture Agreement”). The Amended agreement has increased Daqiuzhuang Metal's ownership interest in the Joint Venture from 20% to 80%.

The Amended agreement states that the initial capital of the joint venture company will be approximately $6,400,000, equal to the registered capital. Baotou Steel will contribute RMB 10,000,000, or approximately $1,270,000 and Daqiuzhuang Metal will contribute RMB 40,000,000, or approximately $5,130,000. Daqiuzhuang Metal and Baotou Steel each have contributed 30% of their portion of the registered capital to commence the business. This joint venture company obtained the business license onMay 25, 2007. Operations began in the third quarter of 2007.

The joint venture company’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture Company Limited, a limited liability company formed under the laws of the People's Republic of China.. Baotou Steel Pipe Joint Venture is located at Kundulun District, Baotou City, Inner Mongolia, China. It produces and sells seamless and welded steel pipes.

The ownership will be comprised of the following:

	% Ownership
Baotou Iron and Steel (Group) Co., Ltd.		20%
Daqiuzhuang Metal Sheet Co., Ltd		80%

Shaanxi Long Men Iron and Steel Co., Ltd Joint venture

As described in Note 1, on June 15, 2007, General Steel Holdings Inc. and Shaanxi Long Men Iron and Steel (Group) Co., Ltd. (“Long Men Group”) signed the agreement to form Shaanxi Long Men Iron and Steel Co., Ltd. (“Long Men Joint Venture”).

29

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Long Men Group will contribute its operating facility and corresponding debt with an appraised net asset value of RMB 200 million. General Steel Holdings Inc. will contribute RMB 300 million to the Long Men Joint Venture through its subsidiaries which are Daqiuzhuang Metal and Qiu Steel Investment. Daqiuzhuang Metal and Qiu Steel Investment will each contribute RMB200,000,000 and RMB140,000,000 in cash, each holding 32% and 28% respectively of the Long Men Joint Venture and 60% collectively. Long Men Group will own 40% of the Long Men Joint Venture and General Steel Holdings Inc. through its subsidiaries will own approximately 60% of the Long Men Joint Venture. The Long Men Joint Venture obtained the business license on June 22, 2007.

Assets acquired and debts assumed of the transaction are listed as below:

			Assumed by
Item	Fair Value		Long Men Joint Venture
Current assets	$	317,744,960	$	98,530,222
Property, plant, and equipment		186,915,879		164,811,374
Intangible assets		20,128,972		19,543,875
Other assets		99,604,841
Total assets		624,394,652		282,885,471
Current liability		473,168,746		223,776,221
Long term liability		38,246,111		32,809,250
Total liabilities		511,414,857		256,585,471
Net assets	$	112,979,795	$	26,300,000

30

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

Pro Forma

The following unaudited pro forma condensed income statements for six months ended June 30, 2007 and year ended December 31, 2006 were prepared under Generally Accepted Accounting Principles and as if the Long Men Joint Venture transactions had occurred on January 1, 2006. The pro forma information may not be indicative of the results that actually would have occurred if the acquisition had been in effect from and on the dates indicated or which may be obtained in the future.

Pro Forma Condensed Income Statements

	For the six months		For the year
	ended		ended
	June 30, 2007		December 31, 2006
	(in Million $)		(in million $)
Sales	$	636.3	$	815.8
Cost of sales		587.4		775.5
Gross Profit		48.9		40.3
SG&A expenses		15.3		14.9
Other expense		14.9		5.6
Income before income tax and minority interest		18.7		19.8
Income tax		2.8		2.7
Net income before minority interest		15.9		17.1
Minority interest		5.9		6.9
Net income	$	10.0	$	10.2

Note 20 - Commitment and contingencies

The Company is obligated to contribute RMB40,000,000, or approximately $5,130,000 as registered capital of Baotou Steel Pipe Joint Venture. The Company has already made a capital contribution of approximately $1,560,000 as of June 30, 2007, and the rest of the required registered capital will be invested within a year. The remainder of the investment will come from the operating cash flow from Daqiuzhuang Metal.

Daqiuzhuang Metal provides dormitory facilities for its employees under a 10 year rental contract. The agreement began January 2006 and required full prepayment for the 10 year period totaling $466,200. Total rental expenses for the six months ended June 30, 2007 and 2006 amounted to $22,348 and $22,432 respectively. Total rental expensed for the three months ended June 30, 2007 and 2006 amounted to $10,737and $11,247, respectively.

31

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(UNAUDITED)

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 six months ended June 30, 2007 and 2006 amounted to $10,464 and $10,053, respectively.

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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.

Company Overview

General Steel Holdings, Inc. (“General Steel”), headquartered in Beijing China, operates a diverse portfolio of Chinese steel companies. Our companies serve various industries and produce a variety of steel products: reinforced bars (rebar), hot-rolled carbon and silicon sheets and spiral weld pipes. Our aggregate production capacity of steel products is 3 million tons, of which the majority is rebar. Individual industry segments have unique demand drivers, such as rural income, infrastructure construction and energy consumption. Domestic economic conditions are an overall driver for all our products.

Our vision is to become one of the largest non-government owned steel companies in China. 

33

Our mission is to acquire Chinese steel companies and increase their profitability and efficiencies with the infusion of applied western management practices, advanced production technologies and capital resources. 

Our strategy is to grow through aggressive mergers, joint ventures and acquisitions targeting state-owned enterprise steel companies and selected entities with outstanding potential. In the second quarter, we executed this strategy and consummated controlling interest positions in two joint ventures. We are actively pursuing a plan to acquire additional assets.

We presently have controlling interest in three steel subsidiary companies:

· Shaanxi Long Men Iron and Steel Co., Ltd. (Long Men Joint Venture); 

· Tianjian Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal);

· Baotou Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd. (Baotou Steel Pipe Joint Venture).

  

Steel Operating Companies

· Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”)

34

Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”), started its operation in 1988. Daqiuzhuang Metal’s core business is the manufacturing of high quality hot-rolled carbon and silicon steel sheets which are mainly used in the production of small agricultural vehicles and other specialty markets. In the niche market for metal sheets used in small agricultural vehicles, Daqiuzhuang Metal currently maintains an approximate 50% market share.

Daqiuzhuang Metal 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, of which 150,000 tons has been added since mid-March 2006. Products are sold through a nation-wide network of 35 distributors and 3 regional sales offices.

Daqiuzhuang Metal uses a traditional rolling mill production sequence, such as heating, rolling, cutting, annealing, and flattening to process cut coil segments 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. Products sell under the registered “Qiu Steel” brand name.

On May 22, 2007, we filed a current report on Form 8-K announcing we agreed to acquire from Victory New Holdings, Ltd., a British Virgin Islands Company (“Victory New”), the remaining 30% outstanding shares of Daqiuzhuang Metals. The mother of Henry Yu, our Chairman and CEO, is the sole shareholder of Victory New. For the acquisition, we agreed to issue an aggregate of 3,092,899 shares of Series A Preferred Stock at $0.001 par value.

· Baotou Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd. (“Baotou Steel Pipe Joint Venture”)

On April 27, 2007, Daqiuzhuang Metal 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 has increased Daqiuzhuang Metal's ownership interest in the Joint Venture to 80%. The joint venture company’s name is Baotou Steel - General Steel Special Steel Pipe Joint Venture Company Limited (referred to as Baotou Steel Pipe Joint Venture). Baotou Steel will initially contribute RMB 10,000,000, or approximately US$1,270,000 taking 20% ownership interest in the Baotou Steel Pipe Joint Venture. Daqiuzhuang Metal will initially contribute RMB 40,000,000, or approximately US$5,130,000 taking 80% ownership interest in the Baotou Steel Pipe Joint Venture.

We have invested $1.56 million cash into this joint venture and the rest of the required register capital will be invested within a year. The remainder of the investment will come from the operating cash flow from Daqiuzhuang Metal.

Baotou Steel Pipe Joint Venturereceived its business license approval on May 25, 2007. It has four production lines capable of producing 100,000 tons or double spiral-weld pipes. These pipes are used in the energy sector to transport natural gas, oil and steam. Pipes produced at the mill have a diameter ranging from 219-1240 mm; a wall thickness ranging from 6 - 13 mm; and a length ranging from 6 - 12 m. Final production capacity at the mill will reach 600,000 tons in 2009. Additional products may also be added. Presently, Baotou Steel Pipe Joint Venture sells its products using an internal sales force to customers in Inner Mongolia and the Northwest region of China.

35

During the quarter, this joint venture only did test runs. Commencing the third quarter, Baotou Steel Pipe Joint Venture should be fully in operation and is expected to have a positive impact on our company.

· Shaanxi Long Men Iron and Steel Co., Ltd. (“Long Men Joint Venture”) 

On June 15, 2007, through our two subsidiaries, Daqiuzhuang Metal, and Tianjin Qiu Steel Investment Co., Ltd., we entered into a joint venture agreement with Shaanxi Longmen Iron & Steel Group Co., Ltd. (“Long Steel Group”) to form Shaanxi Long Men Iron and Steel Co., Ltd. (“Long Men Joint Venture”). Through our two subsidiaries, we invested approximately $39 million cash and collectively hold approximately 60% of the new joint venture.

Long Steel Group, located in Hancheng city, Shaanxi province, in China’s central region, was founded in 1958 and incorporated in 2002. In 2006, its reported sales revenue was $7.4 billion RMB million ($900 million). It is the largest steel company in the province. It has a total annual production capacity of 3 million tons of finished steel products, 3 million tons of billet, 3 million tons of pig iron and 2.2 million tons of coke. Last year, the Chinese National Statistics Bureau ranked it among the top 50 steel companies in China in terms of output.

Long Steel Group operates as a fully-integrated steel production facility, which means it is capable of taking iron ore and other raw materials, processing them into crude steel and then processing the crude steel into finished steel products. Fewer than 100 steel companies in China have this fully-integrated steel production capacity.

Our joint venture, Long Men Joint Venture, assumes existing operating units of the Long Steel Group. The Long Steel Group contributed most of its working assets to the joint venture. Key units of the joint venture include:

· Shaanxi Longmen Iron and Steel Group Co., Ltd., (“Base Steel Operations”): Includes 8 blast furnaces (total volume 1749 cubic meters), 4 converters (total load 150 tons) and 1 continuous casting mill;

· Shaanxi Longmen Iron and Steel Group Co., Ltd., Xi’an Rolling Mill: Annual capacity is 700,000 tons of rebar - includes 1 semi-continuous mill line;

· Shaanxi Longmen Iron and Steel Group Co., Ltd., Mulonggou Mining Co.: An iron-ore mine with 150,000 tons annual capacity;

· Shaanxi Longmen Iron and Steel Group Co., Ltd., Changlong Transportation Co: A comprehensive transportation company combining railroad transportation, loading and discharging, maintenance as well as finished oil products and components - daily throughput capacity exceeds 5000 tons;

36

· Shaanxi Longmen Iron and Steel Group Co., Ltd., Hancheng Yulong Hotel: A three-star rated, 125 room hotel and recreation complex catering to the construction and steel support industries;

· Shaanxi Yuxin Commercial Trading Co., Ltd.; and

· Shaanxi Yuteng Commercial Trading Co., Ltd.

Long Men Joint Venture employs 4,000 full-time and 2,000 part-time workers.

The annual capacity at Long Men Joint Venture is 2.5 million tons of crude steel. It is the largest steel producer in Shaanxi province. Last year, Long Steel Group recorded a shipment volume of 2.2 million tons of finished product, of which 94% was reinforced bar steel (rebar - a commodity grade steel used in construction to reinforce concrete), with the remainder being roundbar, wire rod and related products. These products are primarily used in building and infrastructure construction.

Long Men Joint Venture’s products are categorized within the steel industry as “longs” (referencing their shape). They are generally considered regional products because their size, weight and dimension make them ill-suited for cost-effective long-haul ground transportation. By our estimates, the provincial market demand for rebar is 6 - 8 million tons. Slightly more than half of the province demand radiates from Xi’an, the province capital, located 180 km from the joint venture main site. We estimate in Xi’an we have a 72% market share.

An established regional network of 27 agents and 2 sales offices sell the joint venture’s products. Agents account for approximately 66% of sales. All products sell under the registered brand name of “Yulong” which enjoys strong regional recognition and awareness. Rebar and billet products carry ISO 9001 and 9002 certification and many other products have won national quality awards. Products produced at the facility have been used in the construction of the Yangtze River Three Gorges Dam, Xi’an International Airport, the Xi Han, Xi Tong and Xi Da provincial expressways, and are currently being used in the construction of the Xi’an city subway system.

Operating Results

We have three steel operating companies: Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (“Daqiuzhuang Metal”), Baotou Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd., (“Baotou Steel Pipe Joint Venture”), and Shaanxi Long Men Iron and Steel Co., Ltd. (“Long Men Joint Venture”).

As Baotou Steel Pipe Joint Venture is a new start-up and its operation mainly started in the third quarter, we have not included the financial results from Baotou Steel Pipe Joint Venture in this analysis. We will begin including them in our analysis starting in the third quarter of this year.

37

Additionally, Long Men Joint Venture started its operations in June 2007. Its financial results for the month of June only are consolidated into our financial statements.

Sales Revenue and Gross Profit

Three months ended June 30, 2007 compared with three months ended June 30, 2006

Overall, net sales for the three months ended June 30, 2007 were approximately $121.3 million compared to $29.4 million in the same period of 2006, an increase of 312%.

At Daqiuzhuang Metal, shipments for the three months ended June 30, 2007 climbed 47% to 97,381 tons from 66,359 tons in the same period last year. 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 through our increased 150,000 ton production capacity, 16 new distributors, 3 new sales offices and other strategic operating investments made in 2006. Average selling price per ton including sale of scrap for the three months ended June 30, 2007 increased to $447 from $443 in the same period of 2006. The increase in sales price mainly resulted from the overall steel market rebound.

At our new Long Men Joint Venture, shipments for the one month recorded in the three month period ended June 30, 2007 were 207,573 tons. The average selling price per ton was $375. Long Men Joint Venture accounted for $77.7 million in sales during the month of June. Since June was a transitional period, we believe revenues will increase in coming months at Long Men Joint Venture.

The following table displays sales and steel shipment data for General Steel by operating unit for the three months ended 2007 and 2006.

		2nd Quarter 2007				2nd Quarter 2006
Operating Unit		Shipment Volume		Sales Amount		Shipment Volume		Sales Amount
		(in Tons)				(in Tons)
Daqiuzhuang Metal			97,381	$	43,516,921		66,359	$	29,398,358
Long Men Joint Venture	*		207,573		77,737,823		-		-
Totals			304,954	$	121,254,744		66,359	$	29,398,358

* Sales and shipment data from Long Men Joint Venture are for the month of June only. Data reflects 100% of the Long Men Joint Venture. General Steel, through its subsidiaries, owns 60% of the Long Men Joint Venture. The minority interest is removed after profits.

Overall, gross profit for the three months ended June 30, 2007 was approximately $8.11 million, an increase of 410% or $6.52 million from $1.59 million for the same period last year. Gross profit margin increased to 6.69% from 5.41% for the three month periods ended June 30, 2007 and 2006, respectively.

At Daqiuzhuang Metal, gross profit margin went down from 5.41% to 2.26% mainly due to increase in raw materials price. In view of this, we have adjusted our production mix in the third quarter to produce more silicon steel sheets which have a higher selling price and higher gross margin than our carbon steel sheets.

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At our new Long Men Joint Venture, gross profit was $7.13 million and gross profit margin was 9.17% for the one month recorded in the second quarter. Geographic location gives our Long Men Joint Venture a unique competitive advantage over its competitors. Long Men Joint Venture is the largest integrated steel company in Shaanxi Province and the only steel company within a 250km radius. It uses iron ore and coke purchased regionally as primary raw materials to produce pig iron, crude steel and finished steel products. Its fully-integrated production ability and regionally sourced raw materials are key factors contributing to the high gross profit margin.

Long Men Joint Venture made $7.13 million in the month of June 2007. If June is an average month, Long Men Joint Venture would make $85.5 million for a 12 month period. Since we own 60% of the joint venture, based on these calculations, it would contribute $51.3 million in gross profit.

This is not to be taken as a projection. Rather it is an explanation of the current situation, so investors can judge the potential impact.

The following table displays gross profit and gross margin data for General Steel by operating unit for the three months ended 2007 and 2006.

		2nd Quarter 2007					2nd Quarter 2006
Operating Unit		Gross Profit		Gross Margin			Gross Profit		Gross Margin
Daqiuzhuang Metal		$	984,263		2.26	%	$	1,590,399		5.41	%
Long Men Joint Venture	**		7,129,105		9.17	%		-
Totals		$	8,113,368		6.69	%	$	1,590,399		5.41	%

** Gross profit and gross margin data reflect 100% of operations from Long Men Joint Venture for the month of June only. General Steel, through its subsidiaries, owns 60% of the Long Men Joint Venture. Minority interest is removed after profits.

Six months ended June 30, 2007 compared with Six months ended June 30, 2006

Overall, net sales for the six months ended June 30, 2007 were approximately $158.9 million compared to $50 million in the same period of 2006, an increase of 217%.

At Daqiuzhuang Metal, shipments for the six months ended June 30, 2007 climbed 54% to 185,167 tons from 119,906 tons in the same period last year due to increase in production capacity, productivity and market development. Average selling price per ton including sale of scrap for the six months ended June 30, 2007 increased to $438 from $417 in the same period of 2006. The increase in sales price mainly resulted from the overall steel market rebound.

At our new Long Men Joint Venture, shipments represented in the six month period ended June 30, 2007 were 207,573 tons. Average selling price per ton was $375.

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The following table displays sales and steel shipment data for General Steel by operating unit for the six months ended 2007 and 2006.

		H1 2007				H1 2006
Operating Unit		Shipment Volume		Sales Amount		Shipment Volume		Sales Amount
		(in Tons)				(in Tons)
Daqiuzhuang Metal			185,167	$	81,124,892		119,906	$	50,040,860
Long Men Joint Venture	*		207,573		77,737,823		-		-
Totals			392,740	$	158,862,715		119,906	$	50,040,860

* Sales and shipment data from Long Men Joint Venture are for the month of June only. Data reflects 100% of the Long Men Joint Venture. General Steel, through its subsidiaries, owns 60% of the Long Men Joint Venture. The minority interest is removed after profits.

Gross profit for the six months ended June 30, 2007 was approximately $9.85 million, an increase of 233% or $6.89 million from $2.96 million for the same period last year. Gross profit margin increased to 6.20% from 5.91% for the six months ended June 30, 2007 and 2006.

The following table displays gross profit and gross margin data for General Steel by operating unit for the six months ended 2007 and 2006.

		H1 2007					H1 2006
Operating Unit		Gross Profit		Gross Margin			Gross Profit		Gross Margin
Daqiuzhuang Metal		$	2,717,268		3.35	%	$	2,958,697		5.91	%
Long Men Joint Venture	**		7,129,105		9.17	%		-
Totals		$	9,846,373		6.20	%	$	2,958,697		5.91	%

** Gross profit and gross margin data reflect 100% of operations from Long Men Joint Venture for the month of June only. General Steel, through its subsidiaries, owns 60% of the Long Men Joint Venture. Minority interest is removed after profits.

Cost of Sales

Three months ended June 30, 2007 compared with three months ended June 30, 2006

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 $113.1 million for the three months ended June 30, 2007 from $27.8 million for the same period of 2006.

At Daqiuzhuang Metal, average cost per ton was $437 and $419, respectively for the three months ended June 30, 2007 and 2006. Cost of sales went up mainly due to the price increase in iron ore which is a raw material in the steel strip coil we buy for processing.

At our new Long Men Joint Venture, average cost per ton during the one month recorded in the period was $340.

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The following table displays cost of sales and steel shipment data for General Steel by operating unit for the three months ended 2007 and 2006.

		2nd Quarter 2007				2nd Quarter 2006
Operating Unit		Shipment Volume		Sales		Shipment Volume		Sales
		(in Tons)				(in Tons)
Daqiuzhuang Metal			97,381	$	42,532,658		66,359	$	27,807,959
Long Men Joint Venture	***		207,573		70,608,718		-		-
Totals			304,954	$	113,141,376		66,359	$	27,807,959

*** Cost of sales and shipment volume data reflect 100% of operations of Long Men Joint Venture for the month of June only. General Steel, through its subsidiaries, owns 60% of the Long Men Joint Venture.

Six months ended June 30, 2007 compared with Six months ended June 30, 2006

Overall cost of sales increased to $149 million for the six months ended June 30, 2007 from $47.1 million for the same period of 2006.

At Daqiuzhuang Metal, average cost per ton was $423 and $393, respectively for the six months ended June 30, 2007 and 2006. Cost of sales went up mainly due to the price increase in raw materials.

At our new Long Men Joint Venture, average cost per ton during the one month recorded in the period was $340.

The following table displays cost of sales and steel shipment data for General Steel by operating unit for the six months ended 2007 and 2006.

		H1 2007				H1 2006
Operating Unit		Shipment Volume		Cost of Sales		Shipment Volume		Cost of Sales
		(in Tons)				(in Tons)
Daqiuzhuang Metal			185,167	$	78,407,624		119,906	$	47,082,163
Long Men Joint Venture	***		207,573		70,608,718		-		-
Totals			392,740	$	149,016,342		119,906	$	47,082,163

*** Cost of sales and shipment volume data reflect 100% of operations of Long Men Joint Venture for the month of June only. General Steel, through its subsidiaries, owns 60% of the Long Men Joint Venture.

Selling, General and Administrative Expenses

Three months ended June 30, 2007 compared with three months ended June 30, 2006

Selling, general and administrative expenses, such as executive compensation, office expenses, legal and accounting charges, travel charges, and various taxes were $2.84 million for the three months ended June 30, 2007, compared to $0.81 million for the same period of 2006. This increase is due to additional SG&A expense at the new Long Men Joint Venture which is about $1.76 million. As a point of reference, Long Men Joint Venture employs approximately 4,000 full-time employees. Another large component of the increase came from the legal and accounting and other professional expenses for the public listed company mainly associated with our newly added joint ventures.

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Six months ended June 30, 2007 compared with Six months ended June 30, 2006

Selling, general and administrative expenses were $3.47 million for the six months ended June 30, 2007, compared to $1.55 million for the same period of 2006. This increase is because our new Long Men Joint Venture added $1.76 million to SG&A expense in June.

Other income (expense)

Three months ended June 30, 2007 compared with three months ended June 30, 2006

Other income (expense) for the three months ended June 30, 2007 consisted mainly of finance charges, interest income and other non-operating income (expense). Interest expense was $1.76 million for the three months ended June 30, 2007, compared to $0.68 million for the same period in 2006. This increase is attributable the $48.6 million outstanding bank loans at Long Men Joint Venture as of June 30, 2007. Total outstanding short term loans increased to $113.8 million from $31.4 million as of June 30, 2007 and 2006, respectively.

Six months ended June 30, 2007 compared with Six months ended June 30, 2006

Interest expense was $2.40 million for the six months ended June 30, 2007, a 96% increase compared to $1.22 million for the same period in 2006 due to increase in short term loans.

Net income

Three months ended June 30, 2007 compared with three months ended June 30, 2006

Overall, net income was $1.9 million for the three months ended June 30, 2007 compared to $86,598 for the same period of 2006, a 2,086% increase. These results reflect a full three month operating period for one of our subsidiaries and partial quarter results from our other two subsidiaries. We anticipate that next quarter will reflect a full three month operating period for all our subsidiaries.

Long Men Joint Venture made $1.71 million in the month of June. As we have noted, June was a start-up transitional period. We expect stronger sales and earnings from the Long Men Joint Venture in the coming quarter.

Six months ended June 30, 2007 compared with Six months ended June 30, 2006

Net income was $2.37 million for the six months ended June 30, 2007 compared to $0.34 million for the same period of 2006, a 599% increase.

Earnings per share

Earnings per share was $0.060 and $0.075 for the three and six months ended June 30, 2007. Earnings per share are calculated as follows:

	Three Months Ended				Six Months Ended
	June 30, 2007		June 30, 2006		June 30, 2007		June 30, 2006
Net income	$	1,893,299	$	86,598		2,368,166	$	339,003
Weighted-average of
common stock o/s		31,444,665		31,250,000		31,444,665		31,250,000
Earnings per share	$	0.060	$	0.003		0.075	$	0.011

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Income taxes

The Company did not carry on any business and did not maintain any branch office in the United States during the six months ended June 30, 2007 and 2006. Therefore, no provision for withholding or U.S. federal income taxes or tax benefits on the undistributed earnings and/or losses of the Company has been made.

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

Our new Long Men Joint Venture is located in the mid-west region of China. It qualifies for the Go-West tax rebate of 15% tax rate promulgated by the government. We are currently applying for this special tax treatment. Until the application is approved, 33% income tax rate will apply at Long Men Joint Venture.

For the three months ended June 30, 2007, we had a tax expense of $1.2 million. For the six months ended June 30, 2007, we had a tax expense of $1.33 million.

Minority interest

Minority interest represents Long Steel Group’s 40% interest in Long Men Joint Venture.

Accounts Receivable

Accounts receivable were $20.7 million as of June 30, 2007 compared to $17.1 million on December 31, 2006.

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 June 30, 2007, we reserved $140,662 for bad debt allowance based on our reasonable estimate.

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Our new Long Men Joint Venture didn’t obtain the VAT invoices from the local tax bureau until late July. All the sales and purchases made by the joint venture were carried out through our joint venture partner, Long Steel Group. The sales proceeds collected by Long Steel Group will be paid back to the joint venture in the third quarter.

Long Men Joint Venture

On June 15, 2007, General Steel Holdings Inc. and Shaanxi Long Men Iron and Steel (Group) Co., Ltd. (referred to as Long Steel Group) signed the agreement to form Shaanxi Long Men Iron and Steel Co., Ltd. (referred to as Long Men Joint Venture). Long Men Group will contribute its operating facility and corresponding debt with an appraised net asset value of RMB 200 million. General Steel Holdings Inc. will contribute RMB 300 million to the Long Men Joint Venture through its subsidiaries which are Daqiuzhuang Metal and Tianjin Qiu Steel Investment Co., Ltd. (referred to as Qiu Steel Investment). Long Steel Group will own 40% of the Long Men Joint Venture and General Steel Holdings Inc. through its subsidiaries will own approximately 60% of the Long Men Joint Venture. The Long Men Joint Venture obtained the business license on June 22, 2007 and according to the agreement between two parties, General Steel will start to consolidate the financial result since June 1, 2007.

Assets acquired and debts assumed of the transaction are listed as below:

Item	Long Steel Balance Sheet May 31, 2007 Fair Value		Assumed by Long Men Joint Venture
Current assets	$	317,744,960	$	98,530,222
Property, plant, and equipment		186,915,879		164,811,374
Intangible assets		20,128,972		19,543,875
Other assets		99,604,841
Total assets		624,394,652		282,885,471
Current liability		473,168,746		223,776,221
Long term liability		38,246,111		32,809,250
Total liabilities		511,414,857		256,585,471
Net assets	$	112,979,795	$	26,300,000

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Pro Forma

The following unaudited pro forma condensed income statement for six months ended June 30, 2007 and the year ended December 31, 2006 was prepared under Generally Accepted Accounting Principles and as if the Long Men Joint Venture had occurred on January 1, 2006. The pro forma information may not be indicative of the results that actually would have occurred if the acquisition had been in effect from and on the dates indicated or which may be obtained in the future.

	Six months ended		Year ended
	June 30, 2007		December 31, 2006
Sales	$	636.3	$	815.8
Cost of sales		587.4		775.5
Gross Profit		48.9		40.3
SG&A expenses		15.3		14.9
Other		14.9		5.6
Operating income from income tax		18.7		19.8
Income tax		2.8		2.7
Net income before minority interest		15.9		17.1
Minority interest		5.9		6.9
Net income	$	10.0	$	10.2

(US Dollars, in millions)

Liquidity and capital resources

Due to the strong market demand for our products and our new addition of Long Men Joint Venture, 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 though they are renewable with the banks every year. Cash balance amounted to $44.3 million and $6.8 million as of June 30, 2007 and December 31, 2006, respectively.

Operating activities

Net cash provided by operating activities for the six months ended June 30, 2007 was $10.7 million compared to $6.4 million used in the same period of 2006. This change was mainly due to the combination of the following factors.

Our net income for the six months ended June 30, 2007 was $2.4 million, an increase of $2.1 million compared to $0.3 million in the same period of 2006. Accounts receivable increased by $0.5 million compared to the beginning of the year. Our new Long Men Joint Venture didn’t obtain the VAT invoices from the local tax bureau until late July. All the sales and purchases made by the joint venture were carried out through our joint venture partner, Long Steel Group. All the sales proceeds and purchase cost were carried on a net basis payable to Long Steel Group until the VAT invoices were received in July.

Accounts payable, other payables, accrued liabilities, customer deposits and tax payable went up by $31.5 million compared to the beginning of the year. The increase in these accounts helped the company generate positive cash flows from operating activities.

Investing activities

Net cash provided by investing activities was $3.04 million for the six months ended June 30, 2007 compared to $3.6 million used in the same period of 2006. This increase in cash provided by investing activities mainly resulted from a $6.2 million debt from Yangpu Shengtong Investment to Tianjin Qiu Steel Investment’s former shareholders which is a related party.

Financing activities

Net cash provided by financing activities was $22.3 million for the six months ended June 30, 2007 compared to $3.7 million in the same period of 2006. This increase was mainly to the increase in bank borrowings. Short term loans increased from $30.3 million to $113.8 million and notes payable increased from $8.2 million to $43.4 million since the beginning of the year. Due to the raw materials purchases and other investment needs, our notes payable increased from $8.2 million to $43.4 million for the first half of 2007. Restricted cash associated with these notes also went up by $9.31 million.

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Compliance with environmental laws and regulations

Long Men Joint Venture:

Since 2002, our joint venture partner, Long Steel Group has invested RMB 580 million (approximate $76 million) in a series of comprehensive projects to reduce its waste emissions of coal gas, water, and solid waste. In 2005 it received ISO 14001 certification for its overall environmental management system. Long Steel Group has received several awards from the Shaanxi provincial government for its increasing effort in environmental protection.

Long Steel Group has spent more than RMB 33 million (approximate $4.3 million) on a comprehensive waste water recycling and water treatment system. The new 2,000m³/h treatment capacity system was implemented at the end of 2005. As a result, in 2006, new water consumption per ton of steel produced dropped by 77% to 1.09 ton.

Long Steel Group has built one 10,000m³ coke-oven gas tank and one 50,000m³ blast furnace coal gas tank to collect the residual coal gas produced from its own facility and that of surrounding enterprises. Long Steel Group also built a thermal power plant with two 25 KW dynamos that uses the residual coal gas from the blast furnaces and converters as fuel to generate power.

Long Steel Group also has built several plants to further process solid waste generated from the steel making process into useful products such as construction materials, concrete blocks, porcelain tiles, curb tops, ornamental tiles, etc. The plants are capable of processing 400,000 tons of solid waste and generate revenue of more than RMB20 million (approximately $2.6 million) each year.

Daqiuzhuang Metal:

Based on the equipment, technologies and measures adopted, Daqiuzhuang Metal is not considered a high-pollution factory in China. The production process does not need much water and produces only a minimal amount of chemical waste. Daqiuzhuang Metal uses 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 to be reduced. In order to meet these requirements, we invested $94,190 to remodel our industrial water recycling system to reduce new water consumption and industrial water discharge.

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

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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 Pronouncements

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 2007 annual production capacity of 1.8 million tons, a $1 change in the annual average price would change annual pre-tax profits by approximately $1.8 million.

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.

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Foreign Currency Exchange Rate Risk

General Steel’s operating units, Daqiuzhuang Metal and Long Men Joint Venture are both 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 $0.4 million charge to income for the six months ended June 30, 2007.

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;

· System and product performance;

· Reliability and timeliness of delivery;

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· 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 five major competitors of similar size, production capability and product line in the market place:

· At Daqiuzhuang Metal: Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan Fengrun Metal Sheet Plant.

· At Long Men Joint Venture: Shanxi Haixin Iron and Steel Co., Ltd. and Gansu Jiuquan Iron and Steel Co., Ltd.

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 six months of 2007, approximately 37% 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 iron ore, 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.

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

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

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

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

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

We depend on acquiring companies to fulfill our growth plan

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

We depend on bank financing for our working capital needs.

We have various financing facilities amounting to approximately US$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.

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Risks Related to Operating Our Business in China

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

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

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

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

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

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

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

Inflation in China could negatively affect our profitability and growth.

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

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

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

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

Our business is subject to political and economic uncertainties in China and may be adversely affected by its political, economic and social developments. Over the past several years, the Chinese Government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese Government may not continue to pursue these policies or may alter them to our detriment from time to time. Conducting our business might become more difficult or costly due to changes in policies, laws and regulations, or in their interpretation or the 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.

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

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

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

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

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

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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

The Company has filed a definitive information statement on Schedule 14C on June 25, 2007 and distributed such an Information Statement to its public stockholders in connection with the amendment to the Company’s Certificate of Incorporation to increase of the number of authorized common stock thereunder and to create the preferred stock of the Company.

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: August 20, 2007	By:	/s/ Zuo Sheng Yu
		Zuo Sheng Yu
		Chief Executive Officer and Chairman

Date: August 20, 2007	By:	/s/ John Chen
		John Chen
		Director and Chief Financial Officer

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